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generations
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tomorrow
Annual Report 2020
Contents
Strategic Report
IFC The quick read
1 Highlights
12 Chairman’s statement
17 Our response to COVID-19
20 Chief Executive Officer’s statement
and Q&A
30 Our markets
34 Our strategy
39 Key performance indicators
42 Business model
44 Platform Transformation Programme
46 Responsible business
60 Financial review
70 Risk review
78 Viability statement and going concern
Governance Report
81 Chairman’s introduction
to corporate governance
82 Governance at a glance
83 Our leadership and governance structure
84 Board of Directors
88 Quilter leadership
90 The work of the Board in 2020
90 Section 172 (1) statement
99 Governance in action
102 Board Corporate Governance and
Nominations Committee report
108 Board Audit Committee report
116 Board Risk Committee report
119 Board Technology and Operations
Committee report
122 Board Remuneration Committee report
128 Directors’ Remuneration Policy
133 Annual Report on Remuneration
148 Our approach to governance
152 Directors’ Report
Financial statements
157 Statement of Directors’ responsibilities
158 Independent auditors’ report
167 Primary financial statements
172 Notes to the financial statements
250 Appendices
256 Parent Company financial statements
Other information
267 Shareholder information
270 Alternative Performance Measures
274 Glossary
Business highlights
Quilter delivered robust results for 2020,
reflecting solid financial performance,
strategic progress and operational
improvement, despite global disruption.
Strategic highlights
– Migrations of clients and advisers
onto new UK Platform completed
in early 2021.
– Largely completed integration of advice
acquisitions and reorganised advice
business around customers.
– Announced strategic alignment of
Quilter Cheviot and Quilter Private
Client Advisers.
– Initiated strategic review of Quilter
International.
– Continued capital management
discipline: £196 million returned to
shareholders via share buyback and
Odd-lot Offer.
Operational highlights
– Maintained high levels of client
engagement and operational resilience
despite global lockdowns.
– Implemented technology upgrades
and system enhancements, remotely.
– Optimisation initiatives on track to deliver
c.£50 million cost savings by end-2021.
Financial performance highlights
Assets under management and
administration (“AuMA”)*
Net client cash flow ((cid:522)NCCF(cid:523))*
£117.8bn
£1.6bn
2020
2019
£117.8bn
£110.4bn
2020
2019
£0.3bn
£1.6bn
Ad(cid:77)usted profit before tax*
Adjusted diluted earnings per share*
£168m
2020
2019
£168m
182m
8.5p
2020
2019
8.5p
8.6p
IFRS profit(cid:18)(loss) after tax from
continuing operations
Recommended total dividend per share
£89m
2020
2019
(£21m)
4.6p
2020
2019
£89m
4.6p
4.0p
5.2p
Continuing operations.
Including contribution from QLA.
All 2019 comparatives presented above exclude Quilter Life Assurance (“QLA”), which was sold
on 31 December 2019.
Alternative Performance Measures (“APMs”)
(cid:58)e assess our financial performance using a variety of measures including APMs, as explained
further on page 270. These measures are indicated with an asterisk: *
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Quilter is a leading
UK-focused full-service
wealth manager, providing
advice-led investment
solutions and investment
platform services to over
900,000 customers
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Quilter | Annual report 2020
1
The quick
read
For a quick, highly-compressed
version of our 2020 Annual Report
read these two pages.
The full report starts on page 2
and the very latest information
about our business is online at
quilter.com(cid:18)investor-relations
Find out more:
– 2020 Results presentation
– Quarterly trading
announcements
– Responsible business insight
– Introduction to Quilter
presentations
Our business
Quilter is a leading UK-focused
full-service wealth manager, providing
advice-led investment solutions and
investment platform services to over
900,000 customers.
Our purpose
Our purpose is to help create
prosperity for the generations
of today and tomorrow.
We strive to do this through
supporting long-term advice-based
relationships, delivering good investment
management performance while
maintaining consistently high-quality
customer service.
Our strategy
Quilter has been on a multi-year
transformation to become the modern,
UK-focused wealth manager it is today.
Our strategy is focused on delivering
good customer outcomes through
whatever channel clients choose
to access our services, growing our
business segments, and improving
efficiency to make Quilter the best
version of itself it can be.
Our strategy
Page 34
How we operate
The business is comprised of
two segments: Advice and Wealth
Management and Wealth Platforms.
1. Advice and Wealth Management
encompasses the financial planning
businesses, Quilter Financial Planning,
Quilter Private Client Advisers and
Quilter Financial Advisers; the
discretionary fund management
business, Quilter Cheviot; and Quilter
Investors, the multi-asset investment
solutions business.
2. Wealth Platforms includes Quilter
Investment Platform and Quilter
International.
Our business model
Page 42
Our customer offer
Quilter aims to be the best place to
obtain trusted financial advice in the UK.
(cid:58)e offer customers trusted financial
advice and quality-assured investment
choice, through an open and transparent
model, with competitive pricing at every
part of the value chain. We are
committed to operating and investing
responsibly, for the long-term benefit
of all our stakeholders.
Our approach to
responsible business
and our stakeholders
We are committed to operating
responsibly for the long-term benefit
of our stakeholders. Our approach to
responsible business focuses on the
Environmental, Social and Governance
(ESG) issues which are most material to
our stakeholders, and which affect our
ability to create long-term financial and
non-financial value.
Read more:
Responsible business
Page 46
Our stakeholders
Page 90
Our investment
proposition
Quilter offers investors a unique
combination of capabilities covering
the wealth value chain, with scale and
leading positions in a growing market,
and momentum for future growth.
1. Full-service wealth manager providing
choice and delivering good customer
outcomes.
2. Leading positions across one of the
world’s largest wealth markets, with
strong structural growth drivers.
3. Multi-channel proposition and
investment performance driving
integrated flows and long-term
customer and adviser relationships.
4. Attractive top-line growth and the
opportunity for operating leverage.
5. Strong balance sheet with low gearing
and good cash generation to drive
shareholder returns.
Our markets
Page 30
We have a
clear purpose
and ambition
2
Quilter | Annual report 2020
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We deliver our ambition by:
Being customer focused
Offering choice and flexibility
Being open and transparent
Acting and investing responsibly
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Quilter | Annual report 2020
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At Quilter, we believe in the value
of advice and are focused on bringing
advice-led wealth solutions to clients
through the most appropriate channel.
Our advisers tailor their advice to each
client’s requirements and risk appetite,
and we use their feedback to design
investment solutions which meet
their needs.
Throughout the COVID-19 global pandemic, our priority has
been to ensure the safety and welfare of our colleagues, to
continue to provide the highest levels of service, to support
and guide customers through market volatility, and to deliver
for our broader community and our shareholders.
To read more about how we focused on supporting
our stakeholders through the COVID-19 global
pandemic, turn to ‘Our response to COVID-19’ on page 17.
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Quilter | Annual report 2020
We are
customer
focused
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Quilter | Annual report 2020
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We offer
choice and
flexibility
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Quilter | Annual report 2020
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Choice and flexibility are at the heart of
Quilter’s offering to clients. Customers
have choice in how they access us, and
they can use as many parts of our
offering as they prefer. ‘Choice’ is
also key to our investment solutions
proposition as we provide our advisers
and their clients with quality-assured
choice rather than unlimited choice.
To read more about how we offer clients choice
and flexibility, turn to ‘(cid:37)usiness model’ on page 42.
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Quilter | Annual report 2020
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We describe our business model
as ‘omni-channel’ as customers may
seek our services through whichever
channel they choose. As part of our
unbundled approach, customers
will only ever pay us for the services
they take from us. Our pricing is
competitive across each part of the
value chain, and we do not have
hidden charges.
Our Platform is the second largest adviser-focused
investment platform in the UK. It is available to clients
of both Quilter’s advisers and to independent financial
advisers. Early 2021 saw the culmination of a significant
multi-year project to complete the upgrade of our
platform onto new technology.
To read more about our Platform Transformation
Programme, turn to page 44.
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Quilter | Annual report 2020
We are
open and
transparent
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Quilter | Annual report 2020
9
We act
and invest
responsibly
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Quilter | Annual report 2020
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We are committed to operating
responsibly, for the long-term benefit of
all our stakeholders. Our approach has
been shaped by the ESG issues which
matter most to our stakeholders and is
set out in our Shared Prosperity Plan.
One of the plan’s three pillars focuses on
investing responsibly. We are committed
to integrating responsible investment
principles across all areas of the
business, from financial advice, to
investment and wealth management,
and investment platforms.
Further detail on how we operate responsibly is
available in our Responsible Business review on page 46.
Quilter | Annual report 2020
11
Chairman’s
statement
Glyn Jones
Chairman
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Quilter | Annual report 2020
2020 was a year
of strong progress
for Quilter, which
demonstrated the
resilience of our
business model and
balance sheet in
challenging times.
Introduction
2020 has been a year unlike any other.
Not since the 1918 Spanish flu has the world
experienced a global health pandemic on the
scale of CO(cid:57)ID-19. The resulting lockdown
measures and restrictions on travel and social
activity have led to a global economic
downturn of a scale not seen since the 1929
Great Depression. The developed world’s
response to the crisis has involved
unparalleled monetary and fiscal stimulus
both in terms of the amount and speed of the
response. Equity markets experienced one of
the sharpest bear markets on record followed
by an extraordinary rally based on the
economic stimulus measures and expectation
of effective vaccines and their global roll-out.
These events presented a severe shock and
unprecedented challenges across the world.
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The immediate challenges for Quilter from
these events were threefold(cid:29)
1. To protect the health and wellbeing of our
staff as they shifted to working from home.
2. To ensure continuity of service to advisers
and end customers notwithstanding the
move to home working and thereby
maintain operational resilience.
3. To protect the financial health of the
business faced with uncertainty as to the
longevity of events and how much worse
things could get.
In various parts of this Annual Report,
we comment in some detail on how we
responded to each of these challenges. I want
to provide my own perspective and overview.
Our executive team did an excellent (cid:77)ob in
rapidly rolling out the technology to facilitate
home working and to modify our processes
and controls. This included increased
digitalisation and heightened data and cyber
security controls. These changes allowed us
to meet our second challenge – providing
continuity of customer service and operational
resilience throughout our business. Across
Quilter our staff have done a magnificent
(cid:77)ob to adapt to the new environment. (cid:58)e
recognised early on that for many staff home
working would be difficult and potentially
stressful. Strong support services were put
in place to assist.
Quilter | Annual report 2020
13
Chairman’s statement
continued
In reference to the financial health of the
business – we were focused on our balance
sheet strength and on our capacity to
generate cash and profits. (cid:58)e had
implemented prudent capital and cash
policies at Listing, and our strengths in both
areas served us well going into the crisis. Our
cash resources were further strengthened as
we received the proceeds of the sale of Quilter
Life Assurance at the end of 2019. As a wealth
manager, long-term customer relationships
are at the heart of our business model. This
gives rise to annuity income which helped
underpin our profitability despite the impact
of market volatility and the downturn in
investor sentiment to invest new monies.
Actions to curtail costs and cut back on
discretionary spend, including not undertaking
a number of small potential acquisitions, have
further helped defend profitability and cash
resources. Overall, while our profitability for
2020 is down on 2019 and the plans we had
at the beginning of the year, it is nevertheless
a very respectable outcome in the
circumstances. Our financial strength has
allowed us to continue to pay dividends and
to return the proceeds of the Quilter Life
Assurance sale in a phased share buyback
programme. I also note Quilter has not
furloughed any staff or received any UK
Government assistance.
At the same time as addressing the above
wholly unexpected challenges, I am pleased
to note that we continued to execute on many
key change pro(cid:77)ects. The highest profile of
these pro(cid:77)ects was our Platform
Transformation Pro(cid:77)ect ((cid:522)PTP(cid:523)). This pro(cid:77)ect
completed successfully in February 2021
with the final migration. More details on the
implementation of this pro(cid:77)ect are featured
later in this report.
Quilter International
In December 2020, we announced the (cid:37)oard
had begun a strategic review of the Isle of
Man-based Quilter International business.
The strategic options range from a decision to
retain the business through to a disposal. This
review has made considerable progress but is
ongoing. (cid:58)e continue to note that if a disposal
were to be decided upon, there is no certainty
that any potential transaction will be
concluded. The (cid:37)oard expects that it will be
able to update the market on the outcome
of the strategic review in the first half of 2021.
Lighthouse
The (cid:37)oard was very disappointed to receive
customer complaints in respect of (cid:37)ritish Steel
Pension Scheme ((cid:522)(cid:37)SPS(cid:523)) defined benefit
transfers undertaken by Lighthouse prior
to its acquisition by Quilter. In March 2020,
therefore, the (cid:37)oard established a Committee
to review the due diligence process in relation
to the acquisition and in particular why it did
not properly address the risk of potential
unsuitable advice regarding these defined
benefit transfers. An external law firm, Allen
(cid:9) Overy LLP, were commissioned to assist the
Committee by carrying out a detailed review.
Their work has led to changes to strengthen
our acquisition and disposal processes.
Shareholder returns and dividend
In 2020 Quilter delivered a total shareholder
return of (0.9(cid:8)). This is down considerably on
the 42(cid:8) return achieved in 2019 but is wholly
explained by the impact of events in 2020 and
that unlike other developed markets, both the
FTSE-100 and the FTSE-2(cid:24)0 failed to recover
their starting positions at 1 January 2020 by
year end. The return compares well with our
peer group and the UK market with the
FTSE-100 and FTSE-2(cid:24)0 delivering a total
return of (11.(cid:24)(cid:8)) and (4.(cid:25)(cid:8)) respectively.
2020 total shareholder return
2020 full year dividend
-0.9%
4.6p
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Quilter | Annual report 2020
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Read more on our Board
effectiveness review
Page 105
The (cid:101)37(cid:24) million share buyback programme
which we announced with our 2019 Full (cid:60)ear
results continued over the course of the year.
(cid:37)y the end of December 2020, we had spent
(cid:101)1(cid:24)3 million to acquire 118 million shares
at an average price of 129 pence. Our share
buyback programme reduced the shares in
issue by c.(cid:25)(cid:8), providing a 0.2 pence accretive
impact to Quilter’s earnings per share. Further
accretive impacts will be seen in 2021 as we
continue with the share buyback programme.
(cid:58)e also completed the planned Odd-lot
Offer which provided an inexpensive and
convenient way for our retail shareholders
who held fewer than 100 shares to exit their
modest shareholdings. In aggregate, over
200,000 shareholders participated in the
Odd-lot Offer, resulting in our shareholder
register nearly halving in number at a cost
of (cid:101)21 million, representing a purchase price
of 120 pence per share. These shares were
transferred into the Quilter Employee (cid:37)enefit
Trust for use in satisfying future staff share
awards in a non-dilutive manner.
The (cid:37)oard is pleased to recommend a final
dividend of 3.(cid:25) pence for 2020 which, together
with the interim dividend of 1.0 pence per
share paid in September 2020, takes the
proposed full year dividend to 4.(cid:25) pence.
This represents progression up our dividend
pay-out target range. After excluding the
component of the 2019 dividend which was
effectively a return of capital from the Quilter
Life Assurance proceeds, the underlying
dividend increase is 1(cid:24)(cid:8).
The dividend will be paid on 17 May 2021,
sub(cid:77)ect to shareholder approval at our 2021
Annual General Meeting on 13 May 2021, to
shareholders who are on the share register
on 9 April 2021.
Board
Over the course of 2020, we saw some (cid:37)oard
rotation. As previously advised, Cathy Turner
and Suresh Kana stood down from the (cid:37)oard
at the conclusion of the 2020 AGM. (cid:58)e
welcomed Tim (cid:37)reedon to the (cid:37)oard in June
2020. Tim brings a unique blend of experience
and expertise as a former CEO in a FTSE-100
savings and pensions business, and as a
seasoned Non-executive Director in both a
FTSE-100 company and private equity-backed
businesses. He brings a deep understanding
of UK regulated financial services, corporate
governance in UK public companies, effective
(cid:37)oard challenge and support in building a
sustainable business for the long term. (cid:58)e are
delighted to have an individual of Tim’s calibre
and background with extensive knowledge of
the long-term savings industry (cid:77)oin the (cid:37)oard.
Jon Little took on a new role in early 2020
which meant he was unable to continue to
commit the required time to his independent
Non-executive Director role with Quilter.
As a consequence, he stepped down from
the Quilter (cid:37)oard on 30 September 2020. (cid:58)e
thank Jon for all his support since (cid:77)oining the
(cid:37)oard ahead of our Listing. His valued insights
into the wealth management industry were
very informative as we reshaped our business.
(cid:58)e all wish him well in his future endeavours.
I am delighted that Ta(cid:93)im Essani has agreed to
(cid:77)oin the Quilter (cid:37)oard with effect from 9 March
2021. Ta(cid:93)im has a strong background in
strategy, corporate development and mergers
and acquisitions gained with Close (cid:37)rothers,
Santander UK and GE Capital. Ta(cid:93)im’s skills
and experience will add considerably to the
(cid:37)oard’s deliberations.
Following an externally facilitated (cid:37)oard
effectiveness review in 2019, the Senior
Independent Director, Ruth Markland,
conducted a lighter touch review in 2020 to
cover the performance of the (cid:37)oard, individual
(cid:37)oard members and each of its Committees.
The review concluded that the (cid:37)oard and its
Committees continue to be fully effective in
the discharge of their responsibilities but did
identify a small number of areas for
improvement. An action plan to address those
areas of focus was agreed by the (cid:37)oard in
November 2020 and the (cid:37)oard Corporate
Governance and Nominations Committee
is monitoring the delivery of that plan.
Quilter | Annual report 2020
15
Chairman’s statement
continued
Governance and culture
(cid:58)e recognise the importance of a healthy
culture within a business to ensure successful
delivery of strategic ambition. (cid:60)our (cid:37)oard
takes an active role in shaping Quilter’s culture
and is encouraged by our Executive team’s
concerted efforts in 2020 to drive greater
inclusion and diversity across the organisation.
Managing a business responsibly is key to
an organisation’s long-term success and for
Quilter that includes being a responsible
investor. (cid:58)e recognise the role of investors,
along with other parts of the economy, in
supporting the transition to a low carbon
economy – vital for the long-term prosperity
of us all. Quilter is taking a proactive approach
to embedding ESG considerations across the
whole value chain of our business.
Despite the logistical constraints imposed
by CO(cid:57)ID-19, Quilter has continued to
maintain a high level of engagement with
existing and prospective shareholders this
year. Overall engagement in 2020 has been
broadly unchanged on 2019, albeit this year’s
engagement has been almost entirely in a
virtual environment making use of digital
technologies. In early 2020, I met with our
largest shareholders in South Africa, in
person. In January 2021 both our Senior
Independent Director and I hosted virtual
meetings with our largest shareholders
covering topics including corporate
governance and executive remuneration.
Looking ahead
(cid:58)e look forward to 2021 with confidence and
the expectation of a strong global economic
recovery. However, we recognise considerable
external risks remain – particularly new
variants of CO(cid:57)ID-19, the pace of global
vaccination roll-outs, the uncertain path of
global economic recovery, dealing with high
public debt levels, possibly higher inflation,
rising interest rates in due course, and finally
the reaction of equity markets to all these
issues – especially as nearly all global market
indices, with the exception of the UK at the
time of writing, are at all-time highs.
Notwithstanding the unprecedented external
shocks, 2020 was a year of strong progress
for Quilter, and one in which we demonstrated
the resilience of our business model and
balance sheet in challenging times. Our people
have risen to the challenge of new working
arrangements while remaining focused on
achieving good outcomes for our customers.
Our Executive team proved to be agile and
resilient in the face of adversity.
On behalf of the (cid:37)oard, I would like to thank
our management team and all our colleagues
for their effort, focus and commitment to
achieving our goals in what has been a
uniquely challenging year. Thank you also to
our shareholders for your continued support.
Glyn Jones
Chairman
Further insight into how we deliver for
our stakeholders can be found on pages
50 to 59 and in our s172(1) statement
on pages 90 to 96.
Our stakeholders and s172(1) statement
In undertaking its duties in 2020, the (cid:37)oard
and management continued to be mindful
of the need to appropriately balance the
interests and expectations of Quilter’s key
stakeholders. Throughout this report we
describe how stakeholders have been
considered as Quilter strives to achieve its
purpose of helping create prosperity for
the generations of today and tomorrow.
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Quilter | Annual report 2020
Our response to
COVID-19
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How has Quilter
managed through
the global COVID-19
pandemic for all its
stakeholders?
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Quilter | Annual report 2020
17
Our response to COVID-19
continued
Quilter took a multi-dimensional approach
to managing through the CO(cid:57)ID-19 pandemic.
Our initial focus was on ensuring colleagues’
health and safety, maintaining operational
resilience with high levels of client service,
and rising to the challenge of broader social
responsibility. As well as supporting
colleagues, clients and communities, Quilter
remained focused on delivering good
outcomes for shareholders.
Quilter’s response through the pandemic
has been characterised across three
dimensions:
– Focus on the welfare of our colleagues,
advisers, customers and charitable partners,
and continuity of high-quality service(cid:30)
– Continued strategic delivery(cid:30) and
– Financial resilience, focused on cost
reduction and efficiency, and supported
with strong liquidity.
Quilter’s response was overseen by
the Executive Committee and the Crisis
Management Gold Committee, comprised of
key senior executive leaders from across the
business. The (cid:37)oard and (cid:37)oard Committees
met regularly to review CO(cid:57)ID-19-related
responses and the Group’s resource position.
(cid:58)hen the scale of the CO(cid:57)ID-19 pandemic
became apparent, Quilter mobilised at pace
with over 98(cid:8) of colleagues across our UK,
Isle of Man, Ireland, Dubai, Hong Kong and
Singapore offices working from home from
late March 2020. Throughout the lockdowns,
we adopted an active engagement strategy
to ensure colleagues were supported through
these difficult times. (cid:37)usiness contingency
plans were implemented through accelerated
delivery of IT and remote telephony solutions,
allowing Quilter to maintain high client service
levels to support advisers and customers.
Management were also cognisant of broader
social responsibilities given the significant
support measures put in place by the UK
Government, reflecting the unprecedented
situation. This limited some of the cost
measures which Quilter would normally
expect to take in response to equity market
declines reducing revenues. This included
deferring Optimisation-linked redundancies
during the first UK lockdown.
Quilter’s management and the (cid:37)oard regularly
reviewed financial budgets and operating
plans in response to the challenges arising
from CO(cid:57)ID-19 and the uncertain outlook.
(cid:58)ith a robust business model and financial
resource position, low leverage, and as an
active manager of our risk exposures across
the risk universe, we were confident in our
operational and financial resilience, and
remained focused on completing principal
strategic pro(cid:77)ects including the PTP and
Optimisation plans. Quilter also has access
to revolving credit facilities of (cid:101)12(cid:24) million
provided by a syndicate of five banks with a
maturity date of February 202(cid:24). These have
remained undrawn since inception in 2018.
In response to the challenging revenue
environment, management planned to
reduce expenses by c.(cid:101)30 million in 2020,
and achieved a reduction of c.(cid:101)40 million,
through lower variable compensation,
reduced marketing spend and other
short-term initiatives. Despite these tactical
cost savings, we noted in our first quarter
trading statement that management no longer
expected to meet the targeted 27(cid:8) operating
margin for 2020 due to lower market levels
leading to lower AuMA and hence revenues.
Quilter did not furlough any staff nor use
support measures made available to
companies by the UK Government.
The (cid:37)oard reviewed and continued to
recommend the approval for the 2019 final
dividend. The Company also paid a 2020
interim dividend and recommended to
shareholders a final dividend for 2020.
As a significant provider of retirement
solutions to the UK public, Quilter believes
companies who are in a position to do so
should maintain dividends which provide
important income for pension plans.
Read more:
Case studies on capital management
Page 99
Quilter’s financial position
Pages 60 to 69
Quilter’s approach to risk management
Pages 70 to 77
18
Quilter | Annual report 2020
How we supported our stakeholders
Focus on welfare
and continuity
of service
Colleagues
– Moved to 98(cid:8)(cid:14)
work from home
– Expanded staff
health and
wellbeing
programme,
including mental
health wellbeing
Clients and
advisers
– Enabled remote
call centres
– ‘There For (cid:60)ou’
rolled out to
23,000(cid:14) adviser
firms
Communities
Investors
– (cid:101)200k(cid:14) UK
National
Emergencies Trust
donation
Focus on welfare and continuity of service/Strategic delivery
– Deferred
– Ensured business
– Quilter Foundation
– (cid:101)37(cid:24)m share
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Optimisation-
linked
redundancies
during first UK
lockdown
continuity
– Advisers
supported their
clients through
market volatility
Strategic delivery
– Restructured
offices globally to
be compliant with
local COVID-19
regulations
Financial resilience
– Did not take UK
Treasury support
– Quilter Financial
Planning and
Quilter Cheviot
systems upgrade
– Supported greater
digital adoption
to meet client
demands and
improve efficiency
– Adviser financial
support
arrangements
in place
To read more, turn to
our s.172 statement
Pages 90 to 96
continued to
support (cid:60)oung
Carers, with
colleagues
mentoring
remotely
buyback initiated,
final 2019 and
2020 dividends
paid (final
recommended)
and Odd-lot Offer
completed
– Financial Adviser
School remained
open with initial
module made
available online for
free
– Delivered PTP,
with final two
migrations
undertaken during
full UK lockdown
– c.(cid:101)40m tactical
cost savings
achieved in
response to more
challenging
markets
– Improved net
client cash flow
– Robust financial
results
Quilter | Annual report 2020
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Chief Executive
Officer’s statement
2020 was a year
that presented many
challenges but our
people have risen to
them and we have come
through strategically
better positioned.
Paul Feeney
Chief Executive Officer
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Quilter | Annual report 2020
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Execution
2020 will go down as one of the more
demanding years in living memory with an
unprecedented level of personal and business
turmoil across the world. Our hearts go out
to all those whose lives have been forever
blighted by the consequences of CO(cid:57)ID-19,
whether through the passing of loved ones,
financial hardship or having to deal with the
personal challenges and mental health
consequences of isolation during lockdown.
Against this backdrop, I have been nothing but
humbled by the dedication, resilience, passion
and single-minded focus of all my colleagues
across Quilter to deliver against the odds.
They have not only met the expectations
of all our stakeholders but have risen to the
challenge of ensuring that, despite the
unprecedented environment, 2020 was
business-as-normal when it came to delivering
for our customers, executing upon our
strategic plans or (cid:77)ust being there to support
one another.
The four things that characterised Quilter
through the crisis were(cid:29)
– our focus on the welfare of our colleagues,
advisers, customers and charitable partners(cid:30)
– a focus on maintaining continuity of
customer service at a high level and ensuring
operational resilience(cid:30)
– our financial resilience, with an unrelenting
focus on costs and efficiency, coupled with
strong liquidity following the sale of Quilter
Life Assurance(cid:30) and
– our continued strategic delivery including
delivering PTP, implementing our new
General Ledger and adviser payments
system as well as integrating the advice
acquisitions made in 2019.
Related material online
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Jane Goodland, Corporate
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against coronavirus has
put company behaviour
in the spotlight.
I am also pleased that our work has been
recognised across the industry through the
various awards we have won this year. In
particular, being named (cid:522)Company of the (cid:60)ear(cid:523)
in the recent FT Adviser service awards,
retaining Quilter Financial Planning’s spot as
the UK’s number one financial advice firm and
more recently, Quilter Cheviot being awarded
wealth manager of the year in the Professional
Adviser (cid:58)ealth Partnership Awards.
2020 was a year that presented many
challenges but our people have risen to them
and have come through stronger with our
business better positioned. The future has
arrived early, and we have embraced it.
Strategic delivery
There are three strands to our strategic
transformation agenda at Quilter and the
more uncertain environment makes our
focus on execution even more resolute(cid:29)
– we will leverage the transformational
power of our new UK Platform to deliver
faster growth and productivity;
– we will make Quilter a simpler business,
focused on customer to drive even better
customer outcomes; and
– we will optimise our business by
completing the cost reduction plans we
set out in March 2019 to drive operational
leverage.
I am delighted to report that PTP has been
successfully completed with the final migration
occurring (cid:77)ust after year end in February 2021,
during a full UK lockdown. This followed a
successful initial migration of c.8(cid:8) of the total
platform assets in February 2020 which
demonstrated that our platform technology
worked well at scale and proved our ability
to undertake a large migration in a safe and
controlled manner. Our second migration
completed in November 2020, in line with the
revised timeline we set out in response to
changed circumstances arising from CO(cid:57)ID-19.
That migration covered the ma(cid:77)ority (c.70(cid:8))
of total platform assets and c.2,000 adviser
firms. Finally, around (cid:24),000 adviser firms were
involved in the last migration in February 2021.
In a number of instances, firms in this last
migration do not use Quilter as a primary
platform and we anticipate that their
successful transfer onto our market-leading
technology will be a gateway to a stronger
business relationship over time.
Each migration followed the same rigorous
approach(cid:29)
– intense planning and validation of our
readiness plans ahead of migration,
incorporating a number of dry runs and
dress rehearsals(cid:30)
– elevated post-migration customer and
adviser support in the immediate post-
migration period(cid:30) and
– incorporating adviser feedback to drive
system improvements and embedding
lessons learned from each migration into
our planning for the next migration.
Quilter | Annual report 2020
21
Chief Executive Officer’s statement
continued
Successful platform migrations on this scale
are rare and they are rare for a reason given
their complex organisational, logistical and
technological demands. (cid:58)e are pleased
to have not only successfully completed
this programme safely but to also have
embedded the core competencies for a
transformation pro(cid:77)ect of this scale into
our core business skillset.
(cid:58)e are delighted to have reached this
milestone and our unique combination
of flexible product wrappers, sophisticated
management of investment solutions and
range of tools, all built on robust new
technology, delivers an advanced platform
experience for the intermediary community.
(cid:58)e have already received excellent feedback
on day-to-day usability, simplicity of portfolio
management as well as our bespoke reporting
features. Each of these are designed to make
an adviser’s life easier. Our award-winning
technical expertise has supported advisers
to quickly adapt to fully use the Platform’s
capability which, coupled with our
commitment to service, delivers a market
leading offering.
Turning to Quilter Financial Planning, our focus
has been on integrating the acquisitions we
made in 2019. Charles Derby was re-branded
to Quilter Financial Advisers, our mass a(cid:606)uent
National business. The integration of
Lighthouse is largely complete with advisers
adopting the Quilter Financial Planners
proposition, advice standards and technology.
The generation of new client leads through
our affinity relationships has remained strong
despite the inevitable impact of CO(cid:57)ID-19.
I appointed Stephen Ga(cid:93)ard as Chief Executive
Officer of Quilter Financial Planning in June
with a view to repositioning the business
to drive stronger net flows from a more
productive base of advisers. Over the last
five years we have built up a strong, hard
to replicate, advice business focused
on delivering good customer outcomes.
Stephen’s focus is straightforward(cid:29) to take
our existing strong franchise and simplify
it to deliver cost effective, client focused
propositions that deliver good outcomes to
our customers. This makes the next stage of
Quilter Financial Planning’s evolution a very
exciting one. (cid:58)hile this will lead to certain
advisers who are either not fully aligned with
our proposition or who lack sufficient scale
or strategic alignment leaving the business
in 2021, we will have a simpler, higher growth
business delivering quality-assured client
outcomes to an even higher level of
consistency.
In line with these plans to simplify our
business and better align our resources to our
principal customer groupings, we will transfer
Quilter Private Client Advisers into Quilter
Cheviot later this year. Combining these
businesses will allow us to deliver a seamless
proposition encompassing advice and
bespoke investment management. (cid:58)here
desired, this will ensure integrated delivery
of good client outcomes while helping us
maximise the growth potential within our
higher net worth proposition.
I am also pleased to announce that, sub(cid:77)ect to
regulatory approval, Steven Levin will be taking
on an additional role as CEO of Quilter
Investors while maintaining his existing
responsibilities for the Quilter Investment
Platform. As we seek to drive growth and
efficiency across Quilter, we believe it makes
sense to bring these two parts of our
Delivering our strategy – the journey so far
(cid:58)e have been on a multi-year transformation to deliver Quilter as the modern, UK-focused
wealth manager it is today.
2017
Old Mutual
Managed
Separation
announced.
2018
Managed Separation
completed.
Listed on LSE and JSE
as Quilter plc.
Sold Single Strategy asset
management business.
2019
Acquired Charles
Derby Group and
Lighthouse Group
plc.
Sold Quilter
Life Assurance.
2020
– Migrated c.80(cid:8) of UK Platform assets onto new
technology, completing remaining migration in early 2021.
– Largely completed integration of advice acquisitions and
reorganised advice business.
– Continued to broaden Quilter Investors’ product suite.
– Quilter Cheviot’s investment performance remained
strong.
– Initiated strategic review of Quilter International.
22
Quilter | Annual report 2020
Read more about PTP
Page 44
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organisation closer together. I have tasked
Steven with simplifying the client experience
and ensuring a seamless approach to
customer pricing and proposition
development to further drive and deliver
good customer outcomes.
(cid:58)e have also simplified and broadened the
Quilter Investors product range through fund
consolidation and new product launches,
including our new multi-asset income suite
and Cirilium (cid:37)lend proposition. (cid:37)oth of these
new investment propositions have significant
assets under management and are
performing well versus peers.
Our Optimisation programme continues
to progress in line with plan. There are three
strands to Optimisation(cid:29)
– driving closer integration of capabilities
across Quilter(cid:30)
– rationalising technology and discretionary
spend processes(cid:30) and
– driving efficiency as interdependencies
are streamlined.
Our net Optimisation run-rate savings
increased by (cid:101)22 million from the end 2019
level, to total run-rate savings of (cid:101)4(cid:25) million to
date and are ahead of where we expected to
be at this point. (cid:58)hile we delayed some staff
restructuring activities at the outset of the
CO(cid:57)ID-19 situation, good progress on the
overall programme has been maintained.
Notably, we took completion of our new
London property in August and exited all
three of our legacy London sites in 2020.
Although CO(cid:57)ID-19 lockdowns have limited
our ability to make the most of our new
space, I am excited by the opportunities
to collaborate that it will provide once
we are able to return to the office.
I was pleased with
consistent gross
sales of £5.7 billion
onto the Quilter
Investment Platform
in the period.
Operational delivery
Gross sales
Assets under management(cid:18)administration
£10.9bn (11%)
£117.8bn+7%
Delivering good customer outcomes through
a trusted advice relationship is central to the
Quilter business model. The Quilter Investment
Platform is at the heart of our business,
providing the investment ‘wrappers’ and other
functionality to meet both our clients’ and
their advisers’ needs, while our investment
solutions provide the intellectual capability
to deliver the outcomes our clients seek.
Confidence in our proposition is demonstrated
through both the continued attraction of our
solutions to independent financial advisers
and the resilience of our integrated flows.
(cid:58)e experienced substantial improvement
in net flows year-on-year even though gross
client cash flows into the business were
around 11(cid:8) lower at (cid:101)10.9 billion. NCCF
increased to (cid:101)1.(cid:25) billion versus (cid:101)0.3 billion
in 2019. This reflected improved persistency
in client assets across each of Quilter Cheviot,
Quilter International and the Quilter
Investment Platform. Across the Group, overall
levels of client retention improved to 92(cid:8)
versus 88(cid:8) (90(cid:8) excluding the impact of
the specific team departure in Quilter Cheviot)
in 2019. The overall level of Defined (cid:37)enefit
((cid:522)D(cid:37)(cid:523)) to Defined Contribution ((cid:522)DC(cid:523)) flows
were broadly stable on 2019 and we
welcomed the FCA announcement on plans
to reform the D(cid:37) transfer market which will
help promote better, industry-wide, customer
outcomes. I am pleased to note that our
existing approach was already consistent
with the FCA’s announcement.
Overall AuMA increased by c.7(cid:8) over the
course of the year with a closing balance of
(cid:101)117.8 billion at 31 December 2020 compared
with (cid:101)110.4 billion at 31 December 2019.
Average AuMA, the principal driver of net
management fee revenue, of (cid:101)107.9 billion
for the year, was modestly above the 2019
level of (cid:101)10(cid:24).7 billion.
Quilter | Annual report 2020
23
Chief Executive Officer’s statement
continued
I was pleased with the consistent gross sales
of (cid:101)(cid:24).7 billion onto the Quilter Investment
Platform in the period with the increase in
NCCF from (cid:101)0.9 billion in 2019 to (cid:101)1.(cid:24) billion in
2020 while undertaking two ma(cid:77)or client asset
migrations during the year. This consistency
provides a solid foundation from which our
new platform will be able to drive stronger
flows given the wider range of products we
can offer and assets we can hold.
Quilter International experienced modestly
lower gross and net flows versus the prior
year and the (cid:37)oard continues to engage in a
strategic review to consider how best to drive
improved value to our shareholders from this
business. (cid:58)e will update on this in due course.
Over the course of the year, we recruited
137 Restricted Financial Planners, bringing our
total to 1,842 net of departures. Limited net
organic growth was a function of the external
environment coupled with increased focus
on individual adviser productivity. (cid:58)e expect
further departures during 2021 as we
reposition Quilter Financial Planning to drive
better flow momentum while delivering good
customer outcomes. The pipeline of firms
seeking to (cid:77)oin our network remains strong.
(cid:58)e have continued to add to the Quilter
Cheviot investment team and our Investment
Manager headcount increased to 1(cid:25)9 at the
end of 2020 from 1(cid:25)7 in December 2019 and
a low of 1(cid:24)(cid:24) at the end of December 2018.
(cid:58)e expect to continue to selectively add to
our Investment Manager headcount which will
support growth in assets under management
over time.
Our investment propositions continued
to deliver good investment performance
for clients. The medium and long-term
performance at Quilter Cheviot continued
to outperform relevant ARC benchmarks,
remaining mainly first or second quartile,
to the end of December 2020.
Quilter Investors’ multi-asset solutions
performance was also good, with
performance on the biggest range, Cirilium
Active, improving markedly to deliver second
quartile outcome on a one-year view across
all five active portfolios, with its longer-term
performance also strong. (cid:58)ealth Select
continues to perform strongly over one, three
and five years and we broadened access to
this range by adding it to our restricted adviser
panel. Cirilium (cid:37)lend has performed
satisfactorily since launch, remaining mostly
second quartile. A notable milestone was
24
Quilter | Annual report 2020
reached with the Cirilium Passive range
passing through the (cid:101)2 billion AuM mark,
making it Quilter Investors’ third
largest solution.
I was delighted to recruit (cid:37)ambos Hambi as
Chief Investment Officer of Quilter Investors
in November from Aberdeen Standard
Investments ((cid:522)ASI(cid:523)). At ASI, (cid:37)ambos was
Head of Multi-Manager Strategies and led one
of the biggest fund selection teams in the UK.
(cid:37)ambos has a strong reputation for his
down-to-earth, patient long-term investment
approach – he will be a strong cultural fit
with Quilter.
Business performance
I am very satisfied with our ad(cid:77)usted profit
before tax for 2020 of (cid:101)1(cid:25)8 million, down 8(cid:8)
on 2019, given the broader market
environment experienced during the year.
Lower total net fee revenue of (cid:101)(cid:25)82 million
(2019(cid:29) (cid:101)712 million) reflected a decline in
revenue margins as a result of the mix shift
in Quilter Investors and Quilter International,
as well as the planned repricing on the Quilter
Investment Platform. Our overall revenue
out-turn for the year has been better than we
anticipated at the time of our Interim Results
as a result of stronger market levels during the
second half of the year. This, together with our
commitment to cost discipline, has supported
the profit out-turn.
In 2020 we focused strongly on cost
management to protect the overall P(cid:9)L from
volatility in the external environment. A year
ago, ahead of CO(cid:57)ID-19 impacting markets,
we were expecting a 2020 cost out-turn of
around (cid:101)(cid:24)(cid:25)0 million. After the sharp decline
in markets at the end of March, we set a
revised target of (cid:101)(cid:24)30 million with our first
quarter 2020 trading update with the intention
of reducing expenditure by c.(cid:101)30 million.
(cid:58)e outperformed against this target and
delivered tactical reductions in expenditure
of c.(cid:101)40 million versus our plan through lower
variable compensation costs, reduced
marketing and development spend and other
short-term initiatives. As a result, full year
operating expenses came in well below our
revised target with a year-on-year decline of
(cid:101)1(cid:25) million to (cid:101)(cid:24)14 million (2019(cid:29) (cid:101)(cid:24)30 million).
This was achieved despite absorbing a full year
of costs from the Quilter Financial Planning
acquisitions made during 2019, which added
(cid:101)12 million of costs including restructuring
spend, as well as a (cid:101)7 million higher charge for
the 2020 FSCS levy and other regulatory costs.
(cid:58)e also accommodated costs stranded from
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Ad(cid:77)usted profit before tax(cid:13)
Ad(cid:77)usted diluted earnings per share
£168m (8%)
8.5p (1%)
the sale of Quilter Life Assurance, and property
dual-running costs in relation to the new
London premises. Separately, there was a cost
drag of (cid:101)(cid:24) million relative to our expectations
in respect of CO(cid:57)ID-19 related expenses from
support arrangements, costs of additional
equipment required to enable staff to work
from home and the impact of deferring certain
planned redundancies until later in the year.
The decline in our operating margin for the full
year was limited to a percentage point to 2(cid:24)(cid:8)
(2019(cid:29) 2(cid:25)(cid:8), excluding Quilter Life Assurance)
representing a significantly better out-turn
than the 21(cid:8) achieved in the first half of the
year. Given more robust market levels and a
better revenue outlook, the ma(cid:77)ority of the
c.(cid:101)40 million of tactical cost savings achieved
in 2020 are expected to return to the expense
line in 2021. As these savings contributed to
an improvement in the operating margin of
around six percentage points, underlying
year-on-year progress into 2021 should be
considered against a base excluding the
benefit of these essentially one-time savings.
Our IFRS profit after tax from continuing
operations was (cid:101)89 million, compared to a loss
of (cid:101)21 million in 2019. The difference between
this measure and our Ad(cid:77)usted Profit is largely
due to non-cash amortisation of intangible
assets, our (cid:37)usiness Transformation expenses
and changes in the impact that policyholder
tax positions can have on the Group’s results.
(cid:37)usiness Transformation costs will remain in
2021, reflecting the final expenditure on PTP
and further expenses incurred as part of our
Optimisation initiatives.
Ad(cid:77)usted earnings per share of 8.(cid:24) pence
compared with 8.(cid:25) pence from Quilter’s
continuing operations in 2019. On an IFRS
basis, we delivered basic EPS from continuing
operations of (cid:24).1 pence versus a loss of
1.1 pence per share for the comparable period
of 2019 on the same basis. Period-end shares
declined by (cid:25).2(cid:8) or 118.3 million as a result
of our share buyback programme.
Finally, the provision made in respect of
certain D(cid:37) pension transfers for former (cid:37)SPS
members is unchanged since the interim
results. (cid:58)e continue to work and co-operate
with the FCA and the skilled person who has
been appointed in relation to this matter,
and their work is described in more detail
elsewhere in this report. (cid:58)hilst the relevant
advice pre-dated our acquisition of
Lighthouse, we have ensured that Lighthouse
has responded to the situation consistent with
our values.
Culture
Creating an inclusive and diverse culture where
all colleagues feel they can be themselves has
always been a core tenet of our cultural
agenda. As much as this sub(cid:77)ect is important
to all of us at Quilter, events elsewhere in 2020
really laid bare how much still needs to be
done. The death of George Floyd in the US and
subsequent protests in May emphasised the
importance of decisive action and my own
communication on the topic acted as a
catalyst for colleagues opening up and
demonstrated to me that, as an organisation,
we had further work to do. In response, we
created two new pan-Quilter employee
networks for cultural diversity and LG(cid:37)T(cid:14),
to complement our existing gender equality
network. (cid:58)e also launched an enhanced suite
of family-friendly policies, appointed a new
Head of Inclusion and (cid:58)ellbeing, significantly
enhanced our diversity data, implemented a
diverse shortlist requirement for our most
senior management roles and have begun to
speak openly on these issues both internally
and externally. In 2021 we will report our
ethnic diversity data for the first time and
set future targets. I was also pleased with our
progress on the proportion of women in our
senior management, meeting our target of
3(cid:24)(cid:8) by the end of 2020. (cid:58)e have more room
to improve and have reset our target to reach
a minimum of 38(cid:8) by the end of 2023. It is a
priority for us to build on our progress in 2021
and I am confident that we will do so.
(cid:58)e monitor colleague engagement on a
quarterly basis. This is an established process
at Quilter that has been in place since prior to
our Listing. (cid:58)e purposefully stepped up our
communication over the period of lockdown
with my Executive Committee and I sending
weekly updates to colleagues across the
organisation and encouraging feedback to
help foster a greater spirit of involvement.
I am delighted that our regular ‘Peakon’
engagement scores across the organisation
remain at a consistently high level.
Quilter | Annual report 2020
25
(cid:58)e are optimistic that flow momentum
will continue to improve in 2021. (cid:37)oosting
accessibility to our (cid:58)ealth Select range by
including it in our restricted proposition in
Quilter Financial Planning will improve asset
retention and integrated flows. (cid:58)hile this
may have an adverse impact on the revenue
margin in Quilter Investors, these actions
should be accretive to assets under
management and administration which
drive revenue generation.
(cid:58)e remain focused on controlling costs
through both our Optimisation programme
and other management initiatives and expect
the 2021 cost out-turn to be around
(cid:101)(cid:24)(cid:25)0 million, assuming broadly stable
markets. (cid:58)e need to ensure Quilter is fit
for the future and so our Optimisation plans
remain on track to deliver planned savings
of (cid:101)(cid:24)0 million by end 2021. Our work on
Optimisation has also identified additional
cost savings of (cid:101)1(cid:24) million which we intend
to realise by mid-2022. To achieve this, the
Group expects to incur additional (cid:37)usiness
Transformation expense of (cid:101)1(cid:25) million.
2020 has been an intense year with significant
progress on strategic execution coupled with
strong operational performance. Since we
Listed, our focus has been on transformation.
Our focus is now on execution, leveraging the
strengths and capabilities of the modern
integrated wealth manager that we have built.
Now that Quilter is much closer to being the
finished article, I look forward to the business
reaching its full potential in 2021 and beyond.
Paul Feeney
Chief Executive Officer
Chief Executive Officer’s statement
continued
(cid:58)e have a deep commitment to acting and
investing responsibly and in 2020 we made
excellent progress towards embedding
environmental, social and governance ((cid:522)ESG(cid:523))
factors throughout our business. Climate
change is undoubtedly the most significant
challenge the world faces and tackling it
is a responsibility of everyone. In 2020 we
formalised our climate change strategy with
the ob(cid:77)ective to reduce Quilter’s contribution
to climate change and support the transition
to a low carbon economy. To achieve this
ambition, we have developed a framework
which is helping us to reduce our direct
carbon footprint, embed climate
considerations in our investment
management and stewardship activity, offer
clients climate-focused investment solutions
and align with the Task Force on Climate-
related Financial Disclosure. I am pleased
with our progress on incorporating ESG
considerations into our entire value chain. (cid:58)e
are embedding ESG into our standard advice
process to help clients invest according to
their ESG preferences, and we are embedding
ESG even more deeply into our standard
investment management processes, both
within our multi-asset investment solutions
and our discretionary wealth management
business. (cid:58)e celebrated the 10-year
anniversary of our Climate Assets Fund which
has benefited from increasing investor interest
in ESG funds. To provide clients and advisers
with greater transparency, in 2020 we
incorporated ESG ratings for third-party funds
available on our UK platform. Upon this solid
foundation we will enhance our approach to
responsible investment even further in 2021.
Outlook
Markets globally entered 2021 on an optimistic
note and recent CO(cid:57)ID-19 vaccine related news
has been positive, with roll-out plans
progressing well in the UK. Although the full
economic impact of the pandemic is only (cid:77)ust
beginning to be experienced, in terms of
broader social challenges, I am optimistic that
the worst may be behind us. Quilter remains
well positioned in an industry with secular
long-term growth prospects. Completing the
migration of assets onto our new UK platform
in February 2021 was a watershed moment
for the Group, not (cid:77)ust because this has been
a key area of focus internally and externally
over the last five years but, more importantly,
because the new Platform will strengthen the
cohesion between our different UK business
capabilities and will be a catalyst for faster
growth in the future.
26
Quilter | Annual report 2020
Chief Executive Officer’s
Q&A
After a year of
market volatility,
global economic and
social disruption, Chief
Executive Officer
Paul Feeney answers
key questions to explain
why Quilter remains
well positioned to
capture growth.
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Quilter | Annual report 2020
27
Chief Executive Officer’s Q&A
continued
Q.
Q.
You’ve previously talked about
Quilter not being the finished
article – are you there yet?
Now you have completed PTP,
what is the main challenge for
the business?
Paul Feeney
Chief Executive Officer
A.
(cid:58)ith our foundations for growth in place, 2021
will be about two things(cid:29) growth and efficiency.
Our focus is to deliver strong performance
and execution.
Through 2021, we will continue to leverage
opportunities from recent adviser acquisitions
to help satisfy continued strong demand for
financial advice. The Quilter Investment
Platform team is focused on broadening and
deepening relationships with advisers and
their clients in order to drive flows and capture
greater share from our advisers to peers’
platforms. (cid:58)e will continue to broaden our
suite of investment management solutions
to meet client needs, and deliver good
performance and value. Organising ourselves
around customers will mean we can further
develop our customer-focused propositions,
and continue to improve business efficiency.
A.
At the time of our Listing in 2018, I detailed
how Quilter was transforming itself to become
a leading, modern UK-focused wealth
manager – the timeline on page 22
summarises our achievements over the past
two and a half years. (cid:58)e have made excellent
progress. The strategic review of Quilter
International is ongoing and we will update
the market in 2021 once this has concluded.
The final migration of clients and advisers onto
our new UK Platform in early 2021 was the last
item on our original ‘to do’ list. (cid:58)ith PTP
complete, I am delighted our foundations are
now in place to accelerate our growth plans.
I am excited about the opportunities ahead
to drive growth and efficiency.
Q.
How important is your
business culture in delivering
your strategy?
A.
Our culture is hugely important to the delivery
of our strategy. Our purpose binds us, our
values connect us and our culture makes
us who we are. I believe passionately in the
importance of nurturing an inclusive and
diverse culture, where caring for each other
and our community is at the heart of
everything we do.
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Quilter | Annual report 2020
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Read more about
our market
Page 30
Q.
Q.
How has the change in working
practices from the COVID-19
pandemic changed the nature
of the business?
What do you see as the
principal challenges for Quilter
in the years ahead?
A.
The pandemic brought the future forward and
prompted an acceleration of initiatives which
were already underway at Quilter. It expedited
digital adoption right across the organisation
to capture productivity benefits from changed
client behaviours.
I have often said that the future of financial
advice is not one of man versus technology,
of human advice versus robo-advice, rather
a combination of the two(cid:29) integrated, digital
financial advice. 2020 proved that to be true.
All our advisers are now serving their clients
digitally. A survey of advisers in the national
division of Quilter Financial Planning found
88(cid:8) of advisers would continue to include
remote advice when the pandemic is over.
Through the pandemic, we used technology
to deliver solutions such as digital signatures,
with many legacy paper-based processes
re-engineered to allow a greater degree of
automation and client focus. Online customer
registrations on the UK Platform increased
materially versus last year as customers
adapted their engagement preferences. In
Quilter International, over half the interactions
with advisers are now online through (cid:58)ealth
Interactive digital accounts. (cid:58)e look forward
to building on this digital adoption, supporting
efficiency initiatives across Quilter.
A.
The achievement of our transformation
is not the end(cid:29) we must continue to evolve
and anticipate the needs of our clients.
(cid:37)uilding relationships and preparing for
younger generations’ expectations is key
to building a sustainable business legacy.
Investment products which protected our
savings in the past will not do so in the future
– we must continue to build solutions and
propositions which deliver good outcomes to
our customers, in line with their risk appetite
and ESG focus. The CO(cid:57)ID-19 pandemic has
taught us to embrace change and we will
continue to do so, positioning our business
as one-Quilter, to reflect the needs of
our customers.
Q.
Is there anything on the
regulatory horizon for the
industry which concerns you?
A.
The FCA has conducted multiple reviews
of the different aspects of the UK wealth
management industry’s operations in recent
years and found it to be functioning well.
Like the FCA, we have a strong focus on the
delivery of value for customers and believe
our omni-channel, unbundled model has
resilience in delivering value to all our
stakeholders.
Quilter | Annual report 2020
29
Our markets
As a wealth manager serving clients
throughout their lives, Quilter operates
within markets offering secular growth
potential(cid:29) the advice industry, wealth
management, and investment
management. (cid:58)hile participants face
challenges such as constrained supply
of financial advisers, fee pressure,
the cost of regulation and ongoing
regulatory and fiscal changes, there
is scope for differentiated business
models to win market share, such
as those with omni-channel business
models like Quilter.
Macro trends affecting the environment in which we operate
Global health pandemic
Changing demographics
Climate change and
responsible investment
Key trend
The economic and social fallout from the
2020 CO(cid:57)ID-19 pandemic has disrupted
many industries globally. UK wealth
management has not been immune
to the disruption, feeling the affects of
market volatility on client portfolios, and
is likely to be impacted by governments’
monetary and fiscal responses, all of
which drive a strong demand for trusted
financial advice.
The global pandemic brought the future
forward. Changes which we thought
would take years to come to the fore,
such as adviser adoption of digital
technology, client appetite for socially
conscious investments. Investment
platforms which can be accessed 24(cid:18)7
whether through apps, websites or
telephony, are increasingly seen as
business norms. (cid:37)usinesses which
embrace change and evolve to meet
client needs and deliver good customer
outcomes will have long-term
sustainability.
Key trend
The UK population continues to age,
with people living longer. Consequently,
the average age of the population – and
the cost of supporting a larger number
of people in retirement – is increasing.
(cid:58)ith the ‘baby boomer’ generation now
in their (cid:24)0s and (cid:25)0s, a large proportion
of the population is preparing for and(cid:18)or
reaching retirement age in the UK.
This is a strong force behind increasing
demand for financial advice and new
investment solutions.
People turned (cid:25)7 in 2019 vs 20091
People turned (cid:24)(cid:24) in 2019 vs 20091
+35%
+15%
Key trend
The perceptions of a company’s impact
on the environment are changing as
governments, investors and society
encourage businesses to transition
to a low carbon economy.
As a service industry, wealth managers
typically have a comparatively low
carbon footprint. However they have
a responsibility to reduce their own
environmental intensity, and they have
an even more significant role to play
in influencing the responsible resource
consumption of the companies in which
they invest on behalf of their clients.
As clients recognise the influence their
savings and investments can have
on the environment and society more
broadly, there is an increased demand
for responsible investment solutions
and products which offer responsible
investing. ESG will become increasingly
woven into the investment world’s fabric.
Total funds managed in responsible
investment funds 2019-20202
+67%
1 Source(cid:29) ONS UK – England and (cid:58)ales
Population, 2019.
2 Source(cid:29) The Investment Association,
‘2020 – the (cid:60)ear in Review’.
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Quilter | Annual report 2020
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Wealth management-specific trends affecting
the market in which we operate
Digital innovation
Large and growing
wealth market
Fiscal changes and
increase in savings
accessibility driving
complexity
Key trend
Technology is omnipresent in our lives.
(cid:58)ealth Management has been a
relatively late adopter of digital
innovation and is ripe for disruption.
Clients increasingly expect digital access
to their investment portfolios and
seamless multi-channel experiences
throughout the wealth management
(cid:77)ourney. Robo-advice technologies
remain in their infancy with only modest
levels of market adoption. Artificial
intelligence and robotics are also being
incorporated into middle and back-office
functions, bringing opportunities for
improved risk management and
operational efficiency.
Key trend
The UK wealth management market
is the fifth largest in the world3 and is
forecast to grow to over (cid:101)2 trillion in
AuMA by 2024. (cid:58)hile the ‘baby boomer’
generation is a key customer
demographic as they prepare to enter
retirement, intergenerational wealth
transfer will be a support to the
sustainability of the industry. (cid:37)uilding
relationships with younger generations
will be a key for the future.
Key trend
UK Pension Freedom resulted in
increased choice and flexibility for
individuals to manage their long-term
savings. (cid:58)ealth managers now advise
and manage customers’ funds beyond
the accumulation phase, well into the
retirement phase, supporting clients
throughout their savings and investment
life cycle. The disruption caused by
continually changing taxes, allowances
and reforms has created a very complex
path for individuals to navigate, driving
increased need for advice.
UK long-term savings market forecast4
AuMA ((cid:101)tn)
People aged 4(cid:24)-(cid:24)4 feel they understand
enough about pensions to make
decisions about saving for retirement(cid:24)
2024e
2014
£1.2tn
£2.3tn
3 Source(cid:29) Credit Suisse, Global (cid:58)ealth
Databook 2019.
4 Source(cid:29) FCA, Platforum, Pimfa, PAM Directory,
Oliver (cid:58)yman estimates(cid:30) Includes assets managed
by financial advisers, wealth managers and held on
platforms. Does not include occupational pensions
or annuities.
<50%
(cid:24) Source(cid:29) ONS (cid:522)Early indicator estimates from
(cid:58)ealth and Assets Survey(cid:523), published August 2020.
Quilter | Annual report 2020
31
Our markets
continued
Wealth management-specific trends affecting the market in which we operate
(continued)
Strong demand for advice
as cost of delivery increases
Savings and investments
consolidating onto
Platforms
Growth in outcome-based
client-focused investment
solutions
Key trend
Modern wealth managers increasingly
use open architecture wrap platforms
which offer transparent pricing and good
investment choice. It is no longer a
unique selling point to have easy-access
digital services at competitive prices.
Platforms are benchmarked on the
quality of their service, back-office
functionality and their wider technical
support to advisers.
Key trend
The industry has shifted from opaque,
traditional life savings products to more
modern, transparent solutions, aligned
with the client’s risk appetite and
attitude to responsible investment
identified through the advice process.
The investment solutions part of the
value chain is highly competitive in its
pricing, and in a world of lower asset
returns, advisers are looking to find
the best value for their clients.
Key trend
The UK Advice market is limited in its
number of participants and advisers
are increasingly focusing on managing
a smaller but more active customer
base, with higher investable assets.
This has been supported through a shift
in compensation structures, evolving
from commission-based to ongoing
fee-based models.
The regulatory environment is making it
harder for smaller independent financial
advisers to survive as regulatory
oversight increases and professional
indemnity insurance ((cid:522)PII(cid:523)) cost and FSCS
levy increases exceed revenue growth.
(cid:58)hile demand for advice increases, its
supply has become more constrained.
2018-2019 annual increase in PII
premiums paid by financial adviser firms(cid:25)
Compound annual growth in total
UK platform market 2009 to 20197
Percentage of global asset management
AuM in ‘Solutions’
+17%
+21%
2018
2008
14%
9%
(cid:25) Source(cid:29) ONS (cid:522)Early indicator estimates from
7 Source(cid:29) Platforum 2009 total platform AUM vs
(cid:58)ealth and Assets Survey(cid:523), published August 2020.
Fundscape 2019 Q2 total platform AuM.
32
Quilter | Annual report 2020
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How these trends affect Quilter and its operations
The completion of the PTP unlocks the next
stage in Quilter’s development as it provides
the opportunity to capture greater share
of the growing Platform market as well
as improve cohesion between the
Quilter businesses.
Technology has been a key enabler for
Quilter in managing through the CO(cid:57)ID-19-
disrupted environment. The business is
encouraging the use of digital access and
client service solutions to maintain and
enhance client engagement, and
implementing new technologies such
as robotics to make back-office processes
more efficient.
As Quilter continue to evolve, increasingly
working as one Quilter, organised around
the client, we will provide a smoother
customer experience. (cid:58)orking more
efficiency and cohesively will bring benefits
to all stakeholders.
Quilter firmly believes the wealth
management industry can weather short-
term uncertainty with structural growth
opportunities intact. The CO(cid:57)ID-19
pandemic, regulatory changes and other
macro influences may impact the short term,
but we draw confidence from historical data
which demonstrates robust levels of savings
continue through market cycles.
Multi-year industry trends were reaffirmed
by market volatility arising from the CO(cid:57)ID-19
pandemic, and the subsequent potential for
policy changes to pension allowances and
wealth taxes underlines the need for trusted,
face-to-face advice in the UK. The ageing
population will mean there is a large potential
market of individuals who will require advice
for years to come and regulatory changes
such as Pensions Freedom have created the
opportunity to support an individual through
their investment life cycle. For advisers, the
pandemic has highlighted the far-reaching
benefits of being supported by a broad
umbrella of an advice-centric business
such as Quilter.
Quilter’s investment solutions are designed
to deliver good customer outcomes through
the market cycle, and to meet a client’s
risk appetite while being agnostic between
active and passive management styles.
ESG will increasingly be woven into the
investment world fabric and Quilter sees
opportunity to be a leader in responsible
wealth management.
Governance report
Page 80
Quilter | Annual report 2020
33
Our
strategy
34
Quilter | Annual report 2020
As set out at the time of our Listing in 2018,
Quilter has transformed the shape of its
business to become the modern, UK-focused
wealth manager it is today.
Guided by our outlook of the wealth
management industry, our strategy is focused
on achieving good customer outcomes and
growing our business proposition, delivering
these from an efficient operating base and
managed within a prudent risk framework.
Underpinning these priorities is an
understanding that embodying the right
culture will help not only the achievement
of our strategic ob(cid:77)ectives but also in meeting
our commitments to operating in a
responsible manner for the benefit of all
our stakeholders, as set out in our Shared
Prosperity Plan.
Our strategy will enable us to(cid:29)
– become the leading provider of insightful,
trusted financial advice in the UK(cid:30)
– provide outcome-based, responsible
investment solutions, focused on meeting
the real needs of our customers(cid:30)
– offer easy and simple access for clients
– deliver top-line growth and operating
to manage investments on one platform
in an appropriate wrapper(cid:30)
leverage(cid:30) and
– ultimately achieve our purpose of helping
to create prosperity for the generations
of today and tomorrow.
Our four strategic pillars
1.
Delivering on
customer outcomes
2.
Advice and Wealth
Management
growth
3.
Wealth Platforms
growth
4.
Optimisation and
efficiency
Underpinned by
Our culture and commitment to responsible business
Quilter believes that a company’s values must reflect what it stands for as they drive the
achievement of its purpose. Ensuring colleagues embody Quilter’s cultural values of being
pioneering, dependable and stronger together connects the business and shapes behaviour
towards all our stakeholders. Having the right culture will help Quilter achieve its strategy while
delivering sustainable long-term value for all.
Read more about our
responsible business
commitments, strategy
and progress against our
KPIs during the year
Page 46
Strategic pillar 1:
Delivering on customer outcomes
Strategic objective:
Focus on ensuring good customer outcomes
and risk-ad(cid:77)usted investment returns while
delivering quality service to customers.
Developing appropriate investment
propositions and solutions is key to the
delivering of this ob(cid:77)ective.
Related KPIs
– NCCF(cid:18)opening AuMA
– Integrated net flows
Other performance indicators
– Asset retention
– Investment performance
– Levels of upheld complaints
Asset retention
92%
2020 performance
– Ensured business continuity through
CO(cid:57)ID-19 disruption, with advisers
supporting clients through market volatility.
– NCCF as a percentage of opening AuMA
improved one percentage point reflecting
an improvement year-on-year in net flows.
– Integrated net flows continued to
demonstrate the strength of the Quilter
business model, remaining resilient in a
market of lower client flows.
– Quilter Investors’ investment performance
was good, with performance of the largest
range, Cirilium Active, improving markedly
on a one-year view, and (cid:58)ealth Select
continuing to perform strongly.
– Quilter Cheviot continued to deliver good
performance for customers, broadly
delivering out-performance relative to
relevant benchmarks over three, five and
ten-year periods.
– Strong asset retention reflected higher levels
of business continuity and adviser support
through the early months of the CO(cid:57)ID-19
pandemic relative to some peers.
– Complaints received increased year-on-year,
with the increase associated to historic
advice provided by Lighthouse prior to
its acquisition by Quilter. Aside from these,
complaints remained low and levels of
upheld complaints were below the
industry average.
– Quilter won a number of awards through
the year including being named ‘Company
of the (cid:60)ear’ at the 2020 FT Financial Adviser
Service Awards.
Focus for 2021
– Continue to provide trusted, quality
financial advice.
– Provide high-quality solutions which meet
the needs of our customers, at competitive
prices, at every part of the value chain.
– Drive investment performance and deliver
good outcomes for customers.
– Maintain good customer service and
organise business propositions around the
client to improve the customer experience.
– Continue to integrate responsible
investment principles Quilter-wide.
– Continue to uphold the principle of treating
customers fairly, including maintaining
robust processes around complaints and
their appropriate resolution.
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Our strategy
continued
36
Quilter | Annual report 2020
Strategic pillar 2:
Advice and Wealth Management growth
Strategic objective:
Advice
– Grow by adding advisers through
recruitment and acquisitions, and
supporting individual adviser productivity.
– Support the Financial Adviser School intake
and graduates.
– Develop differentiated High Net (cid:58)orth and
Affluent(cid:18)Mass Affluent advice propositions.
Investment management
– (cid:37)uild out Quilter Investors and use adviser
feedback to provide building blocks for
market-leading solutions.
– Add investment managers to support Quilter
Cheviot’s business growth.
Related KPIs
– Integrated net flows
– Number of restricted financial planners
– Number of investment managers
Other performance indicators
– Adviser productivity
New advisers graduated from the Quilter
Financial Adviser School
167
2020 performance
– 2(cid:8) growth in RFPs, with acquisitions
purposefully scaled back as focused on
integrating those acquired in 2019.
– Integrated adviser acquisitions, with focus on
supporting advisers to improve productivity.
– 1(cid:25)7 new advisers graduated from the Quilter
Financial Adviser School – with moving to a
predominantly digital delivery model,
improving access to a more diverse future
generation of financial planners.
– (cid:58)ealth Select products made available to
RFPs as well as IFAs to meet client demand
for managed portfolio solutions.
– Gross flows into Quilter Investors’
broadened product suite increased,
diversifying revenue streams.
– Net addition of two investment managers
to Quilter Cheviot team.
– Gross outflows from Quilter Cheviot
reduced year-on-year as the impact of 2018’s
investment manager departures fell away.
– Announced Private Client Advisers is to be
moved under the organisational
management of Quilter Cheviot in 2021 to
improve cohesion in servicing customers.
Focus for 2021
– Quilter Financial Planning is well positioned
to support clients as market sentiment
improves and subsequently drive NCCF.
– Continue to broaden proposition to larger
customer base, leveraging affinity
relationships and expanded functionality
as a result of new platform.
– Further simplify our advice and investment
management proposition, organising around
customers.
– Continue to build flow momentum into
Quilter Investors’ product suite as advisers
and their clients seek value and good returns
through the market cycle.
– Capitalise on Quilter Cheviot’s larger
investment management team.
– Continue to embed responsible investment
philosophies into the proposition and
explore opportunities to meet clients’
ethical investing needs.
Strategic pillar 3:
Wealth Platforms growth
Strategic objective:
Investment Platform
– Safely deliver PTP with high quality support
for customers and advisers throughout the
migration process.
– Once implemented, realise the benefits of
the more modern platform and its enhanced
proposition for advisers.
International
– Maintain focus of geographic footprint
and ensure high quality and value of
new business.
Related KPIs
– Integrated net flows
Other performance indicators
– Control of costs to deliver PTP
– NCCF from RFPs onto UK Platform
– NCCF from IFAs onto UK Platform
– NCCF into International
Uplift in online account activation during 2020
80%
2020 performance
– Final migration of UK Platform clients
achieved safely and successfully in February
2021, despite migration timeline disruption
as a consequence of CO(cid:57)ID-19.
– Significant increase in usage of the customer
portal and good uptake of new functionality
such as adviser self service from cohorts
migrated in 2020.
– PTP spend to end-December 2020 totalled
(cid:101)174 million. Programme budget revised at
2020 Interim Results from (cid:101)18(cid:24) million to
c.(cid:101)200 million due to dual running costs as
a result of the extended timeline to complete
the programme due to CO(cid:57)ID-19.
– Improved net flows into Quilter Investment
Platform despite market volatility, with
business-as-usual transfers out to
competitor platforms reduced significantly
while transfers in remained steady. Adviser
feedback indicated this reflected Quilter’s
higher level of business continuity and
adviser support.
– Resilient flows within Quilter International.
– Initiated strategic review of Quilter
International.
Focus for 2021
– Leverage improved functionality from new
platform technology to grow market share
with independent advisers and reduce flow
leakage from Quilter RFPs.
– Complete re-brand of the platform to Quilter
Investment Platform.
– Decommission legacy platform and continue
to support colleagues who will be leaving the
Company, through the award-winning ‘Hello
Tomorrow’ programme.
– Continue to evolve responsible investment
functionality for advisers within the platform.
– Conclude and implement strategic review
of Quilter International.
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Quilter | Annual report 2020
37
Our strategy
continued
38
Quilter | Annual report 2020
Strategic pillar 4:
Optimisation and efficiency
Strategic objective:
– Drive operational leverage through
enhanced scale and improved efficiency
in operational processes.
– Target, as disclosed in 2018’s Annual Report,
was for a two-percentage point
improvement in 2020 operating margin and
a further two-percentage point
improvement in 2021.
– Note(cid:29) As a consequence of CO(cid:57)ID-19
induced market volatility and the uncertain
revenue outlook, we moved away from the
2020 target. 2021 target has been revised
to a two-percentage point improvement
on 2020, after ad(cid:77)usting for 2020 tactical
cost savings.
Related KPIs
– Operating margin
– Ad(cid:77)usted profit before tax
Other performance indicators
– Control of costs to deliver the Optimisation
programme
– Employee engagement scores
– Internal surveys monitoring cost awareness
and positive cultural change
Run-rate savings delivered to date
Operating margin
£46m
25%
2020 performance
– Mobilised efficiency initiatives including
delayering and streamlining the business.
– General Ledger(cid:18)procurement system
pro(cid:77)ects progressed to January 2021
implementation.
– Delivered (cid:101)13 million savings in the year
when compared to the original 2018 cost
base, with full year run-rate of (cid:101)22 million
and (cid:101)4(cid:25) million total run-rate across the
programme to date.
– Cognisant of social responsibilities as a
business operating in unprecedented times,
paused planned organisational design
initiatives during the first UK lockdown.
– (cid:101)33 million costs incurred in the year to
deliver the programme, totalling (cid:101)(cid:24)8 million
since Optimisation began.
– In April 2020, confirmed no longer expected
to meet the targeted 27(cid:8) operating margin
for 2020 due to lower market levels leading
to lower AuMA and hence revenues.
However management actions limited
decline in operating margin in 2020 to one
percentage point.
– Reaffirm should markets remain broadly
consistent with market levels, expect to
improve 2021 operating margin by two
percentage points compared with 2020
achievement, after ad(cid:77)usting for one-off
tactical savings in 2020.
Focus for 2021
– Continue strict cost management to deliver
remaining planned efficiencies.
– Seek opportunities for further operational
efficiency and organisational cohesion.
– Complete implementation of new, and
decommissioning of legacy, systems allowing
for further future operational leverage.
– Further reduce stranded costs associated
with the sale of Quilter Life Assurance.
– Complete final re-brand of business to
Quilter to unify the business and provide
a strong foundation from which to grow
market share.
– Continue to support employee engagement
through the transition period.
– Explore opportunities to achieve further
efficiencies following the successful
completion of PTP.
Key performance indicators
Quilter has identified the key
performance indicators (“KPIs”) it
believes are useful in assessing the
Group’s performance against its
strategic priorities. They encompass
both financial and non-financial
measures, as set out below.
Updates to Key Performance
Indicators in 2020
Following a review of the KPIs to ensure
our measurements remain relevant and
appropriate for our strategy, the metric
for the ‘IFRS profit(cid:18)(loss)’ KPI has
changed from ‘IFRS profit before tax
attributable to equity holders’ to ‘IFRS
profit(cid:18)(loss) after tax from continuing
operations’, as this is a key IFRS statutory
measure used to monitor the financial
performance of the business.
Restricted financial
planners (“RFPs”)
Investment
managers (“IMs”)
Definition
Number of advisers licensed to advise
clients across Pension, Investment and
Protection solutions, but only permitted
to recommend products and solutions
from providers on the Quilter Financial
Planning Restricted Panel.
Definition
Number of individuals who provide
investment management services to
clients of Quilter Cheviot in line with
individual circumstances and
investment ob(cid:77)ectives.
Link to strategy
Link to strategy
2
2
Performance in 2020
We achieved net growth of 2% in RFPs
in 2020. Organic growth for the year
was limited as a result of the external
environment coupled with a scaling back
of acquisitions as we focused on fully
integrating those acquired in 2019.
Performance in 2020
We welcomed a net additional two
investment managers in the year.
Growth was lower than anticipated as
hiring new investment managers was
more challenging in the CO(cid:57)ID-19
pandemic environment.
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Outlook for 2021
During 2021, we expect further
departures as we reposition Quilter
Financial Planning to drive better net
flow momentum from a more
productive base of advisers, while
delivering good customer outcomes.
The pipeline of firms seeking to (cid:77)oin
our network remains strong.
Outlook for 2021
Our rebuild strategy to replace the team
which departed in 2018 is complete.
(cid:58)e expect to continue to add to our
investment manager headcount and for
those new hires to contribute to support
growth in AuM over time.
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Restricted financial planners ((cid:523)RFPs(cid:523))
Investment managers (“IMs”)
2020
2019
2018
2017
2016
1,842
1,799
1,621
1,561
1,423
2020
2019
2018
2017
2016
169
167
155
164
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Quilter | Annual report 2020
39
Strategic pillars key:
1. Delivering on customer outcomes.
2. Advice and Wealth Management growth.
3. Wealth Platforms growth.
4. Optimisation and efficiency.
* See page 270 for alternative performance measures.
Our Key Performance Indicators
continued
NCCF/Opening assets
under management/
administration (“AuMA”)*
Integrated net inflows*
Adjusted profit
before tax*
Definition
Total net flows as a percentage of
opening AuMA. This measure evaluates
the level of flows during the period in
relation to the asset base, discretely
from market movements.
Definition
Total NCCF that has flowed through two
or more businesses within Quilter. It is a
lead indicator of revenue generation
driven by the Group’s integrated
business model.
Definition
Represents the underlying operating
profit of the Group. It therefore ad(cid:77)usts
IFRS profits for key ad(cid:77)usting items such
as goodwill impairment and
amortisation of intangibles, business
transformation costs, financing costs on
external borrowings, and policyholder
tax ad(cid:77)ustments, excluding non-core
operations, as detailed in Note 7 in the
financial statements.
Link to strategy
1
Link to strategy
1, 2, 3
Link to strategy
4
Performance in 2020
NCCF(cid:18)opening AuMA increased one
percentage point in 2020, which
reflected the substantial improvement
in net flows year-on-year. Absolute NCCF
increased to £1.6 billion compared to
(cid:101)0.3 billion in 2019. This reflected
improved persistency in client assets
across Quilter Cheviot, Quilter
Investment Platform and Quilter
International.
Outlook for 2021
With the PTP migrations complete and
improving customer sentiment, we
expect to build back towards our (cid:24)(cid:8)
NCCF target over the near term.
Performance in 2020
Integrated net inflows decreased
by 12(cid:8) in 2020 due to the challenging
environment for advisers presented
by the pandemic and the associated
restrictions providing less opportunity
to attract new business.
Performance in 2020
Ad(cid:77)usted profit before tax was down
8(cid:8) from 2019, driven by decreased
revenue across the business partially
offset by lower costs driven by
continued cost discipline.
Outlook for 2021
As we seek to organise ourselves around
our customer, with a simpler advice
proposition underpinned by a high-
quality platform and investment
solutions, we expect to drive greater
market share and subsequently
integrated net inflows.
Outlook for 2021
After an intense year of strategic
progress, 2021 will be a year of
execution, business focus and efficiency
as we accelerate growth momentum
across our businesses while remaining
focused on controlling costs.
NCCF/Opening AuMA
Integrated net flows
Ad(cid:77)usted profit before tax
1%
0%
2020
2019
2018
2017
2016
5%
6%
9%
2020
2019
2018
2017
2016
£2.3bn
£2.6bn
£2.2bn
£4.7bn
£5.2bn
2020
2019
2018
2017
2016
£168m
£182m
£176m
£235m
£233m
£143m
£128m
£209m
£208m
40
Quilter | Annual report 2020
Continuing operations.
Including QLA.
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Operating
margin*
IFRS profit/(loss)
Total shareholder
return (“TSR”)
Definition
Represents ad(cid:77)usted profit before
tax divided by total net fee revenue.
Operating margin is a profitability
measure that reflects the percentage
of total net fee revenue that flows into
ad(cid:77)usted profit before tax.
Definition
IFRS profit after tax from continuing
operations, prepared in accordance with
IFRS. For remuneration purposes, IFRS
profit before tax is ad(cid:77)usted to exclude
amortisation of intangible assets,
policyholder tax ad(cid:77)ustments and other
one-off items (refer to Note 7(c)) and
page 133 of the Remuneration Report.
Definition
The difference between the opening and
closing share price1 over the period, plus
any dividends paid during that period.
1 Performance shown for QLT as traded on the
London Stock Exchange.
Link to strategy
Link to remuneration
Link to remuneration
4
Performance in 2020
The Group’s operating margin declined
as a result of the reduction in revenue due
to the CO(cid:57)ID-19 pandemic’s impact on
financial markets, the decline in revenue
margin with a shift to lower margin
products in Quilter Investors and Quilter
International, and Quilter Investment
Platform’s repricing. Lower revenue was
partially offset by tactical cost savings
during the year and continued savings
from the Optimisation programme.
Outlook for 2021
Optimisation plans remain on track to
deliver planned cost savings and a
year-on-year improvement in operating
margin, after ad(cid:77)usting for the unwind in
2021 of the temporary, CO(cid:57)ID-19-related
tactical cost savings achieved in 2020.
Performance in 2020
IFRS profit after tax from continuing
operations increased primarily due
to the change in policyholder tax and
the tax credit for the year ended
31 December 2020. IFRS profit before
tax, excluding amortisation, policyholder
tax ad(cid:77)ustments and one-off items
decreased in 2020 due to the exclusion
of ad(cid:77)usted profit for QLA, following
its sale on 31 December 2019.
Outlook for 2021
IFRS profit after tax from continuing
operations can vary significantly
year-on-year depending on the
change in policyholder tax. Excluding
policyholder tax, IFRS profit is likely to
increase as spend on Optimisation and
PTP declines with the delivery of the
Optimisation programme and the new
UK platform, respectively.
Performance in 2020
In 2020, capital markets experienced
extreme volatility, with the UK market
impacted by post-election certainty,
diminishing then re-emerging (cid:37)rexit
concerns, and the CO(cid:57)ID-19 pandemic.
Quilter’s TSR for the year was (0.9(cid:8)).
While a reduction on 2019 levels, the
return compared well with peers and
the FTSE-100 and FTSE-2(cid:24)0 indices
which delivered total returns of (11.(cid:24)(cid:8))
and (4.(cid:25)(cid:8)), respectively. Our share
buyback programme impacted the
2020 TSR with the 118 million share
repurchases reducing the shares in issue
and subsequently having a 0.2 pence
accretive impact to Quilter’s earnings
per share. Further accretive impacts
will be seen in 2021 as we continue
with the share buyback programme.
Operating margin
IFRS profit(cid:18)loss
Total shareholder return
2020
2019
2018
2017
2016
25%
26%
26%
29%
30%
24%
29%
25%
32%
2020
2020
2019
2019
2018
2018
£87m
£89m
£(21)m
£66m
2020
2019
2018
2017
2016
(0.9)
(11%)
N/A
N/A
£141m
£131m
42%
Continuing operations.
Including QLA.
IFRS profit before tax (excluding amortisation,
policyholder tax ad(cid:77)ustments and one-off items).
IFRS profit(cid:18)(loss) after tax from continuing
operations.
IFRS profit(cid:18)(loss) and TSR are linked to Executive
Remuneration. For more information, see Directors’
Remuneration Report on page 133.
* See page 270 for alternative performance measures.
Quilter | Annual report 2020
41
Business model
Quilter is an omni-channel full-service
wealth manager, with an open and
unbundled model and client choice at
the heart of the offering. Our business
model supports our advisers and their
clients as their financial requirements
evolve throughout their lives.
Adapting to changing regulation
and the industry’s shifting value chain,
eight years ago Quilter embarked on a
multi-year transformation from a UK and
European life assurer with an ageing
platform to a modern, UK-focused
wealth manager.
Today:
– We are the UK’s second largest advice
firm, offering an multi-channel
approach where clients access our
services either through a Quilter
adviser or an independent adviser.
– We are the second-largest adviser-led
investment platform in the UK,
providing high-quality service and
market-leading functionality and
technical support, at competitive prices.
– Our customer-driven, risk-based,
investment solutions are designed
to deliver good outcomes through
the market cycle, and are agnostic
between active and passive
management styles.
We use our resources:
– Colleagues: Quilter is a people-driven
business – our culture helps us achieve
our purpose while operating in a
responsible manner.
– Technology and expertise: our highly
skilled, passionate colleagues, experts
in the fields of financial planning and
investments, combined with our
technological capabilities provide
high-quality service and strong
customer engagement.
– Risk management and operational
resilience: our risk management,
governance and controls help achieve
good customer outcomes and provide
a strong foundation to continue to
provide high levels of service in
challenging environments.
– Financial resources: we use our
financial resources to invest for growth,
as well as to facilitate inorganic
opportunities, where appropriate.
42
Quilter | Annual report 2020
We combine our resources with
our strengths:
– We make financial advice and
investments more accessible, through
our unique omni-channel model.
– We offer trusted financial advice and
quality-assured investment choice,
where clients only pay for what
they use.
– We act and invest responsibly, guided
by our values of being pioneering,
dependable and stronger together.
– (cid:58)e are trusted experts in what we do.
– We are financially strong and
positioned for growth.
We meet the wealth needs of our client
bases which span the wealth spectrum:
– Advice.
– Platforms and wrappers.
– Investment solutions.
– Discretionary investment
management.
– Portability of offshore investments.
Together, our unique model enables us
to deliver value for all our stakeholders:
– Advisers: helping advisers to manage
and grow their business by providing
a high-quality investment proposition.
– Customers: helping to create secure
financial futures through high-quality
advice, products and service.
– Colleagues: creating an inclusive
workplace that enables colleagues
to thrive.
– Communities: helping improve
financial capability and tackling
wellbeing and employment barriers
in our communities, while reducing the
environmental impact of our business.
– Regulators: delivering on our
regulators’ expectations by providing
financial solutions to customers in
a responsible, risk-managed and
compliant manner.
– Investors: delivering business growth
and generating long-term sustainable
returns through a resilient model.
Read more:
Our culture and values, page 34
Our approach to responsible
business, page 46
Our colleagues, page 52
Our financial review, page 60
Our risk management, page 70
What we do
A typical UK-based customer
approaching Quilter to manage their
wealth needs three things(cid:29) ‘a financial
plan’, a means of holding their assets
safely (‘platform’) in the right tax efficient
wrapper and an investment strategy
aligned with their risk appetite and
investment hori(cid:93)on – ‘solutions’. (cid:58)e
earn revenues from the assets under
our management or administration
as a result of providing advice-led
investment solutions and our platform
to customers across the UK and in
select international markets.
Quilter has a multi-channel access
model, with two core strategies – the
first whereby customers can come to
us through our advisers or secondly
through the open market channel
with their own independent adviser.
When we support a customer to
manage their wealth in more than one
area, and therefore earn more than one
revenue stream, we refer to it as an
‘integrated flow’.
The unbundled, open nature of our
model, offering flexibility to use one,
two or all three components, is a key
competitive advantage, provides
customers and their advisers with
choice at every stage and imposes
external market discipline on
our propositions.
For Quilter, our model provides greater
market breadth, customer and adviser
choice, supporting long-term customer
relationships. Our scale and leading
market positions in each of our business
segments enables us to benefit from
strong structural growth dynamics
and capture an increasing share
of the market.
What we do
Customers
We have a broad customer base,
spanning the breadth of the wealth
spectrum. This provides us with
opportunity to attract a large share
of the market.
High net worth
Affluent and mass affluent
Predominantly clients with more than
£250,000 of investable assets
Predominantly clients with between
£50,000 and £250,000 of investable
assets
Investment approach
Bespoke portfolios
Multi-asset, risk-adjusted solutions
Financial advice
‘Omni-channel’ means a client can come
to us through a Quilter adviser, an
independent adviser, or invest directly.
We earn revenues from the advice
provided by our advisers. A client typically
pays a one-off initial advice fee, then an
ongoing annual advice fee representing
a percentage of their investment.
Platforms and wrappers
Investment platforms are depositaries
for managing and holding investments,
with assets held in collective investment
accounts or appropriate tax efficient
wrappers such as ISAs or pensions. Our
platforms are available to Quilter advisers
and independent advisers, as well as
directly via a dedicated customer portal.
(cid:58)e earn revenues from the assets held.
A client pays a fee on a quarterly basis,
representing a percentage of their
investments under administration.
Investment solutions
Quilter offers a full-breadth of
investment management services,
ranging from bespoke portfolios at
Quilter Cheviot to unitised, risk-based
multi-asset solutions at Quilter Investors.
A client pays an annual management
charge based on their assets under
management.
Quilter
Private Client
Advisers
Third-party
independent
advisers
Quilter
Financial
Planning
Quilter
Financial
Advisers
Third-party
independent
advisers
Quilter RFP gross
flows to
Quilter Cheviot
£0.5bn
Quilter Financial Planning
gross flows to Quilter
Investment Platform
£1.8bn
Quilter Cheviot
Quilter International
Quilter
Investment Platform
Third-party
investment
platforms
AuMA advised by
Quilter RFPs
8%
Total AuM
£25.3bn
Total AuM
£21.8bn
Quilter Investment Platform AuMA
advised by Quilter Financial Planning
16%
Quilter Investment Platform AuMA
managed by Quilter Investors
21%
Total AuM
£62.5bn
Third-party funds
and solutions
Quilter Investors
Quilter Investors AuMA advised
by Quilter RFPs
48%
Quilter Investors AuMA managed
on Quilter Investment Platform
56%
Total AuM
£23.2bn
Quilter | Annual report 2020
43
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Steven Levin
Chief Executive Officer,
Quilter Investment Platform
and Quilter Investors
Platform Transformation
Programme
Moving to our next phase focused on growth
and efficiency
The final migration of clients and advisers
onto our new platform in early 2021 was the
cumulation of a three and a half year project
known as our Platform Transformation
Programme ((cid:522)PTP(cid:523)). The purpose of the
project to replace our UK Platform was to
significantly upgrade its functionality as well
as ensuring its underlying technology was
brought up to modern standards, making
it highly resilient and scalable to support
business growth for the foreseeable future.
The new platform is central to delivering on
Quilter’s growth ambitions. (cid:58)e have taken the
unique attributes of the old platform for which
Quilter is renowned, including adviser tools
and very high service levels, and added
market-leading functionality, a broader
product range and improved ease of use.
With the completion of PTP, Quilter will improve
cohesion between our business areas and
focus on bringing advice-led, wealth solutions
to clients through the most appropriate
channel(cid:29) an omni-channel approach.
PTP is a critical catalyst to enable the
transformation of Quilter into a modern,
advice-led wealth manager. The pro(cid:77)ect has
taken just over three years from signing terms
to implementation, with this undertaken by
teams across Quilter working in collaboration
with our partners at FN(cid:61) and Deloitte. As with
any pro(cid:77)ect of this significance and scale, there
have been a few unexpected challenges to
manage along the way and our focus
throughout has been to deliver the project
in a controlled and measured way to ensure
a safe migration for advisers and our clients
from our old platform to the new.
Our previous platform – one of the
original investment platforms in the UK –
has continued to be well regarded, with
industry-wide recognition and acclaim.
However, it was based on legacy programming
code. (cid:58)hile this continued to meet clients’
needs, it was becoming increasingly difficult
to maintain and lacked the range of products
and investment options which competitor
platforms now offer. (cid:37)uilt on new, modern
technology, the new platform offers a broader
array of products and investment choices
as well as greater IT resilience.
Near-term opportunities linked to the new
platform include:
– Attracting a greater share of platform
business from Quilter RFPs.
– Targeting a wider base of advisers in the
open market IFA channel.
– Accessing a broader market of clients.
– Continuing to broaden the suite of solutions
provided by Quilter Investors available on
the Platform.
– Growing our reach through discretionary
investment management.
Further growth opportunities in the
longer-term will be through providing new
ways for customers to access the digitally-
ready platform, leveraging our new dedicated
customer portal, helping broaden how
advisers can service their clients.
Read more:
Board Technology and Operations
Committee report
Page 119
Assets under administration on new platform
Accounts migrated
£62.5bn
Customers migrated
490k+
600k+
Rows of data processed across the three
migrations
2.5bn+
44
Quilter | Annual report 2020
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Strategic benefits of PTP
Improving cohesion between our business capabilities and providing opportunity to broaden and deepen relationships
with advisers and their clients.
Financial advice
Platforms and wrappers
Investment solutions
Source
Two strong distribution channels
Destination
Open architecture
investment solutions
Customers:
A(cid:606)uent and
mass a(cid:606)uent
Quilter Restricted Financial
Planners (QFP & QFA)
Independent Financial
Advisers
Quilter
Investment
Platform
Switches
Quilter
Investors
Multi-asset
risk-adjusted
solutions
External platforms
Third-party
products/
funds
Customers:
High net
worth
Quilter Restricted Financial
Planners (QPCA)
Quilter International
Independent Financial
Advisers
Quilter Cheviot
Quilter
Cheviot
(cid:37)espoke
portfolios
Commercial benefits of PTP
New and enhanced products and adviser(cid:18)customer management features, market-leading functionality, and ease of use.
Products:
Supporting growth across generations
Functionality:
Market-leading, attractive to broader adviser base
– Junior ISA
– Pension
– ISA
New
– Arrange withdrawals and income online
Enhanced
– Flexi ISA capability
Enhanced
– Flexible income and regular withdrawal dates
– General Investment Account
Enhanced
– Flexible Direct Debit collection dates
– (cid:37)ond
Enhanced
– New adviser management information and reporting suite
Investments:
Opportunity to re-engage with inactive firms
Ease of use:
Single-source potential for Quilter RFPs
– Option to invest in ETFs and Investment Trusts
– Access to cash accounts
New
New
– Online user experience
– Cross browser functionality
– Range of available discretionary investment
Enhanced
– Mobile and tablet optimised
management solutions
New
New
New
New
New
Enhanced
Enhanced
New
– Adviser model portfolio management
Enhanced
– Improved view and control of investments through online
Enhanced
customer centre
Quilter | Annual report 2020
45
Jane Goodland
Group Corporate
Affairs Director
Responsible business
We are guided by our purpose, values and
commitment to act and invest responsibly.
We are here to help the generations of today
and tomorrow to prosper, and so it is
imperative that we consider how our activities
affect long-term investment value for our
customers, colleagues, shareholders and
other stakeholders. This is what we call
‘Shared Prosperity’.
It is this multi-stakeholder mindset that
naturally guided our response to the
pandemic and enabled us to balance the
interests of our customers, colleagues,
advisers and wider society. Within a very short
timeframe the vast majority of our colleagues
were working remotely, including our
customer and adviser call centres, financial
advisers and investment managers. We also
created new and innovative ways to support
advisers and their clients, for example via our
“There for You” online hub we gave access to
a wide array of mental health, wellbeing and
practical resources to help advisers and
clients adjust to new ways of working.
Meanwhile through our charity, The Quilter
Foundation, we were amongst the first donors
to the National Emergencies Trust appeal and
the Disasters Emergency Committee, donating
almost £243,000 to support those most
vulnerable and at risk of the economic and
health impacts of COVID-19.
Aside from our COVID-19 response we also
made progress during the year against the ten
commitments of the Shared Prosperity Plan.
We reached an important milestone towards
our goal of creating an inclusive and diverse
workplace, achieving our target of increasing
female representation in senior management
to 35% – a public pledge we made as a
signatory to the HM Treasury’s Women in
Finance Charter. Our work on inclusion cannot
and will not end there. We have set ourselves
a new target to further increase female
representation in senior management roles
to 38 – 43(cid:8) by end 2023. Like many firms,
the Black Lives Matter movement provided
a much-needed trigger for us to sharpen our
focus on cultural and racial inclusion in our
workplace. One of the first steps we took was
to improve our measurement which has
enabled us to disclose workforce ethnicity
data in this report on page 53.
Another key development during the year
was the formalisation of our climate change
strategy which sets out our approach to
measure, manage and reduce our
contribution to climate change both as a
business and an investor. We began the
process to improve our climate-related
disclosures by putting in place a programme
which will enable us to align with the Financial
Stability Board’s Task Force on Climate-related
Financial Disclosures (“TCFD”) framework by
the end of 2021. We also made good progress
with respect to our commitment to embed
responsible investment principles across
our whole business. In particular we
further embedded ESG factors into our
investment management processes and
made good progress to enhance our financial
advice process.
Looking forward
In 2021 we will continue to focus on the issues
that matter most to our stakeholders. We will
embed our climate change strategy more
deeply and work to understand our impact
in more detail, particularly in regard to our
investments. We will also work towards setting
an emissions target for Quilter. Embedding
and enhancing our responsible investment
capabilities across our entire business will
continue to be a key priority. Across financial
advice, investment management and our
platforms, we understand our responsibility
to help clients and advisers invest in a way that
is aligned with their views on sustainability.
Work to increase gender and ethnic diversity
in senior management is vital as we seek to
create an inclusive and diverse workplace.
Quilter is here for a
reason – to help create
prosperity for the
generations of today
and tomorrow.
46
Quilter | Annual report 2020
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Our responsible business governance framework
Responsible business governance
The Board oversees Quilter’s approach
to responsible business and has
delegated this to the Corporate
Governance and Nominations
Committee chaired by Quilter’s
Chairman, Glyn Jones.
Within the Executive Management team
Quilter Chief Executive Officer, Paul
Feeney, has overall accountability for
ensuring we do business responsibly.
The wider executive management team
also have specific ‘responsible
leadership’ requirements embedded
into their annual objectives.
Paul Feeney and the Executive
Management team are supported by
the Responsible Business Forum, which
is a management group that provides
oversight, direction and challenge with
respect to Quilter’s approach to
responsible business. The Forum, which
is chaired by the Group Corporate Affairs
Director, meets quarterly and comprises
members from each operating business
and key corporate functions.
Quilter Board
Board Corporate Governance and Nominations Committee
Chaired by Glyn Jones, Chairman
Executive Management team
Led by Paul Feeney, Chief Executive Officer
Responsible Business Forum
Led by Jane Goodland, Group Corporate Affairs Director
Responsible business strategy
Launched in 2018, Quilter’s ‘Shared Prosperity Plan’ is our framework for delivering responsible and sustainable growth.
The plan is informed by what matters most to our stakeholders and focuses on three core themes. These themes are
underpinned by ten commitments through which we aim to create long-term value for our stakeholders:
Financial wellbeing
We want to help customers, colleagues
and communities improve their financial
wellbeing, which plays a vital part in our
overall health and happiness.
Inclusive growth
We believe we have a responsibility to
help build a more inclusive economy in
which everyone has equal opportunities
to fulfil their potential and thrive.
To improve financial wellbeing, we are
committed to:
To pursue inclusive growth, we are
committed to:
– Create secure financial futures for our
customers through quality products
and service
– Promote financial wellbeing for our
colleagues
– Improve access to financial advice,
saving, and investing
– Create an inclusive workplace that
enables colleagues to thrive
– Help our communities to thrive
Responsible investment
We invest responsibly to help create
prosperity for the generations of today
and tomorrow, and to provide people
with confidence and choice to invest
for a sustainable future.
As a responsible investor, we are
committed to:
– Embed responsible investment
principles across our business
– Exercise active stewardship of our
customers’ assets
– Empower communities to manage
through employment and wellbeing
– Reduce the environmental intensity
money well for life
of our activities
Operating responsibly
Underpinning our Shared Prosperity Plan, we are committed to operating our business ethically,
lawfully and with integrity at all times.
Quilter | Annual report 2020
47
Responsible business
continued
48
Quilter | Annual report 2020
Updates to the plan in 2020
We did not make any material alterations to
the Shared Prosperity Plan during 2020 as the
themes of financial wellbeing, inclusive growth
and responsible investment all remain
relevant to our business. We reset our target
for women in senior management as we met
our 2020 target.
Shared Prosperity Plan performance
in 2020
(cid:58)e have identified non-financial KPIs to help
assess Quilter’s performance against the
Shared Prosperity Plan commitments.
Progress against these KPIs is shown opposite.
Our plan and the UN Sustainable
Development Goals
The UN Sustainable Development Goals
(“SDGs”), adopted by all United Nations
Member States in 2015, are a universal call
to end poverty, protect the planet and create
sustainable economic growth by 2030.
Our Shared Prosperity Plan
performance in 2020
Themes
Financial wellbeing
Relevant Sustainable Development Goal
Inclusive growth
Through the Shared Prosperity Plan we are
contributing to several of the SDGs:
Relevant Sustainable Development Goal
Responsible investment
Relevant Sustainable Development Goal
Goal 1: Good health and wellbeing
Goal 5: Gender equality
Goal 8: Decent work and economic growth
Goal 10: Reduced inequalities
Goal 12: Responsible consumption
and production
Goal 13: Climate action
How we understand our stakeholders
To help people prosper, we understand that
we have a responsibility to act and invest
responsibly for the long-term benefit of our
customers, colleagues, advisers and society as
a whole. Ultimately, we believe this is the only
way to build a sustainable business that can
deliver superior performance and long-term
value for our shareholders too.
Please refer to page 90 for a detailed
breakdown of who are stakeholders are
and how we engage with them.
Responding to COVID-19
The COVID-19 pandemic has naturally been
an issue of concern for all stakeholders in 2020.
Given its gravity and prominence we have a
dedicated section covering our stakeholder
led response to COVID-19 on page 17.
Our Shared Prosperity Plan
performance in 2020
Our commitments and key performance indicators
1. Create secure financial futures for
2. Promote financial wellbeing
3. Empower communities to manage
customers through quality products
and service
Customer asset retention
for all our colleagues
their money well for life
Percentage of colleagues feeling
confident about money
Number of people benefiting from
financial literacy support
2020
2019
2018
2017
2016
XX,XXX
XX,XXX
92%
88%
91%
N/A
N/A
2020
2019
2018
2017
2016
XX,XXX
XX,XXX
81%
2020
2019
2018
2017
2016
7,811
6,529
XX,XXX
XX,XXX
11,276
4. Improve access to financial advice,
saving and investing
5. Create an inclusive and diverse
culture that enables our people
to thrive
6. Help our communities to thrive
through employment and wellbeing
Number of Restricted Financial
Planners (”RFPs”)
Proportion of women in
senior management roles
2020
2019
2018
2017
2016
XX,XXX
XX,XXX
1,842
1,799
1,621
2020
2019
2018
2017
2016
XX,XXX
XX,XXX
Number of people benefiting from
Quilter Foundation employment
and wellbeing support
35%
32%
33%
2020
2019
2018
2017
2016
1,822
N/A
XX,XXX
XX,XXX
3,685
7. Embed responsible investment
principles across our business
8. Exercise active stewardship
9. Reduce the environmental intensity
of customers’ assets
of our activities
PRI Strategy & Governance rating
‘A’ rating
Number of company meetings
in which we voted
Tonnes of carbon dioxide (”TCO2e”)
per full-time colleague/contractor
2020
2019
2018
2017
2016
171
174
XX,XXX
XX,XXX
348
2020
2019
2018
2017
2016
0.63
0.92
0.83
XX,XXX
XX,XXX
Quilter | Annual report 2020
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Delivering for
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50
Quilter | Annual report 2020
Shared Prosperity Plan commitments
– Create secure financial futures for
customers through quality products
and service.
– Improve access to financial advice,
saving and investing.
– Embed responsible investment
principles across our business.
– Exercise active stewardship
of customers’ assets.
Providing quality products and service
Quilter is committed to helping people create
secure financial futures through quality
products and service. In 2020, overall asset
retention for the Group – a measure of our
ability to delivery good outcomes and retain
customers – increased to 92% (2019: 88%)
driven mainly by improvements in the Quilter
Investment Platform.
For the second consecutive year, Quilter
topped the FTAdviser Top 100 Financial
Adviser rankings. The rankings (cid:77)udge firms
on a number of objective measures including
those which are important to customers such
as adviser qualifications, amount of
experience and staff retention, business
growth and investment outcomes. The
achievement is recognition of our continued
commitment to providing high quality
face-to-face advice.
Quilter Cheviot continued to perform well for
customers, delivering out-performance
relative to their relevant benchmarks over one,
three, five and ten-year periods. Meanwhile,
Quilter Investors’ investment performance
was good, with performance of the largest
range, Cirilium Active, improving markedly on
a one-year view, and Wealth Select continuing
to perform strongly.
Complaints received increased year-on-year,
with the increase associated to historic advice
provided by Lighthouse prior to its acquisition
by Quilter. Aside from these, complaints
remained low and levels of upheld complaints
were below the industry average.
Responsible investment
We are committed to investing responsibly,
to help create prosperity for the generations
of today and tomorrow.
We incorporate environmental, social
and governance considerations across the
business, from the financial advice we give,
to how we manage investments and hold the
companies into which we invest to account for
their actions. For people who want to invest
for a specific sustainable outcome or to avoid
a particular issue, we offer a range of
dedicated responsible investment solutions.
We are a signatory of the UN-backed
Principles for Responsible Investment (“PRI”)
and achieved an ‘A’ rating for our responsible
investment strategy and governance in the
PRI’s 2020 annual assessment.
ESG integration
In 2020 we continued our work to integrate
responsible investment principles as standard
into our advice and investment management
processes, as well as enhancing ESG related
disclosures. Much of our work here has been
brought into sharper focus by the new wave of
ESG regulation driven by the EU’s Sustainable
Finance Action Plan and will come to fruition
in 2021.
Across both of our investment management
businesses – Quilter Cheviot and Quilter
Investors – a significant proportion of the
assets we manage are invested in third-party
funds. Therefore a vital component of our
approach to ESG integration is understanding
how external fund managers incorporate ESG
into their investment process. In 2020, our
fund research team provided enhanced
training for analysts and improved ESG
assessment in the fund manager appointment
and monitoring process.
Stewardship
Where we do invest directly in listed equity
(mainly through our discretionary investment
manager, Quilter Cheviot), we continued and
enhanced our stewardship activity through
proxy voting and pro-active engagement with
company management. In 2020, Quilter
Cheviot voted at 348 company meetings,
double that the previous year. The significant
increase was a result of an expanded voting
universe, extended to include all holdings in
which we hold more than £2 million or 0.2%
of the company.
Exclusions
In 2020 Quilter continued to apply ethical
exclusions to investment portfolios when
instructed by the client. We also maintained
our firm-wide exclusion on controversial
weapons. Where we invest directly, we do not
knowingly invest in securities (equity or debt)
of listed companies involved in the
manufacture, development or trade of
anti-personnel mines or cluster munitions.
Sustainability solutions and reporting
In 2020 we continued to disclose ESG fund
ratings for third-party funds on the Quilter
Investment Platform, helping advisers and
customers to consider the impact of their
investments as part of an informed decision
making process.
For customers seeking a specific sustainable
outcome, Quilter Cheviot’s Climate Assets
Fund offers a way of targeting long-term
capital appreciation by focusing on investment
opportunities arising from the convergence
of global sustainability issues such as climate
change, resource scarcity and population
shifts. In 2020 the Climate Assets Fund
performed strongly and has delivered
superior returns when compared with
its benchmark over three, five and
ten-year periods.
Using our voice to champion and
protect customers
During 2020 we retained our strong focus
on vulnerable customers. In addition to our
comprehensive internal programmes to
ensure customer-facing colleagues are
equipped to support vulnerable customers,
we continued to chair the industry working
group of TISA to raise standards across the
industry. This has involved working with
charities to release a series of help sheets
to support financial firms understand the
difficulties that different vulnerabilities may
create and the development of an online
self-assessment tool which will be available
free of charge to financial services firms.
(cid:58)e also led public calls for the UK Government
to protect our clients and consumers more
widely against the threat of financial scams
online. Our research in 2020 revealed a
110% increase in brand impersonation
and association scams, whereby organised
criminals ‘clone’ the brand of reputable
financial services firms or claim association in
order to sell non-existent investment products
on fake websites and through paid advertising
search engines.
Quilter has called for the UK Government
to include financial harms within its flagship
Online Harms Bill, which would legally
require social media platforms and
search engines to remove scam adverts
immediately upon notification and improve
due diligence processes.
Data privacy and IT security
In the course of our business, customers,
advisers and colleagues trust us with their
personal data which can include sensitive
and(cid:18)or financial information. The collection
and use of personal data is governed by
our Privacy Policy and overseen by a Group
Data Protection Officer ((cid:522)GDPO(cid:523)) with the
support of a formal committee, the Quilter
Privacy Forum.
The Board Technology and Operations
Committee, chaired by independent Non-
executive Director, Moira Kilcoyne, oversees
Quilter’s IT strategy, including our approach to
information and data security. At an executive
management level, the Group Chief Operating
Officer is responsible for IT strategy and is
supported by the Chief Information Security
Officer ((cid:522)CISO(cid:523)) and team, with input also from
the GDPO and Data Guardians embedded in
our operating businesses. All colleagues and
full-time contractors are required to complete
mandatory annual training to ensure they
understand what is required of them with
respect to data privacy and IT security.
Read more in our Board Technology
and Operations Committee report
on page 119.
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Quilter | Annual report 2020
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Responsible business
continued
Delivering for
colleagues
52
Quilter | Annual report 2020
Related Shared Prosperity
Plan commitments
– Promote financial wellbeing
for our colleagues.
– Create an inclusive workplace
that enables colleagues to thrive.
Colleague engagement and development
We seek views from colleagues through
our weekly engagement survey, providing
senior leaders and managers with
meaningful real-time engagement feedback.
The engagement score for 2020 was
7.4 out of 10 (2019: 7.2 out of 10) which
is ahead of the industry benchmark for
colleague engagement.
In 2020 we modernised our learning approach
by introducing ‘Degreed’, an online learning
platform that provides our colleagues with
complete control of their own learning and
development. Over 1,990 colleagues used
the platform in 2020, with 20,317 learning
items completed.
Code of Conduct
Our Code of Conduct sets out the duties and
expectations of all colleagues and includes
acting with integrity and respect, treating
customers fairly, managing conflicts of
interest, good market conduct, information,
data and communications, use of Company
assets, prevention of financial crime and
working with regulators and governments.
Colleagues are required to undertake annual
mandatory training to ensure they fully
understand the requirements of the Code
of Conduct. During 2020, 99% of colleagues
completed this training, up from 96% in 2019.
Whistleblowing and speaking up
In line with our whistleblowing policy,
colleagues are required to report knowledge
or suspicion of malpractice or actions that
endanger Quilter Group’s employees or
assets. The whistleblowing policy provides
employees who raise concerns in good faith
with protection from detriment to their future
employment opportunities Concerns can
be reported to line managers, Risk and
Compliance or via the independent
confidential ethics hotline which is available
year round. All reports are fully investigated
and escalated to senior management and
George Reid, independent Non-executive
Director and designated Group
Whistleblowing Champion.
Colleague mental and financial wellbeing
‘Thrive’ is our colleague wellbeing initiative
which supports our people with their mental,
physical, social and financial wellbeing and
is supported by 120 colleague ‘Thrive
Ambassadors’ internally. We enhanced mental
health support by introducing ‘Spill’, which
provides all employees with access to
mental health resources, tools and online
counselling services.
In 2020 we continued our financial wellbeing
programme which promotes a range of
information, employee benefits and guidance
to support colleagues to feel more confident
about money and pensions.
Remuneration
Our remuneration policy seeks to promote
reward structures that encourage appropriate
behaviour, avoid excessive risk taking, protect
customers and support the creation and
preservation of sustainable value for the
benefit of all relevant stakeholders. All
employees and suppliers providing on site
services in the UK are paid no less than the
real Living Wage (2020: £10.85 per hour for
London and £9.50 per hour outside of
London) calculated annually by the Living
Wage Foundation and is a voluntarily initiative.
The Directors’ Remuneration Policy includes
the alignment of pension arrangements to the
wider workforce, with pension provisions for
Executive Director appointments set at 10%
of base salary.
Creating an inclusive and diverse workplace
We promote equal opportunities and ensure
that no job applicant or colleague is subject to
less favourable treatment on the grounds of
gender, marital status, nationality, ethnicity,
age, sexual orientation, responsibilities for
dependents, or physical or mental disability.
We achieved our target of increasing female
representation in senior management to 35%
by the end of 2020 – a public pledge we made
as a signatory to the HM Treasury’s Women in
Finance Charter. Quilter’s 2020 target was
originally set at 35-40% of the ExCo-1
population. Due to a number of reporting line
changes in January 2020 the ExCo-1
population halved in size. As a result we
changed the target population to our ‘senior
leadership community’ (SLC), a defined group
of senior leaders that more accurately reflects
our senior management than ExCo-1 which is
solely dictated by reporting lines. We have set
a new target of 38-43% female representation
in the SLC by end 2023. Fewer women in
senior leadership roles is one of the main
drivers behind our gender pay gap. The
median pay gap was 30% (£6.72 per hour),
a reduction of 2% compared with 2019.
We are committed to increasing BAME
representation at all levels across Quilter
and have set a target to increase BAME
representation in senior management from
2% in 2020 to 5% by end of 2023. BAME
colleagues earned £0.73 per hour (4%) less
than non-BAME colleagues based on median
pay gap data, reflecting the fairly even spread
of BAME colleagues across pay quartiles.
A lower percentage (79%) of BAME colleagues
received a bonus than non-BAME colleagues
(86%). The underlying data indicates that
majority of cases are those that joined after
31 October 2019 and as such would not have
met our eligibility criteria to be considered for
a 2019 bonus, paid in March 2020.
We aim to achieve our diversity targets
through enhanced policies, talent development,
recruitment and succession planning. Strategy
and progress is overseen by Quilter’s Inclusion
and Diversity Steering Committee, chaired by
the Chief Executive Officer.
We remained an active supporter of public
initiatives such as LGBT Great, a collaboration
aiming to be a catalyst for LGBT+ inclusion
within the investment industry and
championed by our Chief Operating Officer,
Karin Cook.
Diversity data (as at 31 December 2020):
Total split by gender
2,317 (54%)
1,964 (46%)
2019: Male 2,550 (53%), Female 2,286 (47%)
Quilter plc Board split by gender
6 (67%)
3 (33%)
2019: Male 7 (64%), Female 4 (36%)
Executive Committee split by gender
5 (83%) 1 (17%)
2019: Male 9 (75%), Female 3 (25%)
Senior Leadership Community split by gender
89 (65%)
47 (35%)
2019: Male 75 (68%), Female 26 (32%)
Male(cid:581) Female
Total split by ethnicity*
2,975 (92%) 271 (8%)
Quilter plc Board split by ethnicity
9 (90%)
1 (10%)
Executive Committee split by ethnicity
6 (100%)
Senior Leadership Community split by ethnicity
115 (98%) 3 (2%)
Non-(cid:37)AME(cid:581) BAME
*Total workforce ethnicity data is based on number
of colleagues disclosing their ethnicity (76% of colleague
community). Colleagues who selected ‘unknown’ or chose not
to disclose their ethnicity are not included in the calculation.
2020 Pay gap data
Gender
Hourly pay gap
Bonus gap
Women receiving bonuses
Men receiving bonuses
Ethnicity
Hourly pay gap
Bonus gap
BAME receiving bonuses
Non-BAME receiving bonuses
2020 Pay quartile data
First quartile
Second quartile
Third quartile
Fourth quartile
Mean
Median
34%
65%
13%
33%
30%
39%
4%
15%
86%
84%
79%
86%
Men
73%
58%
44%
44%
Women
Non-BAME
BAME
27%
42%
56%
56%
92%
91%
93%
90%
8%
9%
7%
10%
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Quilter | Annual report 2020
53
Responsible business
continued
Delivering for
advisers
Related Shared Prosperity
Plan commitments
– Improve access to financial advice,
saving and investing.
Helping advisers manage and grow
their business
Whether an RFP in the Quilter Financial
Planning network or an Independent Financial
Adviser using Quilter Investment Platform to
service clients, advisers can rely on us to help
them manage and grow their business, and
ultimately help their clients prosper.
In 2020 we launched our ‘There for You’ hub
available to all financial advisers. Initially in
response to the COVID-19 pandemic, the hub
is the first time we have created a one-stop
shop of resources, including tools to support
client conversations and events hosted by
Quilter experts. Over 2,000 advisers attended
our online ‘There for You’ events, which
focused on practical support and expertise to
them and their business during the pandemic.
For RFPs in the Quilter Financial Planning
network, we offer stability through strong
financial backing and the security of a
comprehensive compliance regime to enable
them to run their business safely and profitably.
Addressing the challenges many advice firms
face in finding affordable Professional
Indemnity Insurance, the Quilter Financial
Planning network offers member firms PII to
those authorised to write business by us and
where they follow our advice process.
The Quilter Investment Platform won a total of
nine highly sought-after awards, as recognised
by financial advisers for its quality products
and outstanding service. Awards included a
platinum rating for the sixth year running from
the independent price comparison and
research provider, ‘AdviserAsset’. Their rating
is based on the results of charge comparisons
and platform due diligence run by advisers
using AdviserAsset tools and analyses over
150,000 reports and questionnaires.
Quilter was also awarded ‘Company of the
Year’ award from prestigious Financial Adviser
Service Awards.
Wellbeing support
(cid:37)eing a financial adviser can be a hugely
rewarding role. We also understand that it can
be a demanding one, and sometimes involves
dealing with complex client emotions and
helping them navigate difficult personal
situations. The COVID-19 pandemic also
brought with it unprecedented challenges
for advisers, with many more likely to be
struggling with stress, anxiety and burnout
as the need to adapt their support for clients
increased dramatically.
In direct response to these unprecedented
challenges we opened up our colleague
wellbeing programme – ‘Thrive’ – to the
financial adviser community during Mental
Health Awareness (cid:58)eek. A first of its kind in
the industry, advisers were able to access a
wealth of resources to support their wellbeing,
and ultimately equip them to support their
clients too.
The hub included podcasts and videos from
our own wellbeing experts, as well as external
specialist, resources on how to adapt to
changing ways of working and advice on how
to cope with isolation and build resilience. We
also made online mental health service, ‘Spill’,
available to advisers.
54
Quilter | Annual report 2020
Training the next generation of advisers
In 2017 we launched the Quilter Financial
Adviser School to train and develop the next
generation of financial advisers. (cid:58)e provide
not (cid:77)ust the qualifications, but also the skills
needed to enjoy a successful career and
provide an outstanding level of service
to clients.
The Quilter Financial Adviser School is
a trusted partner of The London Institute
of Banking & Finance (‘LIBF’), one of the top
providers of professional and academic
financial services qualifications. To become
a trusted partner, we have demonstrated
that our training programmes meet the
LIBF’s strict requirements for delivering
high-quality learning.
In 2020, 167 people graduated from the
Quilter Financial Adviser School, which is the
largest cohort to graduate in one year and
brings the total number of graduates to 337
since it launched 2017. The increase in
graduates in 2020 was enabled by an
improved digital training proposition. We have
since supported the vast majority of graduates
into employment as financial advisers so they
are now helping customers to achieve their
financial goals.
Training and development
We are committed to the ongoing professional
development of our RFPs in the Quilter
Financial Planning network. This is good for
advisers, good for their clients and also good
for our business. Our academies and
masterclasses help advisers develop their
knowledge and skills of specific markets,
including: wealth, auto-enrolment, mortgage
and protection.
Throughout the year we worked extensively
with advisers to prepare them for migration
to the new Quilter Investment Platform,
supporting thousands of advisers and
their clients to transition smoothly to the
new platform.
Transition to digital
The pandemic changed the way advisers
interacted with their customers as face-to-face
advice moved online. With customers
impacted by a range of factors affecting their
personal circumstances or family members,
we made it easier for advisers to stay in touch
and engage with them by identifying a number
of ‘reasons to talk’ to depending on their
current situation and financial needs. (cid:58)e
covered eight topics, ranging from maximising
tax allowances and intergenerational wealth
through to coping with redundancy. Each topic
was presented as a pack which included
background information, advice on how they
could help, sales aids and pre-approved
customer communications.
Advisers understand that social media
is a great way of starting or joining in
conversations that help their firm stay at the
forefront of their customers minds. With all
activity regulated by the FCA, we helped
advisers promote the benefits of financial
advice to prospective clients by creating
specifically themed, compliance approved
social media adverts. Each advert can be
personalised by advisers to suit their brand
through an automated process via the Hub
(with no additional charge), then downloaded
in the relevant size for LinkedIn, Facebook
and Instagram.
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Quilter | Annual report 2020
55
Responsible business
continued
Delivering for
communities and
the environment
56
Quilter | Annual report 2020
Related Shared Prosperity
Plan commitments
– Support communities to manage money
well for life.
– Empower communities to thrive through
employment and wellbeing.
– Reduce our environmental intensity.
– Operate responsibly.
Climate change
In 2020 Quilter formalised its approach
to climate change. Our strategic objective
is to reduce Quilter’s contribution to climate
change and support the transition to a low
carbon economy. To achieve our ambition,
we have a framework which helps us to reduce
our direct carbon footprint, embed climate
considerations in our investment
management and stewardship activity, offer
clients climate-focused investment solutions
and align with the Task Force on Climate-
related Financial Disclosure.
The Task Force on Climate-related
Financial Disclosures (“TCFD”)
The financial sector has a critical role in the
transition to a low carbon economy; however
better-quality information is needed on risks,
opportunities and impacts of climate change.
TCFD has provided a framework to help
companies to disclose comprehensive,
comparable and high-quality information.
As per the mandatory requirements
of premium listed companies outlined
by HM Treasury in November 2020, we are
committed to a fully aligned TCFD climate
disclosure for the financial year 2021. (cid:58)e have
chosen not to fully adopt TCFD early as we
believe a fair and accurate disclosure at this
stage would be difficult to achieve due to
carbon data limitations relating to investment
portfolios and climate scenario analysis
requirements. In this report we instead
provide a partial disclosure focused on
governance and current climate metrics
related to Quilter’s operational emissions,
as well an outline of the steps we are taking
in 2021 to fully align with TCFD.
Climate change governance
The Board Risk Committee will oversee the
management of climate-related risks and
opportunities and review progress as part
of its regular reporting from the business.
The Board Corporate Governance and
Nominations Committee oversees Quilter’s
responsible business and responsible
investment strategy, both of which address
Quilter’s climate change response in its direct
operations and in its investment propositions.
The Quilter Executive Committee, chaired
by the Chief Executive Officer, is responsible
for setting Quilter’s overall climate change
strategy. The Executive Committee receives
quarterly updates regarding responsible
business matters, which include progress
towards our climate change strategy.
Responsibility for climate-related risk, and
TCFD specifically, rests with the Executive Risk
Forum, chaired by the Chief Executive Officer.
The Forum oversees present and emerging
risks to the business to ensure they are
managed appropriately, reporting into the
Board Risk Committee. Given the recent
emergence of climate change as an
established risk typology, a sub-committee
of the Executive Risk Forum has been
established to ensure focus is dedicated to
climate-related risk and alignment with TCFD
specifically. Individual responsibility for
climate-related risk rests with the Risk &
Actuarial Director, who holds regulatory
accountability for this as the Senior
Management Function holder.
Climate change strategy and
risk management
During 2021 we are taking the necessary
steps to fully align with TCFD. We will complete
our assessment and measurement of our
climate-related risks and opportunities,
including those within the investment
solutions we manage on behalf of clients.
We will also enhance our risk management
framework to ensure it fully reflects the
climate risks relevant to the business and
its risk appetite.
Existing stewardship activity undertaken
by our investment management businesses
already includes climate change issues and
this will continue to be an area of engagement
going forward.
Climate change metrics and targets
Quilter has reported the greenhouse gas
emissions resulting from its operations (scope
1 and 2) since it became a public company
in 2018. In 2021 we will complete the
measurement of emissions resulting from our
core investment portfolios (scope 3 emissions)
enabling us to report on this in our next TCFD
aligned disclosure. We will also work towards
establishing a greenhouse gas reduction
target across our scope 1, 2 and 3 emissions.
We also continued to participate in the CDP
(formerly ‘Carbon Disclosure Project’), the
world’s leading voluntary disclosure system
for companies to measure, disclose, manage,
and ultimately reduce greenhouse gas
emissions. We achieved a rating of ‘C’ for
our 2020 disclosure.
Energy use is Quilter’s primary source of
Scope 1 and 2 greenhouse gas emissions.
In 2020 we continued our strategy of
transitioning our offices to renewable energy
tariffs. (cid:58)here we do not control the building,
we proactively engage with landlords to
transition to renewable energy tariffs if they
have not done so already. In 2020 we
successfully engaged the landlord of our new
London headquarters to change to a
renewable energy tariff.
We are pleased to report a 33% reduction in
total Scope 1 and Scope 2 (location-based)
greenhouse gas emissions in 2020, from 4,042
TCO2e in 2019 to 2,705 TCO2e. See table below
for a full breakdown of our Scope 1 and Scope
2 greenhouse gas emissions and associated
energy use data in 2020.
Emissions adjustments for 2019
We have updated our 2019 greenhouse gas
emissions to reflect a fluorinated gas leak at
our Southampton office and a small number
regional offices not included in previous
reporting. Our 2019 Scope 1 emissions are
now reported as 840 TCO2e, an increase from
664 TCO2e originally reported. Scope 2
(location-based) emissions are also reported
higher at 3,202 TCO2e, in comparison with
2,216 TCO2e originally reported. Scope 2
(market-based) emissions are now reported as
2,718 TCO2e in comparison with 1,378 TCO2e
reported for 2019.
This also has the effect of increasing our 2019
intensity ratio to 0.92 TCO2e per average
number of colleagues in 2019.
Greenhouse gas emissions data
Total greenhouse gas emissions
Scope 1
Scope 2 (location-based)
Scope 2 (market-based)
Total Scope 1 + Scope 2 (location-based)
Intensity ratio – TCO2e/average number of colleagues
Streamlined Energy and Carbon Reporting (SECR)
TCO2e
2020
302
2,403
1,882
2,705
0.63
kWh
2020
TCO2e
2019
840
3,202
2,718
4,042
0.92
kWh
2019
Global energy use
UK energy use
12,159,853
11,794,568
14,227,728
13,707,697
Greenhouse gas reporting footnote:
All emissions data calculated according to the GHG Reporting Protocol – Corporate Standard. The GHG protocol categorises
emissions according to ‘Scope’, as follows:
Scope 1 (Direct GHG)
These are emissions from sources that are owned or controlled by an organisation. This includes fuel combustion on site
e.g. gas boilers, fleet vehicles and air-conditioning leaks.
Scope 2 (Energy Indirect GHG)
These are emissions from the consumption of purchased electricity, steam, or other sources of energy (e.g. chilled water)
generated upstream from the organisation. For purchased electricity, organisations are required to report Scope 2 according
to a ‘location based’ method and a ‘market-based’ method (see below):
Scope 2 – Location Based
This reflects the average emissions intensity of grids on which energy consumption occurs (using mostly grid-average
emission factor data).
Scope 2 – Market Based
This reflects emissions from electricity that organisations have purposefully chosen and therefore includes where they may
have renewable energy contracts in place or generate their own energy.
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Quilter | Annual report 2020
57
Responsible business
continued
Delivering for
communities and
the environment
(continued)
58
Quilter | Annual report 2020
The Quilter Foundation
The Quilter Foundation is Quilter’s registered
charity and the cornerstone of our community
engagement work. Through grant-making and
the generous support of colleagues, advisers
and customers, The Quilter Foundation has
donated £2.2 million to charity partners since
launching in 2018, enabling them to provide
financial literacy, employment and wellbeing
support to 23,000 young people in our
local communities.
Improving financial literacy
We continued our long-term partnership with
leading financial education charity, My(cid:37)nk,
to fund the provision of expert led money
management lessons to young people
aged 11–25 in local communities. COVID-19
restrictions seriously inhibited face-to-face
delivery in 2020 and despite this, the
programmes still reached 7,811 young people
in the year.
During 2020 Quilter continued to co-chair
KickStart Money which is helping to transform
the long-term savings habits of the next
generation. Twenty of the UK’s leading saving
and investment firms are working together to
champion financial education for children
aged seven and upwards. Through the
programme’s delivery partner, MyBnk,
expert-led financial education sessions
reached 19,000 pupils since its launch in 2017.
KickStart Money also campaigns for effective
financial education for every young person
from primary school onwards. During 2020,
27 UK Members of Parliament lent their
support to the campaign, bringing the total
number of parliamentary supporters of the
campaign to 57.
Employability and skills development
Government data shows the persistency of
UK youth unemployment over recent years,
which has been exacerbated by the COVID-19
pandemic. In 2020 we delivered the first year
of our three-year partnerships with skills and
employability partners School of Safe New
Futures, School of Hard Knocks and Street
League. The programmes have so far
supported 143 young people aged between
16 and 25.
Wellbeing and respite support
for young carers
One in five secondary school children may
be caring for a loved one with a serious illness,
disability or mental health issues. Very often,
this at the expense of their own mental health
and future prospects. The Quilter Foundation
and Quilter colleagues have continued to work
with our charity partners – Carers Trust, The
Mix and Crossroads Care – supporting 2,000
young carers in local communities in 2020.
Since launching the partnerships in 2018, we
have directly supported 5,600 young carers
across the UK and Isle of Man.
COVID-19 relief
The Quilter Foundation donated £243,000 to
trusted partners – National Emergencies Trust
and Disasters Emergency Committee – to
provide urgent COVID-19 relief and support
to vulnerable communities across the UK and
internationally.
Human rights
We recognise our responsibility to not only
respect the rights and freedoms of those that
work for Quilter but also of those in our supply
chain. Our human rights policy has been
shaped by internationally recognised
principles, laws and conventions such as the
International Bill of Human Rights, The
International Labour Organization
conventions, the UN Guiding Principles on
Business and Human Rights, the UN Global
Compact, The Modern Slavery Act 2015, The
Human Rights Act 1998 and the Equality Act
2010. Our human resource and supplier
policies and processes prohibit all forms of
modern slavery, forced labour, compulsory
labour and child labour. These also promote
equal opportunity and prohibit any form of
discrimination or unfair treatment on the
grounds of protected characteristics, or
because of any other personal factor. We
respect the right of employees to associate
for the purposes of collective bargaining
and colleagues are free to join a union
of their choice.
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Financial crime and anti-bribery
and corruption
As a financial services company we recognise
the potential risk of being a target for financial
crime, including money laundering, terrorist
financing, tax evasion and fraud. (cid:58)e also
acknowledge the potential risk of bribery and
corruption which could result in financial loss,
regulatory fines and(cid:18)or censure and damage
to reputation. We have zero tolerance for
financial crime, bribery or corruption and have
robust control environment in place including
the following policies: 1) Anti-Money
Laundering and Counter Terrorist Financing
Policy, 2) Anti-bribery and Corruption Policy,
3) Fraud Prevention Policy. All colleagues are
required to complete mandatory training
on these topics annually to ensure that
understand their role in preventing financial
crime, bribery and corruption.
Working with suppliers
Our Third-Party Risk Management policy
sets out requirements with respect to our
procurement, outsourcing and supplier
management activities. Our Supplier Code
of Conduct applies to all suppliers and their
sub-contractors that provide goods and
services to Quilter. It sets out the minimum
standards we expect our suppliers to adhere
to when doing business with Quilter in
addition to the contractual terms agreed.
The Code covers legal compliance, ethical
standards, conflicts of interest, anti-bribery
and corruption, brands, trademarks and
intellectual property, information and data
protection, labour standards, living wage,
discrimination, health and safety, and
environmental management. We also expect
them to promote these standards in their
own supply chain where practical.
Tax
We are committed to full compliance with our
tax obligations, paying the right amount of tax
at the right time. We have zero tolerance for
tax evasion and we do not promote tax
avoidance or aggressive tax planning
arrangements to our customers or to other
parties. Our Tax Risk Policy sets out high-level
requirements to ensure that tax calculations
and filings comply with all applicable tax law
and are prepared on a timely basis.
Non-financial information statement
The Responsible Business review from page
46 to 59 constitutes Quilter’s Non-Financial
Information Statement, which complies with
sections 414CA and 414CB of The Companies
Act. The table below sets out where to find
details on specific matters relevant to these
requirements within this section and
elsewhere in our Annual Report:
Anti-bribery and
corruption
Delivering for society
– page 56 to 59.
Business model
Employees
Business model
– page 42 to 43.
COVID-19 response
– page 17 to 19.
Environmental
matters
Human rights
Delivering for colleagues
– page 52 to 53.
Delivering for society
– page 56 to 59.
Delivering for society
– page 56-59.
Non-financial KPIs Shared Prosperity Plan
performance summary
– page 48 to 49.
Principal risks
Social matters
Risk review
– page 70 to 77.
COVID-19 response
– page 17 to 19.
Delivering for society
– page 56 to 59.
Read more:
How we understand our stakeholders:
Regulators
See page 94
How we understand our stakeholders:
Investors
See page 91
Quilter | Annual report 2020
59
Financial
review
Mark Satchel
Chief Financial Officer
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Quilter | Annual report 2020
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Review of financial performance
Overview
During 2020 international equity markets experienced
significant volatility as a consequence of the Coronavirus
pandemic. (cid:57)olatility in equity market values can significantly
impact the value of the Group’s AuMA, and therefore the
Group’s revenue, as the ma(cid:77)ority of the Group’s revenue is
based on asset levels. The FTSE-100 index ended the year
down 14(cid:8) on closing 2019 levels while the MSCI (cid:58)orld index
(G(cid:37)P) was up 11(cid:8) on the 2019 year-end index value. (cid:37)etween
this, equity markets reached a low point towards the end of the
first quarter of 2020, as indicated by the FTSE-100 index
recording a low of (cid:24),(cid:25)72, a drop of 2(cid:24)(cid:8) from the start of the
year, and the MSCI (cid:58)orld Index (G(cid:37)P) recording a low value of
3,(cid:24)8(cid:25), a fall of 1(cid:25)(cid:8) from the opening index value as the start of
the year. Global equity markets recovered in the second half of
the year, with the FTSE-100 index up (cid:24)(cid:8) over this period and
the MSCI (cid:58)orld Index (G(cid:37)P) up 10(cid:8) – buoyed predominantly
by the performance of technology stocks in the US.
The Group’s AuMA ended the year at (cid:101)117.8 billion, a 7(cid:8)
increase from the opening position at the start of 2020. This
increase comprised (cid:101)(cid:24).8 billion of positive market movements
as a consequence of the equity market rally late in the year,
and positive net client cash flow of (cid:101)1.(cid:25) billion. Ad(cid:77)usted profit
before tax decreased by 8(cid:8) to (cid:101)1(cid:25)8 million, with a decline in
overall revenue margins as a result of asset mix shifts in Quilter
Investors and Quilter International, and the repricing on the
Quilter Investment Platform. Generally, revenue adversely
impacted by the fall in global markets in the first half of the
year, had reversed in the subsequent period. The Group’s IFRS
profit after tax from continuing operations was (cid:101)89 million,
compared to a loss after tax of (cid:101)21 million in 2019. The
improvement was primarily due to the positive impact on
policyholder tax following the decline in equity market values,
which can vary year-on-year as a result of market volatility.
Ad(cid:77)usted diluted earnings per share from continuing
operations were broadly unchanged at 8.(cid:24)p (2019(cid:29) 8.(cid:25)p).
Alternative Performance Measures (“APMs”)
(cid:58)e assess our financial performance using a variety of
measures including APMs, as explained further on pages 270
to 273. In the headings and tables presented, these measures
are indicated with an asterisk(cid:29) (cid:13)
I am pleased with the Group’s
financial response to 2020’s
challenging environment,
focusing on cost management
and our strong balance sheet.
Key financial highlights
Year ended 31 December 2020
Continuing operations
Gross sales (£bn)*
Gross outflows ((cid:101)bn)(cid:13)
NCCF (£bn)*
Integrated net inflows
(£bn)*
AuMA (£bn)*
NCCF/opening AuMA (%)*
Asset retention (%)*
Advice &
Wealth
Management
Wealth
Platforms Eliminations
Total
Group
7.1
(6.5)
0.6
0.9
48.5
1%
86%
7.3
(5.5)
1.8
1.4
84.3
2%
93%
(3.5)
2.7
(0.8)
10.9
(9.3)
1.6
–
2.3
(15.0)
117.8
n/a
n/a
1%
92%
Year ended 31 December 2019
Continuing operations1
Gross sales (£bn)*
Gross outflows ((cid:101)bn)(cid:13)
NCCF (£bn)*
Integrated net inflows
(£bn)*
AuMA (£bn)*
NCCF/opening AuMA (%)*
Asset retention (%)*
Advice &
Wealth
Management
Wealth
Platforms
Eliminations
Total
Group
7.5
(7.8)
(0.3)
1.6
45.8
(1%)
81%
8.0
(6.6)
1.4
1.0
77.7
2%
90%
(3.2)
2.4
(0.8)
12.3
(12.0)
0.3
–
2.6
(13.1)
110.4
n/a
n/a
–
88%
1Continuing operations represent Quilter plc, excluding the results of Quilter Life
Assurance ((cid:522)QLA(cid:523)) in 2019, which was sold to ReAssure on 31 December 2019.
Net client cash flow (“NCCF”)*
Net client cash inflows were (cid:101)1.(cid:25) billion for the year
(2019(cid:29) (cid:101)0.3 billion), during a period where the impact of
CO(cid:57)ID-19 on the global economy has been dramatic, creating
economic uncertainty and market volatility. The Group
experienced slightly lower gross sales in 2020 due to the
impact of the pandemic, which was more than offset by lower
outflows in comparison to 2019, notably for Quilter Investment
Platform, Quilter Cheviot, and Quilter International.
Net inflows to Quilter Investors were down 40(cid:8) on the prior
year at (cid:101)0.3 billion (2019(cid:29) (cid:101)0.(cid:24) billion), driven by a decrease
in flows from Quilter Financial Planning as the pandemic
environment presented advisers with less opportunity to
attract new business. Cirilium Active started the year with
challenged investment performance which resulted in outflows
and switches to lower margin in-house solutions. Pleasingly,
performance improved during the year. Quilter Financial
Planning attracted net inflows into Cirilium (cid:37)lend, Cirilium
Passive and (cid:58)ealthSelect during the year and net inflows into
(cid:58)ealthSelect via the Quilter Investment Platform were up 23(cid:8)
when compared to the prior year.
Quilter | Annual report 2020
61
Financial review
continued
Quilter Cheviot attracted net inflows of (cid:101)0.3 billion
(2019(cid:29) outflow of (cid:101)0.8 billion), which was an improvement on
the prior year, primarily due to lower levels of outflows linked
to the Investment Managers ((cid:522)IMs(cid:523)) who resigned in mid-2018
(2020(cid:29) (cid:101)0.2 billion outflow, 2019(cid:29) outflows of (cid:101)1.3 billion) and
the loss of a (cid:101)0.2 billion quasi-institutional mandate in the
second quarter of 2019. Excluding the departures of IMs who
resigned in the summer of 2018, NCCF was stable at (cid:101)0.(cid:24) billion
(2019: £0.5 billion).
Quilter Investment Platform recorded net inflows of (cid:101)1.(cid:24) billion,
up (cid:25)7(cid:8) (2019(cid:29) (cid:101)0.9 billion) where the year-on-year reduction
in gross sales has been more than offset by the reduction in
outflows. The impacts of CO(cid:57)ID-19 reduced overall market
activity as advisers spent most of the year focused on servicing
existing clients rather than seeking to attract new clients given
the restrictions on face-to-face meetings. Gross outflows were
down 18(cid:8) to (cid:101)4.2 billion (2019(cid:29) outflow of (cid:101)(cid:24).1 billion). In
addition, client led withdrawals were lower year-on-year as
clients stayed invested during the worst periods of the market
downturn and the UK lockdown restricted consumer spending,
reducing withdrawals. D(cid:37) to DC pension scheme transfers
were broadly stable with the prior year at (cid:101)0.9 billion
(2019: £0.8 billion).
Quilter International’s net inflows were down 40(cid:8) to (cid:101)0.3 billion
(2019(cid:29) (cid:101)0.(cid:24) billion) as the prior year was supported by a small
number of large single investments from Hong Kong and
Latin America in the fourth quarter, which totalled (cid:101)0.3 billion.
Excluding this, NCCF was broadly in line with the prior year.
(cid:49)(cid:72)(cid:87)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:101)(cid:69)(cid:81)(cid:12)
2020
2019
% Change
Total integrated net inflows(cid:13)
Direct net inflows(cid:18)(outflows)
Eliminations
Total Quilter plc NCCF*
2.3
0.1
(0.8)
1.6
2.6
(1.5)
(0.8)
0.3
(12%)
–
–
433%
Integrated net inflows of (cid:101)2.3 billion were down 12(cid:8) from
2019 ((cid:101)2.(cid:25) billion). The restricted channel of Quilter Financial
Planning accounted for £0.8 billion (2019: £1.2 billion) of
Quilter Investors’ net flows, (cid:101)1.2 billion (2019(cid:29) (cid:101)1.0 billion)
of Quilter Investment Platforms’ net flows and (cid:101)0.3 billion
(2019(cid:29) (cid:101)0.4 billion) of Quilter Cheviot net flows. The year-on-year
improvement in direct net inflows was primarily driven by
outflows related to the departure of a specific IM team at
Quilter Cheviot not recurring in 2020, together with an
increase in the performance of direct flows to the (cid:58)ealth
Platforms businesses.
Total RFP headcount was 1,842 at 31 December 2020, up by 2(cid:8)
from 1,799 at 31 December 2019. Organic growth for the year
was limited as a result of the external environment coupled
with a scaling back of acquisitions in Quilter Private Client
Advisers as a consequence of the ongoing pandemic.
Productivity(cid:13) for Quilter Financial Planning was (cid:101)1.3 million per
RFP for the year (2019(cid:29) restated to (cid:101)1.(cid:25) million) as a result of
reduced net inflows to Quilter Investors and Quilter Cheviot
in light of the challenging market environment. Net inflows
to Quilter Investment Platform performed well, up 20(cid:8)
year-on-year, emphasising the strength of Quilter’s platform
proposition and realising benefits from the acquisitions made
in 2019.
Asset retention* has increased to 92% (2019: 88%),
predominantly as a result of lower outflows from Quilter
Investment Platform and Quilter Cheviot.
Assets under management/administration (“AuMA”)*
AuMA was (cid:101)117.8 billion at 31 December 2020, up 7(cid:8) from
31 December 2019 ((cid:101)110.4 billion), driven by positive market
movements of (cid:101)(cid:24).8 billion and (cid:101)1.(cid:25) billion of net inflows.
Quilter Investors’ AuM was (cid:101)23.2 billion, up 7(cid:8) since the start
of the year (2019(cid:29) (cid:101)21.(cid:25) billion). The Cirilium fund range AuM
increased by 11(cid:8) to (cid:101)12.3 billion at 31 December 2020 (2019(cid:29)
(cid:101)11.1 billion), with (cid:101)0.1 billion of net outflows and (cid:101)1.3 billion
of positive market movements. (cid:58)ithin the Cirilium fund range,
net outflows from Cirilium Active to Cirilium Passive and
Cirilium (cid:37)lend solutions was a notable characteristic during the
year, with the CO(cid:57)ID-19 environment adding some acceleration
to the trend experienced during 2019. The (cid:58)ealthSelect fund
range AuM increased by 18(cid:8) to (cid:101)7.9 billion at the end of
December 2020 (2019(cid:29) (cid:101)(cid:25).7 billion) with (cid:101)0.7 billion of net
inflows and (cid:101)0.(cid:24) billion of positive market movement. Quilter
Cheviot AuM of (cid:101)2(cid:24).3 billion increased by (cid:24)(cid:8) in the year,
primarily as a result of positive market movements. Quilter
Investment Platforms’ AuA increased by 9(cid:8) to (cid:101)(cid:25)2.(cid:24) billion,
driven by increases in the market value of assets and net
inflows. Net inflows of (cid:101)1.2 billion were received from Quilter
Financial Planning and total assets held by Quilter Financial
Planning clients on the platform was (cid:101)9.7 billion. Net inflows of
(cid:101)0.3 billion were received from Independent Financial Advisers
during the year (2019(cid:29) outflow of (cid:101)0.2 billion). Quilter
International AuA of (cid:101)21.8 billion was a (cid:25)(cid:8) increase on the
prior year (2019(cid:29) (cid:101)20.(cid:24) billion) primarily due to exposure to
rebounding US and international markets, low surrender rates
and broadly stable sales levels, partially offset by unfavourable
exchange rate market movements.
IFRS profit after tax
The Group’s IFRS profit after tax was (cid:101)88 million for 2020,
compared to (cid:101)14(cid:25) million in the prior year. 2019 included profit
after tax from discontinued operations of (cid:101)1(cid:25)7 million, which
related to the QLA business that was sold on 31 December 2019.
62
Quilter | Annual report 2020
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IFRS profit after tax from continuing operations was (cid:101)89 million
in 2020, compared to a loss after tax of (cid:101)21 million in 2019,
primarily due to the impact of a decrease in policyholder tax,
which can vary significantly year-on-year as a result of market
volatility, and a reduction in IFRS operating and administrative
expenses during 2020 driven by the costs associated with the
delivery of the Optimisation programme and the Platform
Transformation Programme.
The Group’s IFRS income and total expenses are impacted by
the unit-linked investment contracts within Quilter Investment
Platform and Quilter International, where the investment
return on the underlying portfolio of assets is offset by a
corresponding movement in policyholder liabilities.
Consequently, the decrease of (cid:101)2.7 billion in IFRS income
from (cid:101)7.4 billion in 2019 to (cid:101)4.7 billion in 2020 is offset by
a corresponding decrease in IFRS total expenses, which was
(cid:101)4.(cid:25) billion in 2020, reduced from (cid:101)7.4 billion in the prior year.
Adjusted profit before tax*
Ad(cid:77)usted profit before tax reflects the (cid:37)oard’s view of
the underlying performance of the Group and is used for
management decision making and internal performance
management. Ad(cid:77)usted profit before tax is a non-GAAP
measure which ad(cid:77)usts IFRS profit for specific items,
as detailed in note 7 of the consolidated financial statements
on page 191, and is the profit measure presented for the
Group’s segmental reporting.
Ad(cid:77)usted profit before tax was (cid:101)1(cid:25)8 million for the year, 8(cid:8)
lower than the prior year (2019(cid:29) (cid:101)182 million). Ad(cid:77)usted profit
before tax for the Advice and (cid:58)ealth Management segment
decreased by 13(cid:8) year-on-year and the (cid:58)ealth Platforms
segment increased by 2(cid:8) compared to the prior year.
Total net fee revenue was (cid:101)(cid:25)82 million, 4(cid:8) lower than the prior
year (2019(cid:29) (cid:101)712 million). Net management fees of (cid:101)(cid:24)(cid:24)2 million
were lower than those of the prior year (2019(cid:29) (cid:101)(cid:24)79 million)
predominantly due to market volatility, reduced new client
activity as a consequence of CO(cid:57)ID-19, and the decline in
overall revenue margins as a result of anticipated asset mix
changes. The revenue margin was reduced following the
Quilter Investment Platform reprice in April 2020, a
continuation of the trend of clients switching from Cirilium
Active to the lower margin Cirilium Passive and Cirilium (cid:37)lend
funds, the non-recurrence of the 2019 revenue provision
release within Quilter Investors, and the anticipated trend
in Quilter International where the proportion of assets on
older-style pricing structures was reducing relative to the si(cid:93)e
of the overall book. The revenue margin within Quilter Cheviot
remained broadly stable year-on-year. Other revenue of
(cid:101)130 million was down marginally against prior year
(2019(cid:29) (cid:101)133 million), primarily due to the impact of adverse F(cid:59)
movements and lower interest rates and improved surrender
experience for Quilter International, which were partially offset
by higher advisory revenues generated by Quilter Financial
Planning as a result of acquisitions made in 2019.
Operating expenses for the Group decreased from (cid:101)(cid:24)30 million
in 2019 to (cid:101)(cid:24)14 million, primarily due to c.(cid:101)40 million of tactical
cost savings made during the year, with lower variable
compensation costs, decreased marketing spend, and delayed
development spend, which were partially offset by increased
FSCS levies and regulatory costs, expenses incurred to prepare
the business for remote working and providing a safe CO(cid:57)ID-19
workplace, and higher one-off costs in relation the London
office move during the year.
The Group’s overall operating margin has decreased to 2(cid:24)(cid:8)
(2019(cid:29) 2(cid:25)(cid:8)) as a result of the reduction in revenue.
Financial performance from continuing operations
(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:11)(cid:101)(cid:80)(cid:12)
Net management fee(cid:13)
Other revenue(cid:13)
Total net fee revenue*
Operating expenses*
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:13)
Tax
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)
Operating margin ((cid:8))(cid:13)
Revenue margin (bps)(cid:13)
Advice &
Wealth
Management
Wealth
Platforms
Head
(cid:50)(cid:605)(cid:70)(cid:72)
Total
Group
279
117
396
(cid:11)(cid:22)(cid:19)(cid:25)(cid:12)
90
273
12
285
(cid:11)(cid:20)(cid:26)(cid:20)(cid:12)
(cid:20)(cid:23)(cid:23)
–
1
1
(cid:11)(cid:22)(cid:26)(cid:12)
(cid:11)(cid:22)(cid:25)(cid:12)
23%
63
40%
36
552
130
682
(cid:11)(cid:24)(cid:20)(cid:23)(cid:12)
168
(cid:3)(cid:11)(cid:20)(cid:25)(cid:12)
152
25%
51
Financial performance from continuing operations
2019 (£m)
Net management fee(cid:13)
Other revenue(cid:13)
Total net fee revenue(cid:13)
Operating expenses*
Ad(cid:77)usted profit before tax(cid:13)
Tax
Ad(cid:77)usted profit after tax
Operating margin ((cid:8))(cid:13)
Revenue margin (bps)(cid:13)
Advice &
Wealth
Management
Wealth
Platforms
Head
Office
Total
Group
296
111
407
(304)
103
283
19
302
(190)
112
–
3
3
(36)
(33)
25%
67
37%
38
579
133
712
(530)
182
(22)
160
26%
55
Total net fee revenue*
The Group’s total net fee revenue decreased by 4(cid:8) to
(cid:101)(cid:25)82 million (2019(cid:29) (cid:101)712 million) due to the mix shift within
Quilter Investors and Quilter International to lower margin
products, and the repricing of the Quilter Investment Platform
resulting in the blended revenue margin for the Group to
decrease by 4 bps to (cid:24)1 bps. Generally, revenue adversely
impacted by the fall in global markets in the first half of the year
reversed in the subsequent period and average AuMA for the
year was (cid:101)107.9 billion (2019(cid:29) (cid:101)10(cid:24).7 billion).
Quilter | Annual report 2020
63
Financial review
continued
Total net fee revenue for the Advice and (cid:58)ealth Management
segment decreased by 3(cid:8) during the year, to (cid:101)39(cid:25) million
(2019(cid:29) (cid:101)407 million). Quilter Investors’ net management fee
revenue decreased by (cid:101)12 million from the prior year as
a result of a non-recurring revenue provision release of
c.(cid:101)8 million in 2019 and the earlier referenced mix shift to
lower margin products. Total net fee revenue within Quilter
Cheviot was 4(cid:8) lower at (cid:101)171 million (2019(cid:29) (cid:101)178 million)
as average AuM was 1(cid:8) lower than prior year and reduced
revenues were earned following the reduction in base interest
rates in March 2020. Other revenue increased to (cid:101)117 million
(2019(cid:29) (cid:101)111 million), principally due to the increase in advice
fees in Quilter Financial Planning as a result of the acquisitions
in 2019. (cid:58)ithin the revenue generated by advice, recurring and
fixed fees increased by (cid:101)10 million against prior year, of which
(cid:101)8 million related to the increase of acquisitions in the prior
year, while revenues generated through initial fees reduced
marginally on that of the prior year.
Operating expenses*
Operating expenses decreased by (cid:101)1(cid:25) million to (cid:101)(cid:24)14 million
during the year (2019(cid:29) (cid:101)(cid:24)30 million). The Group incurred
(cid:101)7 million of additional FSCS levy and regulatory fee costs
compared to the prior year, the acquisitions made by Quilter
Financial Planning in 2019 increased operating expenses by
(cid:101)12 million in 2020, and property dual-running costs in relation
to the new London premises of (cid:101)10 million. These cost
increases, and those arising from inflation, were more than
offset by c.(cid:101)40 million of tactical cost savings, which included
lower variable compensation costs, decreased marketing
spend, and delayed development spend. Continued cost
discipline was also achieved through further savings from the
Optimisation programme, where additional in-year benefits
of (cid:101)13 million were realised in 2020 compared to 2019.
Further details on the Optimisation programme expense
savings are provided further in the Financial review.
Total net fee revenue for the (cid:58)ealth Platforms segment
was (cid:101)28(cid:24) million, down (cid:25)(cid:8) from (cid:101)302 million in 2019.
Quilter Investment Platforms’ net fee revenue decreased by
(cid:101)10 million, down (cid:25)(cid:8) to (cid:101)1(cid:25)7 million, despite higher average
asset levels, due to the continuing trend of new business
margins being lower than the existing back book rates, an
increase in the proportion of assets for Quilter Financial Planning
clients, and the platform reprice implemented in April 2020.
Quilter International’s net fee revenue was (cid:101)7 million lower
than the prior year at (cid:101)118 million, mainly as a result of the
impact of adverse F(cid:59) movements, lower interest rates and
improved surrender experience, which is reflected in the
decrease in other revenue.
The revenue margin for Advice and (cid:58)ealth Management
of (cid:25)3 bps was 4 bps lower in comparison to the prior year.
This decline was predominantly due to a 7 bps decrease in
the average revenue margin for Quilter Investors to (cid:24)3 bps,
driven by the strategy to build out and develop a fuller suite
of investment propositions. As previously reported, the
comparative period margin included the impact of non-
recurring revenue provision releases in 2019. Quilter Cheviot’s
revenue margin remained stable with that of the prior year at
72 bps. The revenue margin for (cid:58)ealth Platforms decreased by
2 bps to 3(cid:25) bps, due to the anticipated trend for lower margin
products for new business written into Quilter International,
and the charging structure reprice from April 2020 within
Quilter Investment Platform.
The Group’s revenue margin(cid:13) of (cid:24)1 bps was 4 bps lower than
prior year (2019(cid:29) (cid:24)(cid:24) bps).
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:86)(cid:83)(cid:79)(cid:76)(cid:87)(cid:3)(cid:11)(cid:101)(cid:80)(cid:12)
Front office and operations
IT
Development
Support functions
Property
Regulatory fees and levies
(cid:57)ariable compensation
Operating expenses*
2020
226
85
9
70
43
22
59
(cid:24)(cid:20)(cid:23)
20191
211
86
20
85
28
15
85
530
1For the 2019 comparatives, some costs have been reallocated between
categories to align with current year presentation.
Front office and operations expenses increased by 7(cid:8) to
(cid:101)22(cid:25) million (2019(cid:29) (cid:101)211 million), primarily due to the impact
of the Quilter Financial Planning acquisitions made during the
course of 2019 resulting in a full year run-rate of costs during
2020, including one-off integration costs.
IT expenses decreased by 1(cid:8) to (cid:101)8(cid:24) million (2019(cid:29) (cid:101)8(cid:25) million),
driven by savings realised as part of the Optimisation
programme, which were partially offset by increased
information security costs.
Development expenses decreased by (cid:24)(cid:24)(cid:8) to (cid:101)9 million
(2019(cid:29) (cid:101)20 million). The decrease was mainly due to lower
development costs due to a reduction in regulatory change
requirements in 2020 compared to the prior year, and
postponed change activity as a consequence of CO(cid:57)ID-19.
Support functions expenses decreased by 18(cid:8) to (cid:101)70 million
(2019(cid:29) (cid:101)8(cid:24) million) driven by continued savings realised as part
of the Optimisation programme, partially offset by increased
costs in relation to the CO(cid:57)ID-19 pandemic to mobilise remote
working across the business.
Property costs increased to (cid:101)43 million (2019(cid:29) (cid:101)28 million).
This is driven by the property dual-run and exit costs
associated with the London office move of approximately
(cid:101)10 million as previously guided, and increased facilities costs
incurred to provide a CO(cid:57)ID-19 secure environment.
(cid:25)(cid:23)
Quilter | Annual report 2020
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Regulatory fees and levies, which includes the Group’s FSCS
levies and FCA fees, have increased by 47(cid:8) to (cid:101)22 million
(2019(cid:29) (cid:101)1(cid:24) million) driven by increased claims experience
across the financial services industry in the UK, and which is
levied by the FCA. Recent announcements by the FCA indicate
that the industry FSCS levy may increase to over (cid:101)1 billion in
2021(cid:18)22 – an increase of 48(cid:8) on that of the disclosed final levy
in 2020(cid:18)21. Accordingly, it is anticipated that the FSCS levy cost
to the Group will continue to increase in 2021.
(cid:57)ariable compensation costs decreased by 31(cid:8) to (cid:101)(cid:24)9 million
as a result of the impact of CO(cid:57)ID-19 on the achievement of
the Group’s planned ad(cid:77)usted profit before tax for the year.
Management anticipate that variable compensation costs will
increase to more normalised levels in future periods if current
equity market levels are maintained, with the extent of the cost
increase predominantly dependent upon the ad(cid:77)usted profit
generated by the business.
Total operating expenses for 2021 are expected to be broadly
in line with our original expectations for 2020, at around
(cid:101)(cid:24)(cid:25)0 million, as variable compensation, marketing and
development spend return to more normalised levels as the
impact of CO(cid:57)ID-19 and the associated restrictions are eased,
along with an anticipated increase in regulatory levies.
Offsetting the increase will be further benefits arising from
the Optimisation programme.
Taxation
The effective tax rate ((cid:522)ETR(cid:523)) on ad(cid:77)usted profit before tax
was 10(cid:8) (2019(cid:29) 11(cid:8)). The Group’s ETR is lower than the UK
corporation tax rate of 19(cid:8) principally due to profits from
Quilter International being taxed at lower rates than the UK,
and the change in the UK corporation tax rate from 1 April 2020
from 17(cid:8) to 19(cid:8) which resulted in a rebase in the Group’s
deferred tax assets and liabilities, and had a net positive
impact to the tax expense. The Group’s ETR is dependent upon
a number of factors including the level of Quilter International
profits, as well as the UK corporation tax rate.
The Group’s IFRS income tax expense on continuing business
was a credit of (cid:101)3 million for the year ended 31 December
2020, compared to a charge of (cid:101)(cid:25)(cid:25) million for the prior year.
The primary reason for the IFRS income tax credit for the year
is due to first-time recognition of a deferred tax asset in
relation to accrued interest expense. The income tax expense
or credit can vary significantly year-on-year as a result of
market volatility and the impact market movements have on
policyholder tax. The recognition of the income received from
policyholders (which is included within the Group’s IFRS
revenue) to fund the policyholder tax liability can vary in timing
to the recognition of the corresponding policyholder tax
expense, creating volatility to the Group’s IFRS profit or loss
before tax attributable to equity holders. An ad(cid:77)ustment is
made to ad(cid:77)usted profit before tax to remove these distortions,
as explained further on page 67 and in note 7(b) of the
consolidated financial statements.
Earnings Per Share (“EPS”)
(cid:37)asic EPS for 2020 was (cid:24).0 pence (2019(cid:29) 8.0 pence). (cid:37)asic EPS
is based on the Group’s IFRS profit and reported including
both continuing and discontinued operations. For 2020,
the basic EPS from continuing operations was (cid:24).1 pence
(2019: (1.1) pence), and (0.1) pence relates to discontinued
operations (2019(cid:29) 9.1 pence). Discontinued operations in 2019
included profit attributable to the QLA business, and the gain
on sale, whilst 2020 only includes a residual amount of costs
associated with business disposals. During the year, the
average number of shares in issue decreased to 1,842 million
(2019(cid:29) 1,902 million). The average number of shares in issue
used for the basic EPS calculation was 1,7(cid:25)0 million (2019(cid:29)
1,83(cid:24) million), after the deduction of own shares held in
Employee (cid:37)enefit Trusts and consolidated funds of 82 million
(2019(cid:29) (cid:25)7 million). The reduction in the number of shares in
issue in the year is due to the share buyback programme,
which commenced in 2020, with 118 million shares bought and
cancelled during the year. The decrease in shares in issue as a
result of the buyback, and the corresponding impact on the
average number of shares in issue used for the EPS calculation,
led to an increase of 0.2 pence in the basic EPS for 2020.
The average number of shares in issue used for the diluted EPS
calculation was 1,797 million (December 2019(cid:29) 1,8(cid:25)3 million).
This includes the dilutive effect of shares and options awarded
to employees under share-based payment arrangements of
37 million (December 2019(cid:29) 28 million). The dilutive effect of
share awards has continued to increase due to more share
options being awarded to employees.
Optimisation
The Optimisation programme has delivered notable
efficiencies and improvements in operational performance
for the Group through greater technology utilisation and
integration activity. Our technology enabled transformation
over 2020 included successful deployment of new finance
and procurement modules as part of our general ledger
consolidation and modernisation activity effective from
January 2021. The HR module, efficiency gains and further
technical releases will follow in 2021. The automation of manual
operational processes within Quilter International using
robotics has continued and only a few deployments remain
in what has been a transformational initiative for the business.
Further potential deployment of robotics in the wider Quilter
business is under assessment.
Quilter continued to leverage support function centres of
excellence to achieve cost savings and reduce spend across
the business by introducing tighter supplier management
practices, insourcing capabilities and rationalising and
consolidating technology and other suppliers across
the Group.
Quilter | Annual report 2020
65
Financial review
continued
In addition to benefits arising from prior years, the Group
delivered a further (cid:101)13 million of cost reduction in 2020 against
the 2018 cost base, with (cid:101)22 million of run-rate benefit
bringing the total delivered run-rate to (cid:101)4(cid:25) million and
associated implementation costs since inception of (cid:101)(cid:24)(cid:25) million.
Given CO(cid:57)ID-19, management made the decision to delay
certain planned activities in the short term which marginally
reduced the timing of the realised benefit profile in 2020. The
Optimisation programme remains on track to deliver the initial
expected cost reductions.
The increase in the provision subsequent to acquisition of
(cid:101)(cid:24) million has been recognised within expenses of the Group,
with (cid:101)1 million of this provision utilised during the year.
The final costs of redress for cases upheld will depend on
specific calculations on a case-by-case basis, and will be
impacted by market movements and other parameters
affecting the defined contribution scheme asset. Final
redress costs are therefore exposed to volatility from these
movements which may result in final settlement cost varying
from the amounts currently provided.
Quilter will continue to transform with focus turning now
towards operational and customer-facing areas of the business
as the Group seeks to integrate further, drive efficiencies and
improve both the adviser and customer experience whilst also
pursuing benefits within support function centres of excellence
post technology implementations. Therefore, in addition to the
benefits and costs previously announced, the Group has
extended the Optimisation business transformation with
additional optimisation annualised run-rate savings of
c.(cid:101)1(cid:24) million identified with costs to achieve of c.(cid:101)1(cid:25) million
expected to be realised by mid-2022. At the outset of the
Optimisation pro(cid:77)ect the Group indicated that certain business
activities were out of scope due to our focus on delivering a
successful platform migration and to limit disruption to those
parts of the business responsible for revenue generation.
(cid:58)ith the Platform migration now complete, the Group is now
considering the potential for a final phase of Optimisation
efficiencies and expects to provide an update on this in the
latter part of the year.
Lighthouse DB to DC complaints
As reported in the Group’s 2019 Annual Report, a provision
was recognised in relation to a number of complaints received
on pension transfer advice provided by Lighthouse for (cid:37)ritish
Steel Pension Scheme members, prior to the Group’s
acquisition of Lighthouse in June 2019. All the complaints
received related to transfers before that date and, as such,
the provision was established within the fair value of the
Lighthouse assets and liabilities acquired with a corresponding
increase in goodwill.
A total provision of (cid:101)28 million (31 December 2019(cid:29) (cid:101)12 million)
has been calculated for the potential redress of all (cid:37)ritish Steel
cases, including anticipated costs of legal and professional fees
associated with the redress activity. The provision was increased
during 2020 following the publication of the FCA thematic review
and additional client complaints being received.
The recognition of the total provision of (cid:101)28 million has been
apportioned between the fair value of net assets of Lighthouse
at acquisition and the expenses of the Group. (cid:101)24 million
(31 December 2019(cid:29) (cid:101)12 million) is recognised within the fair
value of net assets acquired and impacts the goodwill balance
recognised upon acquisition. The impact on the goodwill
balance was partially offset by the recognition of an insurance
recovery asset of (cid:101)3 million, and a deferred tax asset of
(cid:101)2 million, resulting in a net increase to goodwill of (cid:101)19 million.
Further details are provided in notes (cid:25)(a), 28 and 3(cid:24) to the
financial statements.
Reconciliation of adjusted profit before tax* to IFRS profit
Ad(cid:77)usted profit before tax for the Group was (cid:101)1(cid:25)8 million
(2019(cid:29) (cid:101)182 million from continuing operations excluding
Quilter Life Assurance which was sold 31 December 2019).
The Group’s IFRS profit after tax from continuing operations
was (cid:101)89 million, compared to a loss after tax of (cid:101)(21) million
in 2019, primarily due to the change in policyholder tax, which
can vary significantly year-on-year as a result of market
volatility. The table below provides the reconciliation of the
Group’s ad(cid:77)usted profit before tax to the IFRS profit(cid:18)(loss) after
tax for 2020 and 2019.
Ad(cid:77)usted profit before tax(cid:13) reflects the profit from the
Group’s core operations and is calculated by making certain
ad(cid:77)ustments to IFRS profit to reflect the Directors’ view of the
Group’s underlying performance. Details of these ad(cid:77)ustments
are provided in note 7 of the consolidated financial statements.
The ‘impact of acquisition and disposal related accounting’
costs of (cid:101)42 million (2019(cid:29) (cid:101)(cid:24)4 million) include amortisation
of acquired intangible assets of (cid:101)4(cid:24) million (2019(cid:29) (cid:101)4(cid:24) million),
acquisition and disposal related costs, including the unwinding
of discounting on contingent consideration of (cid:101)1 million (2019(cid:29)
(cid:101)9 million), partially offset by fair value gains on the revaluation
of contingent consideration of (cid:101)4 million (2019(cid:29) (cid:101)nil). These
costs have decreased in 2020, principally due to the impact
of no material acquisitions being made during the year.
The loss on business disposals of (cid:101)1 million (2019(cid:29) profit
of (cid:101)103 million) represents transaction and separation costs
recognised during the year, which relate to the sale of the
QLA and Single Strategy businesses in prior years. The Group
recognised a profit on disposal of (cid:101)103 million in the prior year
in relation to the sale of QLA to ReAssure on 31 December 2019.
(cid:37)usiness transformation costs of (cid:101)70 million (2019(cid:29) (cid:101)77 million)
include (cid:101)38 million (2019(cid:29) (cid:101)(cid:24)7 million) incurred on the UK
Platform Transformation Programme and (cid:101)33 million of costs
(2019(cid:29) (cid:101)18 million) in relation to the Optimisation programme.
In 2020, a credit of (cid:101)1 million has been recognised in relation to
the separation of Quilter Investors as a result of the sale of the
Single Strategy business, and in 2019 restructuring costs of
(cid:101)3 million were incurred as a result of the sale of QLA.
66
Quilter | Annual report 2020
(cid:53)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:87)(cid:68)(cid:91)(cid:3)(cid:87)(cid:82)(cid:3)(cid:918)(cid:41)(cid:53)(cid:54)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)
For the year ended 31 December 2020
For the year ended 31 December 2019
(cid:101)(cid:80)
Advice and (cid:58)ealth Management
(cid:58)ealth Platforms
Head Office
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:13)(cid:3)
Reallocation of QLA costs
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:13)(cid:3)
Ad(cid:77)usting for the following(cid:29)
Impact of acquisition and disposal related accounting
(Loss)(cid:18)profit on business disposals
(cid:37)usiness transformation costs
Managed Separation costs
Finance costs
Policyholder tax ad(cid:77)ustments
Customer remediation
Total adjusting items before tax
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
to equity holders*
Tax attributable to policyholder returns
Income tax credit(cid:18)(expense)
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)2
Continuing
Operations
Discontinued
Operations1
Total
Continuing
Operations
Discontinued
Operations1
90
114
(36)
168
–
168
(42)
–
(70)
–
(10)
9
(5)
(cid:3)(cid:11)(cid:20)(cid:20)(cid:27)(cid:12)
50
36
3
89
–
–
–
–
–
–
–
(1)
–
–
–
–
–
(cid:3)(cid:11)(cid:20)(cid:12)
(cid:3)(cid:11)(cid:20)(cid:12)
–
–
(cid:11)(cid:20)(cid:12)
90
114
(36)
168
–
168
(42)
(1)
(70)
–
(10)
9
(5)
(cid:11)(cid:20)(cid:20)(cid:28)(cid:12)
(cid:23)(cid:28)
36
3
88
103
112
(33)
182
(26)
156
(54)
–
(77)
(6)
(10)
(62)
–
(209)
(53)
98
(66)
(21)
–
53
–
53
26
79
–
103
–
–
–
(12)
10
101
180
76
(89)
167
1Discontinued operations includes the results of the Quilter Life Assurance ((cid:522)QLA(cid:523)) business in 2019.
2IFRS profit(cid:18)(loss) after tax.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
e
p
o
r
t
Total
103
165
(33)
235
–
235
(54)
103
(77)
(6)
(10)
(74)
10
(108)
127
174
(155)
146
i
F
n
a
n
c
a
i
l
Managed Separation costs were nil (2019(cid:29) (cid:101)(cid:25) million), reflecting
costs associated with our successful separation from Old
Mutual plc and Listing in June 2018. In 2019, this cost was
primarily incurred on the rebranding activities within the
business, with residual costs expected to be incurred in early
2021 for the final rebranding activity of the UK Platform
business following the final client asset migration.
Finance costs were (cid:101)10 million (2019(cid:29) (cid:101)10 million) wholly related
to the interest and amortisation of setup fees on the Tier 2
bond and Revolving Credit Facility.
Policyholder tax ad(cid:77)ustments from continuing operations
were a credit of (cid:101)9 million for 2020 (2019(cid:29) debit of (cid:101)74 million)
in relation to the removal of distortions arising from market
volatility that can, in turn, lead to volatility in the policyholder
tax charge between periods. The recognition of the income
received from policyholders (which is included within the
Group’s IFRS revenue) to fund the policyholder tax liability
can vary in timing to the recognition of the corresponding tax
expense, creating volatility to the Group’s IFRS profit(cid:18)(loss)
before tax attributable to equity holders.
The customer remediation ad(cid:77)ustment of (cid:101)(cid:24) million in 2020
relates to the impact of post-acquisition market movements
on the (cid:37)ritish Steel complaints provision relating to Lighthouse.
The (cid:101)10 million credit in the prior period relates to the release
of the voluntary customer remediation provision in QLA
associated with certain legacy products.
Cash generation*
Cash generation measures the proportion of ad(cid:77)usted profit
after tax that is recognised in the form of cash generated from
operations. The Group achieved a cash generation rate of 8(cid:25)(cid:8)
of ad(cid:77)usted profit after tax over 2020 (2019(cid:29) 8(cid:24)(cid:8), restated for
continuing business only following the disposal of QLA).
Review of financial position
Capital and liquidity
Solvency II
The Group’s Solvency II surplus is (cid:101)1,021 million at 31 December
2020 (31 December 2019(cid:29) (cid:101)1,1(cid:25)8 million), representing a
Solvency II ratio of 217(cid:8) (31 December 2019(cid:29) 221(cid:8)). The
Solvency II information for the year to 31 December 2020
contained in this results disclosure has not been audited.
The Group’s Solvency II capital position is stated after allowing
for the impact of the recommended final dividend payment
of (cid:101)(cid:25)1 million (2019(cid:29) (cid:101)(cid:25)4 million).
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:11)(cid:101)(cid:80)(cid:12)
Own funds
Solvency capital requirement ((cid:522)SCR(cid:523))
Solvency II surplus
Solvency II coverage ratio
31 December
20201
31 December
20192
1,897
876
1,021
(cid:21)(cid:20)(cid:26)(cid:8)
2,132
964
1,168
221%
1Filing of annual regulatory reporting forms due by 20 May 2021.
2As represented within the Quilter plc Group Solvency and Financial Condition
Report for the year ended 31 December 2019.
s
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Quilter | Annual report 2020
(cid:25)(cid:26)
Financial review
continued
The 4 percentage point decrease in the Group Solvency II
ratio from the 2019 position is primarily due to the capital
movements associated with the Odd-lot Offer and Tranches 1
and 2 of the share buyback net of profit recognised in the year
and changes in capital requirements for the Group. The (cid:37)oard
believes that the Group Solvency II surplus includes sufficient
free cash and capital to complete all committed strategic
investments, including the UK Platform Transformation
Programme. Quilter expects to continue to maintain a solvency
position significantly in excess of its internal target in the near
term as a consequence of the surplus capital arising from the
sale of QLA that is still intended to be returned to shareholders
via further share buybacks.
Composition of qualifying Solvency II capital
The Group’s own funds include the Quilter plc issued
subordinated debt security which qualifies as capital under
Solvency II. The composition of own funds by tier is presented
in the table below.
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)(cid:3)(cid:11)(cid:101)(cid:80)(cid:12)
Tier 11
Tier 22
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:54)(cid:82)(cid:79)(cid:89)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:918)(cid:918)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:86)
At
31 December
2020
At
31 December
2019
1,688
209
(cid:20)(cid:15)(cid:27)(cid:28)(cid:26)
1,925
207
2,132
1All Tier 1 capital is unrestricted for tiering purposes.
2Comprises a Solvency II compliant subordinated debt security in the form
of a Tier 2 bond, which was issued at (cid:101)200 million in February 2018.
The Group SCR is covered by Tier 1 capital, which represents
193(cid:8) of the Group SCR of (cid:101)87(cid:25) million. Tier 1 capital represents
89(cid:8) of Group Solvency II own funds. Tier 2 capital represents 11(cid:8)
of Group Solvency II own funds and 20(cid:8) of the Group surplus.
Dividend
The (cid:37)oard has recommended a final dividend of 3.(cid:25) pence
per share at a total cost of (cid:101)(cid:25)1 million. Sub(cid:77)ect to shareholder
approval, the recommended final dividend will be paid on
17 May 2021 to shareholders on the UK and South African
share registers on 9 April 2021. For shareholders on our South
African share register a dividend of 7(cid:25).8878(cid:25) South African
cents per share will be paid on 17 May 2021, using an exchange
rate of 21.3(cid:24)774. This will bring the dividend for the full year
to 4.6 pence per share (2019: 5.2 pence per share).
Holding company cash
The holding company cash statement includes cash flows
generated by the three main holding companies within the
business(cid:29) Quilter plc, Old Mutual (cid:58)ealth Holdings Limited and Old
Mutual (cid:58)ealth UK Holding Limited. The flows associated with
these companies will differ markedly from those disclosed in the
statutory statement of cash flows, which comprises flows from
the entire Quilter plc Group including policyholder movements.
The holding company cash statement illustrates cash received
from the key trading entities within the business together with
other cash receipts, and cash paid out in respect of corporate
costs and capital servicing (including interest and dividends).
Other capital movements, including those in respect of
acquisitions and disposals together with funding for ongoing
68
Quilter | Annual report 2020
business requirements, are also included. It is an unaudited
non-GAAP analysis and aims to give a more illustrative view
of business cash flows as they relate to the Group’s holding
companies compared to the IFRS consolidated statement
of cash flows which is prepared in accordance with
IAS 7 ((cid:522)Statement of cash flows(cid:523)) and includes commingling
of policyholder related flows.
(cid:101)(cid:80)
2020
2019
Opening cash at holding companies
at 1 January
Quilter Life Assurance business sale
– cash proceeds
Quilter Life Assurance business sale
– cost of disposal
Single Strategy business sale
– deferred consideration received
Share repurchase and Odd-lot Offer
Dividends paid
Net capital movements
Head Office costs and Optimisation
programme funding
Interest costs
Net operational movements
Cash remittances from subsidiaries
Net capital contributions and investments
Other net movements
Internal capital and strategic
investments
Closing cash at holding companies
at end of period
815
–
(24)
7
(198)
(81)
(cid:11)(cid:21)(cid:28)(cid:25)(cid:12)
(74)
(9)
(cid:11)(cid:27)(cid:22)(cid:12)
170
(94)
5
81
(cid:24)(cid:20)(cid:26)
416
446
(7)
–
–
(92)
347
(49)
(9)
(58)
307
(200)
3
110
815
Net capital movements
Net capital movements in the year were an outflow of
(cid:101)29(cid:25) million. This includes (cid:101)1(cid:24)7 million relating to the share
repurchase programme (including (cid:101)4 million of costs),
(cid:101)21 million for the Odd-lot Offer and (cid:101)20 million in respect
of additional share repurchases to cover future vesting awards,
and two dividend payments made to shareholders of (cid:101)(cid:25)4
million on 18 May 2020 and (cid:101)17 million on 21 September 2020.
(cid:101)24 million of costs relating to the disposal of the QLA business
were also incurred during the year in line with expectations,
with (cid:101)7 million received in respect of final proceeds from the
Single Strategy business sale.
Net operational movements
Net operational movements were an outflow of (cid:101)83 million
for the year and includes (cid:101)74 million of corporate and business
transformation costs. Interest paid of (cid:101)9 million relates to
coupon payments on the Tier 2 bond and non-utilisation fees
for the revolving credit facility.
Internal capital and strategic investments
The net inflow of (cid:101)81 million is principally due to (cid:101)170 million
of cash remittances from the trading businesses partially offset
by (cid:101)94 million of capital contributions distributed to support
business operational activities, particularly due to the impact
of CO(cid:57)ID-19 and funding provided for the Platform
Transformation Programme.
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Balance sheet
(cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:11)(cid:101)(cid:80)(cid:12)
Assets
Financial investments
Contract costs/deferred
acquisition costs
Cash and cash equivalents
Reinsurers’ share of insurance
policyholder liabilities2
Goodwill and intangible assets
Trade, other receivables and
other assets
Other assets
Total assets
Equity
Liabilities
Investment contract liabilities
Insurance contract liabilities2
Third-party interests in
consolidated funds
Contract liabilities/deferred
revenue
(cid:37)orrowings-sub-ordinated debt
Lease liabilities
Trade, other payables and other
liabilities
Other liabilities
Total liabilities
Total equity and liabilities
At
31 December
2020
Total
At
31 December
2019
(restated)1
Total
At
1 January
2019
(restated)1
Total
63,274
413
1,921
–
556
701
507
(cid:25)(cid:26)(cid:15)(cid:22)(cid:26)(cid:21)
(cid:20)(cid:15)(cid:27)(cid:26)(cid:27)
57,407
–
6,513
379
199
120
672
204
57,207
455
2,253
–
592
605
439
61,551
2,071
52,455
–
5,318
403
198
137
801
168
58,054
551
2,305
2,162
550
718
371
64,711
2,005
56,450
602
3,833
456
197
–
979
189
(cid:25)(cid:24)(cid:15)(cid:23)(cid:28)(cid:23)
(cid:25)(cid:26)(cid:15)(cid:22)(cid:26)(cid:21)
59,480
61,551
62,706
64,711
1See note 4(b) for details of changes to comparative amounts.
2The consolidated statement of financial position at 1 January 2019 includes
balances for Deferred acquisition costs. Reinsurers’ share of insurance
policyholder liabilities and insurance contract liabilities relating to the Quilter
Life Assurance ((cid:522)QLA(cid:523)) business that was sold on 31 December 2019.
The Group balance sheet at 31 December 2020 has total
equity of (cid:101)1,878 million (31 December 2019(cid:29) (cid:101)2,071 million).
Total equity has decreased by (cid:101)193 million during the year,
predominantly due to the payment of dividends totalling
(cid:101)81 million in the year (2019(cid:29) (cid:101)92 million) and a reduction
of (cid:101)179 million in relation to the Group’s share buyback
programme, partially offset by the recognition of (cid:101)88 million
of statutory IFRS profit after tax.
Financial investments increased from (cid:101)(cid:24)7,207 million at
31 December 2019 to (cid:101)(cid:25)3,274 million at 31 December 2020,
predominantly due to positive market performance, following
the recovery from CO(cid:57)ID-19 related market losses in Q1 2020,
and positive net client cash flows in Quilter Investment
Platform and Quilter International. The corresponding impact
is reflected in Investment contract liabilities (an increase from
(cid:101)(cid:24)2,4(cid:24)(cid:24) million at 31 December 2019 to (cid:101)(cid:24)7,407 million at
31 December 2020).
Cash and cash equivalents of (cid:101)1,921 million decreased by
(cid:101)332 million from (cid:101)2,2(cid:24)3 million at 31 December 2019. The
decrease includes (cid:101)198 million of payments made in respect
of the Group’s share buyback programme, Odd-lot Offer and
other share purchases, together with dividend payments of
(cid:101)81 million. Included within this balance are cash investments
due to policyholders, and cash to support the capital and
funding requirements of the business.
Goodwill and intangible assets decreased by (cid:101)3(cid:25) million to
(cid:101)(cid:24)(cid:24)(cid:25) million at 31 December 2020. The decrease is largely due
to the amortisation of intangible assets of (cid:101)47 million, partially
offset by a (cid:101)7 million increase in the Lighthouse goodwill
balance, which is (cid:101)40 million at 31 December 2020
(31 December 2019(cid:29) (cid:101)33 million).
Trade, other receivables and other assets increased by
(cid:101)9(cid:25) million to (cid:101)701 million, mainly due to an increase in unsettled
trades across the business at the balance sheet date.
Other assets of (cid:101)(cid:24)07 million increased by (cid:101)(cid:25)8 million from
(cid:101)439 million at 31 December 2019. The balance is comprised of
property, plant and equipment, loans and advances, deferred
and current tax assets and derivative assets. Movement in the
year principally relates to an increase in deferred tax assets
and a higher derivative asset balance associated with the
consolidation of funds.
Trade, other payables and other liabilities decreased by
(cid:101)129 million to (cid:101)(cid:25)72 million at 31 December 2020. The decrease
includes the impact of a reduction in outstanding death claims
and surrenders recognised at the year end, together with a
decrease in other liabilities associated with the consolidation
of funds.
Other liabilities have increased from (cid:101)3(cid:25) million to (cid:101)204 million
primarily due to an increase in provisions, deferred tax
liabilities and in derivative liabilities associated with the
consolidation of funds.
Changes to comparative amounts
Following a review of the Group’s consolidated investment
funds, changes to previously reported comparative amounts
on the consolidated statement of financial position,
consolidated income statement, and consolidated statement
of cash flows have been identified and changes to comparative
amounts have been accordingly reflected in this year’s financial
statements. There has been no impact on the Group’s profit
for the current or prior year, including the Group’s KPIs and
alternative performance measures, and no impact on equity
for any of the periods presented. In accordance with the
requirements under the accounting standards, an additional
balance sheet has been presented as at 1 January 2019, as the
opening balance sheet for the comparative year, which reflects
the changes (as also presented in the balance sheet section
above). Full details, and the financial line items impacted,
are included in note 4(b) on page 175 of the consolidated
financial statements.
Quilter | Annual report 2020
69
Matt Burton
Chief Risk Officer
Risk review
Introduction
Effective risk management is key to Quilter
delivering on its strategy to be a modern,
UK-focused wealth manager. Strong risk
culture and risk management disciplines
have been demonstrated by Quilter’s
response to the CO(cid:57)ID-19 outbreak, where
management of the risk of physical harm
to customers and employees has guided
Quilter’s decision making throughout the
pandemic. Similarly, customers place their
trust in Quilter to help manage their financial
wellbeing, and it is critical that the interests
of customers guide key decision making to
support strong customer outcomes.
How we manage risk
Our Enterprise Risk Management Framework
(“ERMF”) is embedded across Quilter and
encompasses a number of elements to
help Quilter assess and manage its risk
exposures. A strong and embedded risk
culture is vital in ensuring that risk
implications are considered when making
strategic and operational decisions, and that
Quilter understands its risk profile and
manages the business on a continuous basis
within the approved risk appetite. The ERMF
drives consistency across Quilter and aims
to support the evaluation and management
of business opportunities, uncertainties
and threats in a structured and
disciplined manner.
Quilter’s effective
response to the
COVID-19 pandemic
shows strong risk
management
disciplines in action.
Risk governance
Quilter maintains a Group Governance
Manual (“GGM”) which sets out Quilter’s
approach to governance and the processes
by which Quilter operates. The Quilter
governance model is designed to promote
transparency, accountability and consistency
through the clear identification of roles, the
separation of business management and
governance and control structures, and by
tracking performance against
accountabilities. The segregation of risk
taking, oversight and assurance is codified in
Quilter’s three lines of defence model, which
ensures clear accountability and ownership
for risk and controls.
During 2020, the Risk Function developed a
Risk Function Charter which provides further
clarity on the purpose and role of the Risk
Function, and the means by which it
maintains its objectivity and independence
from management.
The Executive Risk Forum is the primary
management committee overseeing the risk
profile of the Quilter. This forum is chaired
by the Quilter Chief Executive Officer, with
representation from across Quilter. Ongoing
oversight of the risk profile and of risk
management arrangements is undertaken
by the Board Risk Committee, with relevant
matters also being considered by the Board.
Similar arrangements are maintained locally
in each significant business area.
On a quarterly basis, the Quilter Chief Risk
Officer formally reports the second line
perspective on the risk profile of the firm,
performance against risk appetite and a
second line perspective on the effectiveness
of management responses.
Policy framework
The Quilter Policy Suite forms an integral part
of our governance and risk management
framework, ensuring an appropriate system
of internal control. Together with the GGM,
they form the basis of clear delegated
authorities and accountabilities, ensuring
there is appropriate Board oversight and
control of important decisions, and efficient
and effective management of day-to-day
business. The GGM and policies are approved
and adopted by the Board. The policies are
subject to an annual policy compliance
review, with results provided to the Board.
70
Quilter | Annual report 2020
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Quilter’s three lines of defence model
First line of defence
Second line of defence
Third line of defence
Management and employees
Risk Function
Group Internal Audit
Primary responsibility for managing risks
as part of day-to-day activities, in line
with risk policies and appetite. Business
management decides which risks to
take and the exposure to assume.
The Risk Function, which includes
Compliance, provides objective
oversight, monitoring and independent
challenge of the first line’s risk taking,
and risk management.
Group Internal Audit provides the
Board and Management with
independent, objective assurance.
Risk appetite framework
Our risk appetite is the amount of risk
we are willing to take on in the pursuit
of our strategic priorities and is defined
by the Board. Culturally, it sets the tone
regarding our attitude towards
risk-taking. Risk appetite also plays
a central role in informing decision
making across Quilter, protecting and
enhancing the return on capital
invested. This risk appetite approach
is applied consistently across Quilter.
To support the strategic decision-
making process, we apply risk
preferences which provide guidelines
for striking the appropriate balance
of risk and reward when setting our
business strategy.
A set of Strategic Risk Appetite
Principles has been set by the Board.
These principles provide the top-of-
the-house guidance on our attitude
towards key areas of risk for Quilter
and support the ongoing management
and oversight of risk, and are
supported by a series of more granular
risk appetite statements, measures,
policies and standards. Quilter’s
position against these principles is
measured on a regular basis through
the monitoring of underlying risk
metrics.
Risk-based planning
On an annual basis a Risk Plan is
developed based upon a risk analysis
exercise. This analysis encompasses
a risk assessment of the prevailing risk
profile, as well as external factors,
including regulatory change. The Risk
Plan details the activities that will be
implemented by the Risk Function
across the risk domains, including
regulatory compliance, and includes
Strategic risk appetite principles
Customer
Liquidity
Capital
Control environment
Quilter will ensure fair customer
outcomes
Owner(cid:29) Chief Operating Officer
Quilter will ensure that it has
su(cid:605)cient liquidity to meet its
financial and fundin(cid:74) o(cid:69)li(cid:74)ations
Owner(cid:29) Chief Financial Officer
(cid:52)uilter (cid:90)ill hold or ha(cid:89)e access
to su(cid:605)cient capital to maintain its
o(cid:90)n capital needs
Owner(cid:29) Chief Financial Officer
(cid:52)uilter (cid:90)ill at all times operate
a ro(cid:69)ust control en(cid:89)ironment
Owners(cid:29) Chief Operating Officer, Chief
Risk Officer, Chief Internal Auditor
both advisory and monitoring
activities. The Risk Plan is approved,
and progress tracked, by the Board
Risk Committee.
Conduct risk
The Financial Conduct Authority
(“FCA”) is the primary conduct
regulator for Quilter’s UK regulated
entities. Quilter takes its regulatory
obligations in relation to customers
and our conduct seriously and is
committed to operating in a
responsible and compliant manner.
expects from its staff are set out
in the Quilter Code of Conduct.
This code has been updated to
reflect expectations of individuals
set out in the FCA’s Conduct Rules
which were implemented as part
of the Senior Managers and
Certification Regime.
Conduct risk is a core element
of Quilter’s ERMF, recognising that
conduct risks can both impact,
and result from, other risks within
the risk universe.
Quilter seeks to deliver on these
obligations through culture and
values, backed by a rigorous
governance system and an approach
to compliance that drives fair
outcomes for customers. The
standards of behaviour Quilter
Conduct risk is monitored across
Quilter’s businesses, with quarterly
reporting on Quilter’s conduct risk
profile, emerging issues and trends.
(cid:58)here areas of concern are noted,
actions are identified and are tracked
to completion.
Quilter | Annual report 2020
71
Risk review
continued
Prudential risk
Quilter is regulated by the Prudential
Regulation Authority ((cid:522)PRA(cid:523)) under Solvency II
and by the FCA under Capital Requirement
Directive regulations, and is subject to
insurance prudential requirements in a small
number of other (cid:77)urisdictions, including the
Isle of Man and Ireland. To meet these
regulations, we operate a consistent approach
to risk management across Quilter. As such,
we have integrated the Own Risk and Solvency
Assessment ((cid:522)ORSA(cid:523)) and Internal Capital
Adequacy Assessment Process ((cid:522)ICAAP(cid:523)) into
our risk management framework. Quilter’s
ORSA and ICAAP are comprehensive risk
processes which set out how risks are
managed and how risks might change over
time as we execute our strategy and respond
to developing situations.
(cid:58)e analyse the capital required to protect the
sustainability of Quilter and how those capital
requirements might develop over our planning
period. The assessments include a range of
stress and scenario testing covering a broad
range of scenarios, including market shocks,
new business growth scenarios and
operational risk events. These tests are in
addition to the regulatory solvency capital
requirements, which allow for severe and
extreme scenarios and stresses (1 in 200-year
risk events). Critical to our process is preparing
management action plans should adverse
events occur. This provides assurance that
Quilter is both well capitalised and prepared
to take necessary action.
Operational risk
Quilter operates processes to facilitate the
identification and management of operational
risk and the reporting of risk events. A
discipline of Risk and Control Self Assessments
(“RCSAs”) is undertaken across Quilter and risk
events are reported via our risk system, with
root cause analysis conducted on material
events.
Remuneration and reward
The most important element to risk
management is a good culture of risk informed
decision making. We believe that a good risk
culture enables effective management of risk.
(cid:58)e link risk management to performance and
development, as well as to Quilter’s
remuneration and reward schemes. An open
and transparent working environment which
encourages our people to embrace risk
management, and speak up where needed,
is critical to the achievement of our ob(cid:77)ectives.
72
Quilter | Annual report 2020
Risk profile
2020 has been a truly unprecedented year, as
the world has grappled with a pandemic which
has caused disruption on an unparalleled
scale. Quilter has adapted well to these
challenges, with operations and key
programmes continuing, many in a largely
virtual manner. Key successes, including two
client migrations within the Platform
Transformation Programme, have evidenced
that Quilter has been able to implement
complex change in challenging circumstances.
All of Quilter’s principal risks and uncertainties
has been impacted to some degree by
CO(cid:57)ID-19. Quilter’s business performance has
been impacted by the challenging economic
and market environment. Nevertheless, the
recovery in markets in the second half of 2020
and net inflows contributed to Quilter’s AuMA
increasing by c.7% during the year and Quilter
reporting solid financial results. Quilter has
remained financially strong, with robust
capital, solvency and liquidity positions
throughout 2020. The impact of CO(cid:57)ID-19 has
required focused cost management during
the year, balanced with the need to ensure
good customer outcomes and a robust
control environment. Supporting staff,
advisers and customers through a difficult
year have remained at the forefront of
Quilter’s approach in 2020.
(cid:37)eyond CO(cid:57)ID-19, the Quilter Financial
Planning business has been under scrutiny in
relation to historical defined benefit advice
provided by Lighthouse prior to its acquisition
by Quilter. As announced in June 2020, the
FCA has initiated a skilled persons ((cid:522)s.1(cid:25)(cid:25)(cid:523))
review into historic advice given by Lighthouse,
prior to its acquisition, and has also
commenced an enforcement investigation into
whether Lighthouse has breached certain FCA
requirements in connection with advising on
and arranging defined benefit pension
transfers in the period from 1 April 201(cid:24)
to 30 April 2019. Quilter is committed to
ensuring fair outcomes for impacted
customers. A lessons learned exercise has
been undertaken, and a series of control
environment enhancements have been made.
The implementation of the UK-EU Trade and
Cooperation Agreement has reduced the
geopolitical risk profile and should lessen
investor concerns, although the full impacts
of the end of the (cid:37)rexit transition period
are yet to be seen.
Principal risks and uncertainties
The Directors have carried out a robust assessment of the
principal and emerging risks facing Quilter, including those
that would threaten its business model, future performance,
solvency and liquidity as well as those risks that are non-
financial in nature. The articulation of these principal risks
and uncertainties are consistent with Quilter’s Enterprise Risk
Framework categorisation, and with the Top Risk reporting
that is undertaken quarterly to the (cid:37)oard.
Business and strategic risks
Economic environment
Quilter’s principal revenue streams are asset value-related and
as such Quilter is exposed to the condition of global economic
markets. The evolving CO(cid:57)ID-19 pandemic continues to have
significant impacts on economic activity resulting in market
volatility. These conditions are expected to continue into 2021,
alongside residual uncertainty in relation to the full impacts
of the implementation of the UK-EU Trade and Cooperation
Agreement. (cid:57)olatility in debt, equity and currency markets may
adversely impact customer investment portfolios which in turn
impacts Quilter’s ability to generate fee-based revenue.
The (cid:37)oard requires management to put in place actions to
mitigate these risks, and controls to maintain risk exposures
within acceptable levels defined by Quilter’s risk appetite.
The table below sets out Quilter’s principal risks and
uncertainties, including Executive Committee member
ownership and key mitigants being implemented by
management. The risk trend noted is the residual risk trend
(risk after the application of mitigants) during 2020.
Risk owner
2020 risk
trend
Mitigation
Chief
Financial
Officer
– Annual stress and scenario
analysis exercise
– Strength of balance sheet
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Business financial performance
Risk owner
2020 risk
trend
Mitigation
The challenging external environment experienced in 2020 is
set to continue to impact net flows, revenues and profitability
into 2021, with margin compression also set to be expedited by
the current conditions. Prudent cost management, both
through tactical in year savings, and longer-term Optimisation
initiatives has reduced the cost base, though increasing
Financial Services Compensation Scheme levies present a
further cost challenge. An unmitigated negative impact on
earnings, share price and/or capital position could have a
resulting adverse effect on Quilter’s market credibility and
financial standing.
Chief
Financial
Officer
– Ongoing cost efficiency
focus
– Optimisation initiatives
– Financial risk policies,
standards and limits
Residual risk decreased during 2020
Residual risk increased during 2020
Residual risk remained broadly stable during 2020
Quilter | Annual report 2020
73
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Risk review
continued
Business and strategic risks (continued)
Investment performance
Risk owner
2020 risk
trend
Mitigation
Strong investment performance within Quilter Investors’ fund
management proposition and within Quilter Cheviot’s
discretionary fund management proposition are key to enable
Quilter to meet customer expectations and to grow its
customer base, and assets under management. Weaker
short-term performance of Quilter Investors’ Cirilium Active
range was noted during volatile markets in the first quarter of
2020, with a range of management actions ongoing to support
stronger performance. Stronger performance has been
observed for the remainder of the year as these management
actions have been implemented, reducing the residual risk
profile. Longer term under-performance of core investment
management propositions could have a material effect on
Quilter’s business, financial performance and reputation.
Change
Quilter continues to be subject to material change
programmes, as a series of long-running programmes are
due to be completed during 2021, including the PTP. The scale
of change is reducing, in particular, as PTP nears completion.
A series of new business change programmes including the
work to strengthen controls at Quilter Financial Planning, and
several key digital and data initiatives will be ongoing in 2021.
This delivery profile carries a delivery risk, a risk of
implementation issues, and a dependence on key individuals.
As 2021 progresses there will be a need to ensure these
pro(cid:77)ects remain on track to deliver the intended benefits,
without risking disruption to continuing operations and the
control environment.
Chief
Executive
Officer
– Quilter
Investors
Chief
Executive
Officer
– Quilter
Cheviot
Risk owner
Chief
Operating
Officer
Chief
Executive
Officer
– Quilter
Investment
Platform
(PTP)
– (cid:37)olstered Quilter Investors’
leadership team, including
a new Chief Investment
Officer
– Enhanced Quilter Investors’
performance and
investment risk oversight
and monitoring
2020 risk
trend
Mitigation
– Successful PTP migration
preparation and migration
events in 2020, with final
migration on track for
Q1 2021
– Active management and
prioritisation of the change
portfolio
– Enhanced executive
oversight and change
assurance
– Programme and portfolio
governance arrangements
Operational and regulatory risks
Advice
Risk owner
2020 risk
trend
Mitigation
Quilter’s financial advice services are sub(cid:77)ect to fundamental
regulatory conduct requirements to assure suitability of
advisory recommendations. Failure to operate effective
arrangements to support the delivery of suitable advice could
expose Quilter to risks associated with customer detriment,
regulatory censure and remediation programmes, and
consequential impacts to the Group’s business, financial
condition and reputation. The current scrutiny of the defined
benefit transfer advice provided by Lighthouse has increased
the risk profile during 2020 given the need to remediate
impacted cases where relevant and deliver fair outcomes
for customers.
Chief
Executive
Officer
– Quilter
Financial
Planning
– Ongoing work to enhance
the advice and adviser
control framework within
Quilter Financial Planning
– Enhanced suitability
monitoring and oversight
arrangements
74
Quilter | Annual report 2020
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Operational and regulatory risks (continued)
Information technology
Risk owner
2020 risk
trend
Mitigation
Chief
Operating
Officer
Quilter’s business is highly dependent on its technology
infrastructure and applications to perform necessary business
functions, including to support the provision of services to
customers. CO(cid:57)ID-19 has required adaptation to mass home
working, which has been successfully achieved across Quilter.
Much of Quilter’s legacy IT estate is currently being replaced,
with a move to Software as a Service ((cid:522)SAAS(cid:523)) applications
reducing the Group’s internal technology complexity, though
increasing reliance on third-parties. Failure to manage
technology risk could have a material adverse impact on
Quilter’s business, its resilience capabilities, financial condition,
operations and its reputation.
– Technology strategy
to support the transition
to modern applications
and retirement of legacy
technology
– Infrastructure
Transformation
Programme to deliver
technology enhancement
across Quilter’s estate
– Active systems monitoring
– Policy suite and standards
compliance arrangements
Information security
Risk owner
2020 risk
trend
Mitigation
Quilter’s business, by its nature, requires it to store, retrieve,
evaluate and utilise customer and company data and
information, some of which is highly sensitive. The CO(cid:57)ID-19
conditions mean there is increased remote handling of data.
Quilter is sub(cid:77)ect to the risk of information security breaches
from parties with criminal or malicious intent. Should Quilter’s
intrusion detection and anti-penetration software not
anticipate, prevent or mitigate a network failure or disruption,
it may have a material adverse effect on Quilter’s customers,
business, financial condition, operations and reputation.
Chief
Operating
Officer
– Ongoing Information
Security Improvement
Programme
– Cyber threat defences
and monitoring
– Data governance
arrangements
– Information security policy
and standards compliance
arrangements
People
Risk owner
2020 risk
trend
Mitigation
Quilter relies on its talent to deliver its service to customers
and to implement the broad range of strategic change
initiatives that are currently being delivered. In 2020 the
CO(cid:57)ID-19 operating conditions have posed further people
challenges, although a strong focus on supporting staff
through this difficult time has reduced its impact. People risk
has remained elevated but broadly stable during 2020. Failure
to retain key staff or to attract suitable talent may impact the
delivery of Quilter’s strategy and may have an adverse impact
on Quilter’s business, its financial and operational
performance and its delivery of service to customers.
Chief
Operating
Officer
– Phasing key change
programmes to
avoid conflicts
– Performance evaluation
arrangements and related
performance and risk-
adjusted remuneration
arrangements
– Regular employee
engagement surveys
– Quilter’s staff wellbeing
initiative, ‘Thrive’
Quilter | Annual report 2020
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Risk review
continued
Operational and regulatory risks (continued)
Third party, including outsourcing
Risk owner
2020 risk
trend
Mitigation
Quilter procures certain services from third parties, which
will increase as the Platform Transformation Programme
concludes and results in significant business process and
technology outsourcing to FN(cid:61). If Quilter does not effectively
oversee its third-party providers, they do not perform as
anticipated, or Quilter experiences technological or other
problems with a third party, Quilter may experience
operational difficulties, increased costs and loss of business,
potential customer detriment and damage to its reputation.
A decreasing residual risk profile is observed as Quilter’s
third-party oversight arrangement matured through 2020,
reducing the risk of material incidents.
Operational resilience
Operational resilience was added to Quilter’s principal risks
and uncertainties in Q2 2020, given the magnitude of the
disruption posted by CO(cid:57)ID-19. The pandemic has tested
Quilter’s ability to respond and adapt to sudden disruptions
and has shown Quilter to successfully manage during this crisis
period. Following the maturing of crisis management protocols,
the focus in 2021 will switch to reviewing standards for
articulating critical processes and dependencies, and of the
effectiveness of testing such that the firm can robustly
demonstrate preparedness for future scenarios, and manage
the risk that future events could pose to customers or Quilter.
The trend represents a stable residual risk trend since
inclusion in Quilter’s principal risks and uncertainties
in Q2 2020.
Chief
Operating
Officer
– Maturing of Quilter’s
Third-Party Risk
Management Framework
– Implementation of a
systemised approach
to outsourcing
– Third Party Risk
Management Policy and
standards compliance
arrangements
Risk owner
2020 risk
trend
Mitigation
Chief
Operating
Officer
(Since Q2
2020)
– Operational resilience
policy and processes
– Systemised inventories
of critical processes and
dependencies
– Resilience plans and testing
Regulatory
Risk owner
2020 risk
trend
Mitigation
Chief Risk
Officer
Quilter is subject to regulation in the UK by the PRA and the
FCA, and by a range of regulators internationally. Additionally,
the firm is sub(cid:77)ect to the privacy regulations enforced by
Information Commissioner’s Office and international
equivalents. Quilter faces risks associated with compliance
with these regulations and to changes in regulations or
regulatory focus or interpretation in the markets in which
Quilter operates. Failure to manage regulatory compliance
effectively could result in regulatory censure, including the
possibility of fines or prohibitions which could impact business
performance and reputation. An increased risk profile was
noted in 2020 as a result of regulatory attention in respect
of Quilter Financial Planning.
– Compliance advice and
monitoring programme
– Regulatory engagement
management
– Regulatory horizon
scanning
– Staff training and staff
awareness programmes
– Compliance policy and
standards compliance
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Emerging risk radar
Quilter is a long-term business and
as such we monitor risks which are
less certain in terms of timescales
and impact. The emerging risk profile
is subject to regular review by
management committees and the
(cid:37)oard. The identification of these risks
contributes to our stress and scenario
testing which feeds into our strategic
planning process and informs our
capital calculations. The following are
the emerging risks we feel are the
most significant.
Near term
Medium term
Longer term
Generational shifts
The UK is experiencing shifts in
generational wealth accumulation with
newer generations potentially less able
to accumulate wealth and assets from
income. Existing intergenerational
tensions are being further accelerated
by an ageing population and the
impact of the CO(cid:57)ID-19 pandemic on
the economic outlook. Robotics and,
in the longer term, artificial intelligence
and the increased need to manage
natural resources all have the potential
to materially change the nature of the
future labour force (for example,
through mass unemployment), which
represents additional challenge to
Quilter’s target market. There is a risk
of strategic failure to adapt to future
customer needs.
Pandemic evolution
The resurgence of the pandemic in late
2020 and early 2021 is causing further
economic pressure as well as direct
impacts on our customers, people,
advisers and operations. The rapid
roll-out of the vaccine in the UK gives
reason for optimism in the medium-
term outlook, though further
disruption is likely in the short term
and there remains uncertainty as to
the pace and shape of economic
recovery. Quilter’s NCCF, AuM,
profitability and free cash levels could
be materially affected by an extended
or volatile economic recovery.
Cyber threat developments
Evolving sophisticated cyber criminality
presents a persistent threat of attack,
capable of compromising the
continuity of operations, or the
security and integrity of information.
Quilter’s cyber risk landscape is made
more complex by the current remote
working environment.
Margin pressure
There is increasing impetus to provide
wealth management services at a
lower overall cost to customers.
In line with Quilter’s aim to offer
competitive pricing at every point in
the value chain, there will be a need
to re-evaluate the costs charged to
customers, which include advice
fees, platform costs and fund
management fees.
Political and regulatory change
Changes in regulation resulting from
the shifting expectations of our
regulators and the UK’s withdrawal
from the EU could have a material
impact on Quilter. Income, wealth and
corporation tax rises are also possible,
to restore public finances following the
pandemic. For example, changes to
pension tax relief for high earners and
other tax changes affecting customer
wealth could impact Quilter’s NCCF
and AuM.
Climate change/ESG
Increased frequency of climate-related
risk events or a disorderly transition to
a low carbon economy could give rise
to additional costs, and adversely
impact asset values and investment
performance. The acceleration of
government, regulatory and corporate
activity in support of meeting climate
change targets requires Quilter to
develop its approach to the
identification and management of the
risks associated with climate change.
There is increasing focus on
sustainability and sustainable
investing, bringing opportunity and
also increased pressure from investors
and customers to bring about change.
Quilter is focused on delivering against
its climate and ESG responsibilities,
including developing the required
TCFD for the 2021 financial year.
Disruptive competition
There is increased competition
in the wealth management industry
and an acceleration in technological
advancements. A rapidly shifting
external environment brings
opportunity for greater competitive
disruption with potential to erode
Quilter’s market share.
Quilter | Annual report 2020
77
Viability statement
and going concern
The one-year planning period has greater
certainty, and is used to set detailed budgets
across the Group. Although three years is
regarded as an appropriate period for the
assessment of the Group’s viability, the Board
also regularly considers other strategic
matters that may affect the longer-term
prospects of the Group. This will include the
Board’s assessment of the principal risks and
uncertainties facing the Group in the longer
term, including any emerging risks, such as the
impact of COVID-19, climate change and the
generational shifts potentially impacting the
ability of newer generations to accumulate
wealth from income. The Board’s longer-term
view is that the Group will continue to grow as
a wealth manager, serving clients throughout
their lives encompassing their accumulation
and decumulation phases.
The Board’s assessment included reviews of
capital, liquidity and solvency, and assessment
of the principal risks over the three-year
planning period, which included the impact
of COVID-19. A large portion of the Group’s
revenue is correlated to the Group’s AuMA,
which can move materially when there is
significant volatility in global financial markets,
as was experienced in 2020 with the impact of
the CO(cid:57)ID-19 pandemic. The effect of changes
in market levels, and the associated impact on
investor sentiment, were all considered as
part of the planning process, particularly in
the calculation of expected market growth
rates. In 2020, management actions were
taken on costs as a result of the impact of
COVID-19, to realise tactical cost savings of
c.£40 million. Additional management actions
available to further reduce costs were also
considered during the planning process.
Viability statement
In accordance with provision 31 of the 2018
UK Corporate Governance Code, the Directors
have assessed the prospects of the Group for
a period longer than the 12 months required
in the going concern statement.
Quilter’s Risk Appetite Framework supports
the delivery of Quilter’s strategy and business
plan with risk preferences and appetite playing
a central role in informing decision making
across the Group.
Every year, the Board considers a three-year
strategic plan and also an ORSA for the Group,
as required by our UK regulators. The plan
makes certain key assumptions in respect
of the competitive markets and political
environments in which the Group operates,
economic assumptions, the level of support
provided to companies within the Group and
the impact of key strategic initiatives including
the delivery of future benefits associated with
the new platform. This year, the strategic plan
considered the impact of COVID-19, and the
risks and challenges this presents to the
Group, in particular the potential for further
volatility in debt, equity and currency markets
which can adversely impact the Group’s
AuMA, revenue and profitability.
Quilter’s Risk
Appetite Framework
supports the delivery
of Quilter’s strategy
and business plan
with risk preferences
and appetite playing
a central role in
informing decision
making across
the Group.
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Appropriate aspects of the strategic plan
are stress-tested under the ORSA and ICAAP
reviews to understand and help set capital
and other requirements. The stress tests
considered include a broad range of scenarios,
including economic and market shocks of up
to 40% falls in equity markets, mass lapse
events, new business growth scenarios and
severe business interruption, equivalent to
1-50 and 1-200 year events. In 2020, the
underlying case on which the stress tests were
based, assumed starting equity market levels
at the low point in 2020 as a result of the
COVID-19 pandemic, which provided a
conservative starting position. A stress test
was also performed for an additional scenario
relating to COVID-19, which assumed further
lockdowns resulting from spikes in infection
rates occurring over the three-year planning
period leading to lower NCCF, and lower
revenue and profitability as a result of equity
market falls. In all severe but plausible adverse
tests, sufficient capital and liquidity were
available after management actions,
demonstrating the Group’s resilience to
adverse conditions. Management actions
included the cessation of dividend payments
in the most extreme scenarios, as well as
actions to reduce costs, which included
reductions in variable compensation costs,
discretionary spend, and staff recruitment
freezes, similar to the tactical cost savings
utilised in the current year.
Reverse stress tests, which are performed to
identify events which would make the current
plan unviable, have also been performed. The
results of these tests indicate that the Group
can reasonably expect to have sufficient
capital and liquidity to be able to meet its
liabilities over the planning period and could
sustain a significant equity market fall, after
management actions, well below the market
falls experienced during the first half of 2020
during the COVID-19 pandemic, with no
foreseeable market recovery.
The Board regularly monitors performance
against a range of predefined key
performance indicators and early warning
thresholds, which will identify if developments
fall outside of the Group’s risk appetite or
expectations, allowing management action
to be taken.
The Strategic Report, on pages 1 to 79,
sets out the Group’s financial performance,
business environment, outlook and financial
management strategies. In addition, details
of the Group’s principal risks and risk
management framework is set out
on pages 73 to 76.
Conclusion on viability
Considering the Group’s current capital
and trading position, its principal risks, and
remaining three-year period of the strategic
plan, with due consideration of the impact
of the COVID-19 pandemic, the Board has
reasonable expectation that the Company
and the Group can continue in operation,
and meet their liabilities as they fall due
for the period to 31 December 2023.
Going concern
The Directors have considered the resilience
of the Group, taking into account its current
financial position, the principal risks facing
the business and the effectiveness of the
mitigating strategies which are or will be
applied. As a result, the Directors believe
that the Group is well placed to manage its
business risks in the context of the current
economic outlook and have sufficient financial
resources to continue in business for a period
of at least 12 months from the date of
approval of these consolidated financial
statements, and continue to adopt the going
concern basis in preparing the consolidated
financial statements.
This Strategic Report was approved by the
Board on 10 March 2021.
Glyn Jones
Chairman
On behalf of the Board
Quilter | Annual report 2020
79
Governance Report
81 Chairman’s introduction
to corporate governance
82 Governance at a glance
83 Our leadership and governance structure
84 Board of Directors
88 Quilter leadership
90 The work of the Board in 2020
90 Section 172 (1) statement
99 Governance in action
102 Board Corporate Governance and Nominations
Committee report
108 Board Audit Committee report
116 Board Risk Committee report
119 Board Technology and Operations Committee
report
122 Board Remuneration Committee report
128 Directors’ Remuneration Policy
133 Annual Report on Remuneration
148 Our approach to governance
152 Directors’ Report
80
Quilter | Annual report 2020
Chairman’s introduction
to corporate governance
Dear Shareholder,
Over the course of 2020, your Board has
had to ensure that our business responded
quickly and effectively to the impacts of the
COVID-19 pandemic. The response enabled
Quilter to continue to serve all of its
stakeholders during a time of great stress
and concern for our people, our customers
and the communities in which we operate.
Your Board is engaged in building a resilient
business for the long term. At the same
time as we were supporting the Quilter
management team in taking appropriate
tactical decisions to protect our business,
we also focused on the continued
transformation of our business and
ensuring that the strategic direction
remained appropriate for a rapidly
changing world. The Board has also focused
on ensuring that a strong culture that puts
our customers at the heart of everything
we do is embedded across the organisation
and the Board has continued to monitor
progress in that regard.
Quilter has continued to comply with
the recommendations of the 2018 UK
Corporate Governance Code (the Code)
throughout 2020 and the unprecedented
crises has provided many examples of how
Quilter has sought to operate in the best
interests of all of its stakeholders, despite
the very difficult circumstances. From
protecting the health and mental wellbeing
of employees and advisers to providing
reassurance and trusted financial advice to
our customers during a dramatic decline in
markets and an extended period of market
volatility, Quilter has continued to operate
in line with our values. For our
shareholders, the financial resilience of our
business has enabled Quilter to continue to
pay dividends and to make progress in our
share buyback programme which we
announced early in 2020. Further examples
of how the Board has operated in 2020 and
continued to engage with stakeholders are
set out on pages 90 to 101.
Long-term success is built on a culture of
continuous improvement. Therefore, given
the customer complaints arising in the
Lighthouse business before its acquisition
by Quilter, the Board decided to review the
due diligence process in relation to the
acquisition and in particular the due
diligence on the advice given in relation
to (cid:37)ritish Steel Pension Scheme defined
benefit transfers. A Committee comprising
independent Non-executive Directors
under the leadership of Rosie Harris,
oversaw the review which was assisted
by external legal advisers. The Committee
presented a comprehensive overview of
the findings of this review to the (cid:37)oard
in September 2020. Management have
developed a detailed action plan to ensure
that the lessons learned are fully
embedded into the organisation.
Looking ahead
The Quilter Board has supported and
encouraged management to stay focused
during 2020 on delivering our critical major
strategic programmes, in particular
Optimisation and our Platform
Transformation Programme. With the
recent completion of our third and final
phased adviser migration to our new
Investment Platform, a major building block
for the long-term success of our business
is now in place. The Board commenced
a strategic review of Quilter International
in 2020 and expects to advise the outcome
in the first half of 2021.
Our Corporate Governance Framework
has continued to serve us well through a
very challenging year, allowing us to ensure
that the long-term prospects of the Group
were protected and enabling your Board
to look forward to 2021 with confidence
in the resilience and strong potential
of our business.
Glyn Jones
Chairman
Glyn Jones
Chairman
Key activities
The Board has engaged in
the following key governance
activities during the year.
Reviewing and setting
the Group’s strategy
Page 97
Setting stretching but
achievable financial and
operating targets
Page 97
Reviewing the response
to COVID-19
Page 97
Monitoring the delivery
of the Operating Plan and
key strategic programmes
Page 98
Overseeing the Group’s
management of material
risks
Page 98
Ensuring the Group’s
people strategy and
culture are aligned with
the business strategy
Page 98
Monitoring the
investment performance
of our funds and solutions
Page 98
Monitoring how well
we serve our customers
Page 98
Quilter | Annual report 2020
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Governance at a glance
Board highlights
Industry knowledge and experience
Gender
Length of tenure for Chairman and
Non-executive Directors
Female 4 (40%)
Male 6 (60%)
0-2 years 2
2-3 years 2
3-4 years 2
4-5 years 2
Accounting and finance 2
Asset management 3
Distribution 1
Governance 2
Insurance 1
International financial services 4
IT and operations 2
Legal 1
Risk 2
(cid:58)ealth management 3
As at 10 March 2021.
Board membership
The composition of the Board and the Board Committees
meets the requirements of the Code.
The Directors’ attendance at each meeting of the Board
is set out in the table opposite.
The 2018 UK Corporate Governance Code
The Board considers that during 2020 the Company has
complied with the principles and provisions of the Code.
The Code, issued by the Financial Reporting Council (“FRC”),
and associated guidance are available on the FRC website at
www.frc.org.uk.
You can read more about how we apply and comply with
the Code and other relevant rules and regulations on
pages 148 to 151.
82
Quilter | Annual report 2020
Board meeting attendance during 2020
Chairman and
Executive Directors
Glyn Jones
Paul Feeney
Mark Satchel
Independent Non-
executive Directors
Tim Breedon
Rosie Harris
Suresh Kana
Moira Kilcoyne
Jon Little
Ruth Markland
Paul Matthews
George Reid
Cathy Turner
Scheduled Board
meetings attended/
eligible to attend
Additional meetings
attended/eligible
to attend
10/10
10/10
10/10
5/5
9/10
5/5
10/10
6/6
10/10
10/10
10/10
5/5
5/5
5/5
5/5
1/1
12/12
0/0
1/1
2/2
12/12
2/2
12/12
0/0
Where exceptionally, due to other commitments, a Director has been unable to
attend a meeting, they have separately submitted their comments and input on
the matters under discussion to the Chair of the Board or the relevant Board
Committee. Rosie Harris was unable to attend one Board meeting during the year
due to a long-standing prior commitment.
In addition to the meetings reported above, sufficient time was provided,
periodically, for the Chairman to meet privately with the Senior Independent
Director and the Non-executive Directors.
The additional meetings reported above related to the oversight of the Lighthouse
Committee and the Return of Capital Committee.
Our leadership and
governance structure
The Board
Chairman
Senior Independent
Director
Independent Non-
executive Directors
The Chairman is accountable to
shareholders for leading the Board
and ensuring the Board receives timely,
accurate information to take good
decisions for the benefit of all stakeholders.
The Senior Independent Director
supports the Chairman on all
governance issues and provides a
communication channel between the
Chairman and Non-executive Directors.
The Non-executive Directors support
and constructively challenge the
executive team within a spirit of
partnership and mutual respect.
Board Committees
Board Corporate
Governance and
Nominations
Committee
Board Audit
Committee
Board Risk
Committee
Board Technology
and Operations
Committee
Board
Remuneration
Committee
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Chair: Glyn Jones
Chair: George Reid
Chair: Rosie Harris
Chair: Moira Kilcoyne
Chair: Ruth Markland
Number of meetings
Number of meetings
Number of meetings
Number of meetings
Number of meetings
4
13
9
Responsibilities:
– Reviews composition
of the Board and
recommends the
appointment of new
Directors
– Considers
succession plans for
Chairman and other
Board positions
– Considers succession
plans for key
executive leadership
positions
– Monitors corporate
governance issues
– Oversees the annual
Board performance
review
– Provides oversight
of the Group’s
responsible business
agenda
Responsibilities:
– Reviews accounting
policies and the
contents of financial
reports
– Monitors disclosure
controls and
procedures
– Considers the
adequacy and scope
of the external and
internal audit
functions
– Oversees the
relationship with our
external auditors
Responsibilities:
– Monitors and
reviews the
effectiveness of the
internal control and
risk management
system
– Provides advice to
the Board on the top
risks faced by the
Group
– Recommends the
total level of risk
Quilter is prepared
to take (risk appetite)
– Monitors the risk
– Monitors the
profile
effectiveness of
internal financial
controls
– Advises the Board
on risk strategy
– Oversees the
effectiveness of the
Compliance function
14
Responsibilities:
– Oversees the
implementation,
execution and
delivery of the
Technology Strategy
and Operations
Strategy
– Provides oversight
and challenge on
Technology and
Operations risk
profile
– Oversees
Information Security,
Information
Management and
Operational
Resilience strategy,
systems and controls
– Oversees strategic
technology and
operational change
programmes
8
Responsibilities:
– Sets the overarching
principles and
parameters of
remuneration policy
across Quilter
– Considers and
approves
remuneration
arrangements for
Executive Directors
and Senior
Executives
– Approves individual
remuneration
awards
– Agrees changes
to Senior Executive
incentive plans
Paul Feeney
Executive Directors
Mark Satchel
The Executive Directors are accountable to the Chairman for their contribution on the Board. The executive team reports to the Chief Executive
for business areas and delivery of Board-approved Operating and Business Plans.
Executive Committee
Executive Risk Forum
Operating Committee
Responsible Business Forum
Key management committees
Quilter | Annual report 2020
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Board of Directors
Chairman and Executive Directors
Glyn Jones
Chairman
Paul Feeney
Chief Executive Officer
Mark Satchel
Chief Financial Officer
Appointed November 2016
Appointed August 2012
Appointed March 2019
Board and Committee membership
Board and Committee membership
Board and Committee membership
Board
Board Remuneration Committee
Board Corporate Governance and
Nominations Committee (C)
Board
Board
Skills and experience:
Glyn Jones has over 20 years’ experience
of chairing Boards, including those of
Aldermore Group, Aspen Insurance
Holdings, Hermes Fund Managers,
BT Pension Scheme Management
and Towry. This extensive experience
provides him with the skills and
understanding needed to lead an
effective and cohesive (cid:37)oard at Quilter.
His significant experience in UK and
international financial services, gained
during his tenures as CEO of Gartmore
Investment Management and Coutts
Group, and whilst running Standard
Chartered’s international private banking
business in Hong Kong, provides him
with the necessary knowledge to lead
discussions on key business matters
including strategy, performance and
risk. Glyn is a Fellow of the Institute
of Chartered Accountants in England
and Wales.
Skills and experience:
Mark Satchel brings deep finance,
corporate action and business
experience to the Board. He joined
Old Mutual in the UK in January 2000
and held numerous leadership positions
within the finance function and
businesses there, during which time he
played key roles in the acquisitions of
Intrinsic (now Quilter Financial Planning)
and Quilter Cheviot. This experience has
been invaluable in ensuring that Quilter
effectively executes its strategy, for
example allowing him to lead the
successful disposal of Quilter Life
Assurance. Mark previously served as
Chief Financial Officer of the business
from 2010 to August 2017 and as
Corporate Finance Director for the
17-month period to March 2019. Mark
is a qualified Chartered Accountant in
South Africa and worked for KPMG both
in South Africa and Canada prior to
moving to the UK. Mark is a Trustee of
The Old Grey Europe Charitable Trust.
Skills and experience:
Paul Feeney is an experienced,
entrepreneurial leader, having held
various senior business roles in large
international financial services
businesses, including as Chief Executive
Officer of Nat(cid:58)est Private (cid:37)ank, and
NatWest Investments USA, Group
Managing Director and Head of
Distribution for Gartmore Investment
Management, and Global Head of
Distribution at BNY Mellon Asset
Management International. During
his career, Paul has developed a deep
understanding of the challenges, risks
and opportunities faced by the industry,
thereby enabling him to create and
develop the vision and strategy of the
Group. Paul’s strong commercial acumen
and dynamic leadership style allow him
to effectively oversee the execution of
our strategy. In recognition of his role
in the industry, in January 2021 Paul
was asked to Chair the FCA Practitioner
Panel. Paul is passionate about
promoting good mental health, and
issues around mental health, both
across the industry and at Quilter where
he has sponsored the Thrive campaign
to support colleagues including those
impacted by the pandemic.
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Senior Independent Director
Independent Non-executive Directors
Ruth Markland
Tim Breedon CBE
Tazim Essani
Appointed June 2018
Appointed June 2020
Appointed March 2021
Board and Committee membership
Board and Committee membership
Board and Committee membership
Board
Board Audit Committee
Board Corporate Governance and
Nominations Committee
Board Remuneration Committee (C)
Board
Board Corporate Governance and
Nominations Committee
Board Remuneration Committee
Board Risk Committee
Board
Board Remuneration Committee
Skills and experience:
Ruth Markland, a solicitor and previously
Managing Partner of Freshfields
Bruckhaus Deringer’s Asia business, has
a wealth of FTSE-100 Board experience.
She spent over 10 years on the Boards
of Standard Chartered plc and Sage
Group plc, where she served as Senior
Independent Director and Chair of the
Remuneration Committees. Ruth was
also an independent Non-executive
Director of Deloitte LLP for five years
until May 2020 and is a member of the
Supervisory Board of Arcadis NV. She
has a strong understanding of corporate
governance and Boardroom dynamics,
enabling her to act as a helpful sounding
board for the Chair and other Board
members. Ruth was appointed Chair of
the Board Remuneration Committee in
May 2020, having served as a member
since joining the Board. Her extensive
knowledge of remuneration governance
and best practice, together with her
deep understanding of the
remuneration framework at Quilter,
have enabled her to have an immediate
impact in this new role.
Skills and experience:
Tim Breedon has a distinguished
career in financial services, with past
appointments including Group Chief
Executive Officer of Legal (cid:9) General,
being a Member of the Takeover Panel,
and holding Non-executive Director
roles with the Association of British
Insurers and the Financial Reporting
Council. Tim is an experienced Non-
executive Director and Committee
member, having served on the Boards
of Barclays plc and Barclays Bank plc
since 2012, where he Chairs the Board
Risk Committee and is a member of
the Board Audit Committee, Board
Nomination Committee and Board
Remuneration Committee. He is also
Chairman of Apax Global Alpha Limited.
Tim’s extensive business leadership and
governance best-practice experience
enables him to provide challenge, advice
and support to Quilter management on
business strategy, performance, decision
making and governance matters.
Skills and experience:
Tazim Essani’s wealth of experience
in senior executive roles at regulated
financial services businesses over the
last 30 years equips her well to provide
strategic guidance and constructive
challenge to Quilter’s leadership team.
Her executive career has focused on
strategy and business development to
drive growth and transformation, with
her previous roles including a senior
business strategy role at Santander UK,
Group Head of Corporate Development
at Close Brothers Group plc and senior
roles at GE Capital and Royal Bank of
Scotland. Throughout her career, Tazim
has developed a deep understanding of
corporate finance, strategy and business
development, enabling her to contribute
strongly to the Board’s deliberations.
Her extensive transformational change
experience will be invaluable in
supporting delivery of Quilter’s strategy.
Tazim is a Non-executive Director of City
of London Investment Group plc.
Quilter | Annual report 2020
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Board of Directors
continued
Independent Non-executive Directors
Rosie Harris
Moira Kilcoyne
Paul Matthews
Appointed April 2017
Appointed December 2016
Appointed August 2018
Board and Committee membership
Board and Committee membership
Board and Committee membership
Board
Board Audit Committee
Board Risk Committee (C)
Board Technology and Operations
Committee
Board
Board Risk Committee
Board Technology and Operations
Committee (C)
Board
Board Remuneration Committee
Board Risk Committee
Designated Employee Non-executive
Director
Skills and experience:
Rosie Harris has extensive knowledge
and experience of risk management
within the insurance and wealth
management industries, having served
as Chief Risk Officer for UK Life at Aviva,
Group Risk Director at Old Mutual plc
and Chief Risk Officer (Insurance) and
Managing Director, General Insurance
at Lloyds Banking Group plc. She is also
currently Chair of Tokio Marine Kiln’s
Insurance business, a Non-executive
Director of its Syndicates businesses and
Chairs its Risk Committee. This extensive
experience has been invaluable as
Quilter has developed and embedded
its risk management framework. Rosie
provides valuable insights into managing
and mitigating the risks that are inherent
in running a successful wealth
management business. Rosie is a
member of the Institute of Chartered
Accountants in England and Wales and
a Council Member of the University
of Birmingham.
Skills and experience:
Moira Kilcoyne brings over 25 years’
technology and cyber security
leadership, having spent much of her
career working in senior technology
roles at Morgan Stanley and Merrill
Lynch, latterly executing global change
management and transformative IT
implementation as Co-Chief Information
Officer for Global Technology and Data
at Morgan Stanley. Moira is also currently
a Non-executive Director of Citrix
Systems Inc and Arch Capital Group. This
experience, gained at both executive and
non-executive level, together with her
understanding of business operations,
operational resilience, management of
data and supplier oversight, equips her
to oversee and challenge the design and
delivery of Quilter’s technology and
operations strategies as well as the
delivery of Quilter’s new investment
platform. Moira is Trustee of the Board
of Manhattan College.
Skills and experience:
Paul Matthews is an experienced
FTSE-100 Board Director who has over
four decades’ worth of knowledge of the
savings and pensions industry. His
career at Standard Life, spanning nearly
30 years, where his roles included Group
Executive Director, Chief Executive
Officer UK (cid:9) Europe and Chairman of
Standard Life Wealth, enables him to
identify, and support management to
understand, the opportunities and risks
facing Quilter, particularly in its
distribution businesses. This insight
enables him to effectively assess and
challenge the executive’s strategy
proposals, execution and risk
management. As an executive mentor
at Merryck (cid:9) Co, Paul uses his extensive
leadership skills and experience to coach
senior leaders. Paul’s track record in
leading major businesses that rely on
having strong leadership and positive
cultures is also helpful in discharging
his role in providing the vital linkage
between the Board and Quilter’s
employees.
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Independent Non-executive Directors
Company Secretary
George Reid
Patrick Gonsalves
Appointed February 2017
Appointed January 2017
Board and Committee membership
Board
Board Audit Committee (C)
Board Risk Committee
Board Technology and Operations
Committee
Skills and experience:
George Reid spent over 20 years in the
accounting profession, specialising in
providing audit services to the financial
services industry. During lengthy tenures
at PwC, and, latterly, at Ernst (cid:9) (cid:60)oung
LLP as Managing Partner and Head of
Financial Services for Scotland and UK
regions, George gained a deep
understanding of accounting and audit
matters, and the robust financial control
environments required for a modern
wealth management business. Such
experience allows him to critically assess
key accounting and financial
considerations including those
associated with Quilter’s corporate
transactions. George is a Fellow of the
Institute of Chartered Accountants in
England and Wales and Chairman of the
Children’s Hospice Association Scotland.
Skills and experience:
Patrick Gonsalves is an experienced
Company Secretary with broad
experience across the financial services
industry gained with Lloyds Bank,
NatWest Bank and, up until December
2016, as Deputy Secretary of Barclays
plc. Patrick was appointed Company
Secretary of Quilter in January 2017
and is a Fellow of the Institute of
Chartered Secretaries and
Administrators. Patrick has extensive
experience of providing advice and
support to listed company boards
in periods of significant change which
is relevant to his role at Quilter.
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Quilter leadership
Quilter Executive Committee
The Board has delegated the day-to-day
management of Quilter to Paul Feeney,
as Chief Executive Officer. Paul exercises
these powers through the Quilter
Executive Committee, the membership
of which comprises the Chief Executive
Officers of some of Quilter’s businesses
and key function heads.
The Executive Committee meets
regularly to ensure the effective
implementation of the business strategy,
our customer strategy, the financial
performance of the business against our
Business Plan and the culture and risk
management of our business.
Other senior leaders join meetings
as required.
Quilter’s Executive Committee is led
by Paul Feeney, Chief Executive
Officer. Mark Satchel, Chief
Financial Officer is a member. Their
biographies can be found on page 84
Other Executive Leadership Team
biographies are available online at
quilter.com
Matt Burton
Chief Risk Officer
Karin Cook
Chief Operating Officer
Skills and experience:
Matt Burton was appointed as Chief
Risk Officer in May 2019 and has been
instrumental in defining, setting and
managing Quilter’s risk profile. Matt
joined the business as Chief Internal
Auditor in April 2016, in which role he
built a highly effective Internal Audit
team providing invaluable independent
assurance and consultancy to the Board
and Executive management. Prior to
joining Quilter, he was a partner in
PwC’s Financial Services Practice with
responsibility for leading Internal Audit
services to the Insurance and Investment
Management sector. Matt has over
2(cid:24) years’ experience across financial
services having held senior roles in
Credit Suisse, where he was Chief
Auditor for EMEA, and Deutsche Bank.
Matt is a member of the Institute of
Chartered Accountants in England
and Wales.
Skills and experience:
Karin Cook was appointed to Quilter plc
in January 2019 as Chief Operating
Officer. She has over 30 years’
experience in financial services,
most recently at Lloyds Banking Group
covering customer operations,
payments, technology, security, property
and procurement. She previously
worked at HSBC, Morgan Stanley and
Goldman Sachs in senior operations,
technology and finance roles. These
deep skills and experiences enable Karin
to be instrumental in driving efficiency
across all areas of the Group. Karin
chairs the Quilter Operating Committee,
providing oversight on material
technology and operational change
programmes. She is a passionate,
committed and informed ally to the
LGBT+ community and was recently
identified in this year’s OUTstanding
LGBT+ Role Model Lists from Involve –
The Inclusion People.
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Quilter Executive Committee
Steven Levin
Chief Executive Officer,
Quilter Investment Platform
Andy McGlone
Chief Executive Officer,
Quilter Cheviot
Stephen Gazard*
Chief Executive Officer,
Quilter Financial Planning
Skills and experience:
Andy McGlone was appointed as Chief
Executive Officer of Quilter Cheviot in
October 2018. He has over 25 years’
experience in investment management,
having worked in the evolved Quilter
Cheviot business for his entire career,
beginning at Quilter Goodison in 1994
as a Trainee Investment Manager. He
served as Managing Director of Quilter
Cheviot prior to becoming CEO. His deep
knowledge of Quilter and the investment
management business provides Andy
with the ideal combination of skills and
understanding to continue to ensure
strong investment performance for
its clients and to develop the Quilter
Cheviot business in line with Quilter’s
strategy. Andy is a Chartered Fellow
of the Chartered Institute for Securities
and Investments.
Skills and experience:
Stephen Gazard became Chief Executive
Officer of Quilter Financial Planning in
June 2020, having joined in 2017 as its
Group Managing Director. He brings
a wealth of industry experience to this
role, including as a financial planner and
advice business owner. Prior to joining
Quilter, Stephen had been Managing
Director of Sesame Bankhall Group for
four years, during which time he
delivered its corporate restructure and
cultural transformation. Stephen has
held numerous senior leadership roles in
the wealth management industry and is
ideally placed to ensure Quilter Financial
Planning continues to provide good
outcomes for its customers and high-
quality support for its advisers. Stephen
is also Vice Chairman of Meningitis Now.
Skills and experience:
Steven Levin was appointed as
Chief Executive Officer of the Quilter
Investment Platform in October 2015,
and has been appointed Chief Executive
Officer of Quilter Investors with effect
from 1 April 2021. Steven has dedicated
the majority of his career to Old Mutual
and Quilter, during which time he has
held senior business roles such as Global
Head of Distribution and Managing
Director of Skandia International
(now Quilter International) and Global
Product (cid:9) Proposition Director for Old
Mutual plc. Steven started his career
as an equity analyst. Steven’s extensive
experience in developing and
distributing financial products has been
instrumental in enabling him to advance
and grow the Quilter Investment
Platform business, including in the
implementation of Quilter’s new
investment platform. This proven
leadership, and his experience and
understanding of asset management
and investments, has made him the ideal
candidate to bring together Quilter
investment and distribution to better
support our customers in the next stage
of Quilter’s strategic journey. Steven is
a qualified Actuary and a Chartered
Financial Analyst.
* Stephen Gazard regularly attends
Executive Committee meetings
although he is not a member.
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The work of the Board
in 2020
Board activity and decision making
Section 172 (1) statement
The Companies Act 2006 (the Act) and the UK Corporate
Governance Code 2018 require the annual report to provide
information that enables our stakeholders to assess how the
Directors of Quilter have performed their duties under section
172 of the Act. The Act provides that Quilter Directors must
act in a way that they consider in good faith, would be most
likely to promote the success of Quilter for the benefit of
shareholders as a whole. In doing so, Quilter Directors
must have regard, amongst other things, to the factors
set out below:
– the likely consequences of any decision in the long term;
– the interests of Quilter’s colleagues;
– the need to foster the Company’s business relationships;
– the impact of Quilter’s operations on the community and
the environment;
– the desirability of the Company maintaining a reputation
for high standards of business conduct; and
– the need to act fairly for all our members.
Building Quilter to deliver long-term success for all our
stakeholders
The Board is clear that engaging, consulting and making
decisions balancing the needs, interests and expectations of
our key stakeholders is critical to Quilter achieving its purpose
of helping create prosperity for the generations of today and
tomorrow. On occasions these competing stakeholder views
can be contradictory and it is the Board’s role to navigate these
complexities to achieve long-term success. The Board has a
comprehensive stakeholder engagement programme and
seeks to act in the best interests of the Group, and to be fair
and balanced in its approach. In addition to direct engagement
with our stakeholders, papers submitted to our Boards and
Board Committees across the Group identify for their
consideration where stakeholders could be impacted by the
proposals. At all times, the Boards remain focused on ensuring
good customer outcomes. Some of the ways the Quilter Board
engages with our stakeholders, including some examples of
how our Board has considered stakeholders when it made key
strategic decisions in 2020, can be found on the following
pages. In addition, throughout this report, we state how
consideration of stakeholders has been embedded as part
of our business operations.
You can also read more about how Quilter operates in our
Responsible Business Report on pages 46 to 59.
The (cid:37)oard identified six key stakeholder groups whose
interests and needs it regularly considers. This year, the Board
refined our stakeholder map to state a broader consideration
of who our stakeholders are, and given how important
advisers are to Quilter’s long term success, this group
is now described explicitly.
Board activity
Business performance oversight 35%
People and culture 10%
Strategy and delivery of strategy 20%
Stakeholder management 10%
Risk management and governance 25%
Key decisions made by the Board
in 2020
Reviewing
Reviewing the Group’s strategy to ensure that it remains
appropriate for a rapidly changing environment and deciding
to initiate a strategic review of the Group’s international business.
Supporting
Supporting the Quilter management team as they provided
visible and clear leadership for our people, took difficult
decisions to ensure that Quilter and its people safely navigated
the COVID-19 pandemic, including revising priorities, and
supporting our staff and advisers by extending additional
support, such as the Thrive initiative, to adviser firms.
Endorsing
Endorsing management’s decision to split our second phased
adviser migration for our Platform Transformation Programme
into two tranches to mitigate the risk of negatively impacting
our customers and advisers.
Protecting
Protecting the interests of shareholders by continuing the
Group’s share buyback programme and paying a modest
interim dividend for 2020, given the resilience of our business.
Setting
Setting stretching but achievable financial and operating targets
for management that ensured delivery of our strategic objectives
and financial performance in line with the expectations of our
shareholders and customer-focused services and products.
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Investors
Who are they
Investor priorities
How the Board engages
with our investors
The Board considers investors in its broadest sense including equity and debt investors,
alongside analysts and rating agencies. Just over half of the Group’s shareholders are registered
in South Africa, with the remaining 47% of our shareholders on the UK share register.
– A resilient business model which generates long-term sustainable returns for shareholders
– A sustainable and growing dividend supported by cash flow and capital generation
– Robust corporate governance that ensures effective oversight and control of the business
– Financial strength and resilience that enables the business to withstand external shocks
– A business with a clear and successful strategy that is delivering growth and sustainable returns
Private shareholders
Our private shareholders are supported
day-to-day by our registrars based in the UK
and in South Africa. We closely monitor the
performance of our registrars to ensure the
service our shareholders receive globally
is appropriate.
In 2020, given we were unable to hold an open
Annual General Meeting (“AGM”) due to UK
Government restrictions on public gatherings
in place at that time, we set up a specific AGM
Hub to enable our private shareholders to
raise questions with the Chairman on the
business of the meeting in advance of our
AGM. We strongly encouraged shareholders
to vote before the meeting.
The Group’s full year and interim results are
sent by email to our shareholders who have
provided consent for e-communications,
and in addition we provide comprehensive
information on our website, quilter.com.
During the year, the Board approved the
Odd-lot Offer which provided small private
shareholders with a cost-effective way to
sell their shares in Quilter and reduced the
number of private shareholders by 200,000.
Shareholders, analysts and rating agencies
The Board and management maintain
a regular and constructive dialogue with
investors, to communicate with existing and
potential shareholders on the Company’s
strategy, governance and performance.
This helps to promote investor confidence
and ensure continued access to capital.
The Chairman and Senior Independent
Director met with our major shareholders
in an annual governance roadshow covering
business strategy, performance, remuneration
and broader governance matters and at the
same time received valuable feedback from
them. In addition, the Chief Executive Officer
and Chief Financial Officer provided updates
on our results and financial performance,
undertaking two live webcasts and conducting
245 meetings with shareholders, debt holders
and prospective investors in 2020.
The Company participates in investor
conferences to engage with existing and
prospective investors. Alongside the Chief
Executive Officer and Chief Financial Officer,
senior management provide insight into
business strategy which helps showcase the
quality of the Quilter leadership team.
The Board received regular updates from the
Head of Investor Relations on key shareholder
and debt holder issues and concerns. This
included an annual presentation involving our
corporate advisers on market dynamics and
corporate perception.
Outcomes
The Board considers investor feedback on an ongoing basis. An example of how shareholders’
interests are considered is set out in the Governance in action case study on page 99. In this
case study, we detail how the Board decided to launch the share buyback programme and the
factors considered when the Board approved the payment of the interim dividend in 2020.
In March 2020 at the beginning of the COVID-19 pandemic when market volatility was prevalent
and investor confidence fragile, the (cid:37)oard took the decision not to extend a new Sharesave
Scheme to employees. While employees value this share plan with a 45% take-up in 2019, the
(cid:37)oard decided it was appropriate to manage costs in line with Quilter’s wider efforts to make
temporary tactical efficiencies rather than offer this additional benefit to colleagues at that time.
Quilter | Annual report 2020
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The work of the Board in 2020
continued
Section 172 (1) statement (continued)
Colleagues
Who are they
Colleague priorities
How the Board engages
with our colleagues
At Quilter, we treat all full-time, part-time and contract staff as colleagues. The success of the
delivery of our strategy is dependent on talented and committed people, focused on delivering
for our stakeholders in accordance with our values of Pioneering, Dependable and Stronger
Together. We have 4,176 colleagues, who each take pride in working towards being part of an
inclusive and diverse Quilter. We aspire to achieve a culture where everyone feels included,
empowered and inspired to do the right thing for customers.
– Customer and value-led culture
– Investment in people development and technology
– Compelling colleague proposition
– Attractive reward structure
– An open and inclusive culture
Following Cathy Turner stepping down from the Board in May 2020, the Board asked Paul
Matthews to act as our Non-executive Director with responsibility to ensure that the Board
understand the views of employees. Sharing the insights he gains from attending the Quilter
Employee Forum, he ensures that colleagues’ views are taken into consideration as part of the
Board’s decision making. A full description of how this happens, including some of the metrics
the Board look at on a regular basis, are set out on pages 100 and 101.
In addition to this mechanism, individual Directors meet regularly with individuals identified
as future senior leaders.
The Executive Directors directly engage with colleagues across the business and during 2020
provided frequent video updates to colleagues on business priorities, successes and to thank
colleagues during this period of remote working.
In 2020, the Board focused on measures to improve diversity and inclusion and you can read
more about the initiatives in the Board Corporate Governance and Nominations Committee
Report on page 104.
Outcomes
Paul Matthews, our Non-executive Director responsible for representing the views of the
workforce to the Board, shares his insights on 2020 on pages 100 and 101.
You can read more about our approach to promoting diversity and inclusion and colleague
engagement in the Chief Executive Officer’s statement on page 2(cid:24) and on delivering for our
colleagues in the Responsible Business Report on pages 52 and 53.
Read more examples of
how these stakeholders
have been considered
Pages 52 and 53
In the Annual Report on Remuneration on page 138 you can read about the decision to create
a small discretionary bonus pool to recognise the contribution of the wider workforce during
the COVID-19 pandemic.
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Communities
Who are they
Community priorities
How the Board engages
with our stakeholders
Outcomes
Read more examples
of how these
stakeholders have
been considered
Pages 56 to 59
The (cid:37)oard broadly defines Communities to mean the societies in which we operate and where our
products are sold. Quilter’s ability to deliver sustainable value for stakeholders depends on the
engagement we have with key stakeholders representing the communities’ needs, including policy
makers, business partners, non-governmental organisations (“NGOs”) and other interest groups.
Communities
Suppliers
(cid:58)e target our efforts to make a difference in
the communities we are located in or where
our products and services are used.
We recognise the key role our suppliers play
in helping us manage our business and deliver
quality services for our customers.
– Protecting customers and investors
– Operating responsibly, including wider environmental impacts
– Being treated fairly and professionally during the sourcing process
Throughout the COVID-19 pandemic Quilter
has proactively engaged with our suppliers
as part of our focus on operational resilience.
This regular dialogue enables us to gain
assurance, and support the needs of the
supply chain.
Quilter recognises our suppliers are key to our
business success and therefore to drive future
collaboration and strengthen our supplier
relationships we hosted a virtual supplier
summit in September 2020, a first for Quilter.
Bringing together a selection of hand-picked
critical and important suppliers, our executive
team shared insights into our values, goals
and priorities.
The Board has delegated direct oversight of
the Responsible Business agenda to the Board
Corporate Governance and Nominations
Committee. The Chairman updates the Board
on relevant matters including the views of key
stakeholders, such as policy makers, NGOs
and other interest groups to understand what
is important to them.
Our work to provide comprehensive and rapid
support for customers, colleagues, advisers
and investors is set out on pages 17 to 19.
Quilter reduced its operational greenhouse
gas emissions by 33% compared with 2019.
The Quilter Foundation directly supported
13,525 young people in local communities,
providing vital financial education,
employment and wellbeing support.
Quilter continued to integrate environmental,
social and governance (“ESG”) considerations
across its investment management and
stewardship activity, and achieved an ‘A’ rating
in The United Nations backed Principles for
Responsible Investment (“PRI”) annual
assessment. In respect to stewardship of the
companies we invest in, our voting at company
meetings increased by 104% compared with
the previous year.
Our strategic objective is to reduce Quilter’s
contribution to climate change and support
the transition to a low carbon economy.
Our framework helps us to reduce our
direct carbon footprint, embed climate
considerations in our investment management
and stewardship activity and offer clients
climate focused investment solutions.
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The work of the Board in 2020
continued
Section 172 (1) statement (continued)
Regulators
Who are they
Regulator priorities
How the Board engages
with our stakeholders
Outcomes
We have an open and transparent relationship with our regulators and other government
authorities. Our core UK regulators are the Financial Conduct Authority and the Prudential
Regulation Authority. We also have multiple international regulators who oversee our
international business activities, including the Isle of Man Financial Services Authority
and the Central Bank of Ireland.
Each regulator has its own statutory ob(cid:77)ectives to fulfil. These centre around ensuring firms are
run in a safe and sound way to achieve fair outcomes for consumers and ensure the integrity
of financial markets, promoting effective competition in the interests of consumers. The UK
regulators publish annual business plans setting out their specific priorities within the context
of these wider objectives.
Transparent and open regulatory relationships are fundamentally important to Quilter and its
Board, and this principle forms the basis of our approach to regulatory engagement, deployed
across the Quilter Group. We liaise with each regulator regularly to ensure our business is
aligned to the evolving regulatory framework and is operating to regulatory expectations. The
Board Risk Committee receives quarterly reporting on key regulatory relationships and matters
under discussion as part of its standing agenda, and the Quilter Chief Risk Officer, as a standing
attendee of each Board meeting, provides further updates as needed. The FCA attends a Quilter
Board meeting annually to share directly their thoughts on our business and key areas of focus.
In addition, we have a regular programme of meetings on a one-to-one basis between our
UK regulators and our Chief Executive, Chief Finance Officer, the Chairman and other (cid:37)oard
Committee Chairs, covering all aspects of the regulatory agenda. Examples of key matters
discussed include customer outcomes, operational and financial resilience, future strategy
and plans for the Group, and diversity.
Our understanding of our regulators’ priorities, which have customer outcomes and sustainable
business at their centre, forms an integral part of the Board’s decision making. Papers presented
are required to consider stakeholder interests in their recommendations, including importantly
customer and regulatory considerations, and is reflected practically in Quilter’s (cid:37)oard Risk
Appetite towards regulatory compliance. The Board has a low appetite for non-compliance with
regulations and this position is reflected, for example, in the levels of investment in Quilter’s
change programme focused on regulatory change and delivering this in a timely way.
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Advisers
Who are they
Financial advisers are core to our business, delivering personalised financial advice tailored
to meet the specific needs of the customer. Our business model means we have three core
adviser strategies comprising 1) our National business, through which our advisers provide
high-quality financial advice under the Quilter brand 2) our advice Network business, which
partners with third party advice firms providing them with a compelling investment proposition
and robust regulatory control framework and 3) third-party independent financial planners
(“IFAs”) who utilise our investment platform or place clients’ assets within Quilter investment
management solutions.
As a firm believer in the value of advice, Quilter is committed to developing existing advisers and
bringing new advisers into the industry. Since its inception in 201(cid:25), (cid:25)43 financial advisers have
graduated from our own-branded educational facility for advisers, the Quilter Financial Adviser
School. In 2020, 211 financial advisers completed the qualification.
Priorities for advisers
– A compelling investment proposition
– The provision of high-quality, productive environments in which to operate safely
– A robust and intuitive platform
How the Board engages
with our stakeholders
The (cid:37)oard receives regular updates from the Chief Executive Officer on key issues impacting
advisers both within Quilter Financial Planning’s Network and National businesses and third-
party advisers who use our investment platform to serve their and our customers.
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The Customer reports scrutinised by the Board and Board Risk Committee provide key insights
on how effectively and safely Quilter is supporting advisers in serving customers and, in order
to better understand advisers’ views and culture, the Board has requested that data collated
on our employees’ opinions and culture is extended to include advisers. In addition, Paul
Matthews, who also serves on the Quilter Financial Planning Limited Board, engages regularly
with advisers to understand their needs and priorities, reporting back to the Board on his
findings. This included attending the bi-annual Quilter Financial Planning Adviser Conference in
February 2020. The Board has also supported management’s decision to extend the support
for employees’ mental wellbeing to advisers. More information on the support provided is
available on page 54.
The (cid:37)oard and the (cid:37)oard Technology and Operations Committee committed significant time
in 2020 to ensuring the new Quilter Investment Platform is suited for the needs of advisers and
their customers. Given 2020’s challenging circumstances, the decision to split the second
phased adviser migration into two stages was taken to limit the potential for disruption to
advisers and customers. You can read more about our Platform Transformation Programme
on pages 44 and 45.
The Board Technology and Operations Committee also provided oversight of the plans for, and
progress in, delivering new technology solutions that are central to supporting Quilter Financial
Planning’s advisers, including the new payments system implemented in February 2021, which
ensures advisers are properly and promptly paid for the advice they provide.
During the early part of 2020 the Board closely monitored the programme of work commenced
in 2019 to further strengthen the robustness of the Quilter Investors investment process.
One important outcome was the safe implementation of the new investment platform, which
enables advisers to provide excellent advice and support for customers and an enhanced range
of services.
Quilter | Annual report 2020
95
Outcomes
Read more examples of
how these stakeholders
have been considered
Pages 54 and 55
The work of the Board in 2020
continued
Section 172 (1) statement (continued)
Customers
Who are they
Our customers use our products and services to meet their long-term financial needs and
achieve their aspirations. Ensuring customers are at the heart of everything we do is critical
to Quilter’s long-term success. Maintaining strong relationships built on the delivery of
outstanding service and outcomes, a positive reputation and trust are key to the longevity
of Quilter’s performance.
By the end of 2020 Quilter spent £174 million enhancing the core investment platform
and further enhancements to our customer proposition are planned in 2021.
Customer priorities
– Products that meet their needs, expectations and risk appetite
– Excellent customer service and access to products across all channels
– Personalised customer propositions
How the Board engages
with our customers
Earning and retaining the trust of customers is a high priority and the Board receives regular
reports on the outcomes achieved for customers. The customer reports in 2020 confirmed that
Quilter generally provided a resilient and consistent service to customers through the pandemic.
The Board asked management to ensure direct feedback on end-customer satisfaction is
obtained in addition to the feedback via advisers. The Board also challenged management to
develop better mechanisms for measuring whether value for money is being delivered for all
customers based on the work conducted by Quilter Investors in 2020.
All Board papers include, where appropriate, analysis of the impacts to customers of the
proposals under consideration.
The Board looks to benchmark performance achieved for customers and uses insight from
a range of internal and external research, including net promoter scores and other customer
indices, to improve services. The Board receives regular updates and reports on the progress
of Quilter’s strategy, including the development of plans for the next strategic phase, ensuring
the customer remains at the heart of our strategic investment.
The Board receives reports providing analysis and guidance in relation to the competitive
environment and market share, which enables strategic insight and allows the Board to take
decisions that are focused around the needs of customers.
The Board is committed to doing whatever is necessary to ensure all customers impacted
by past conduct failures receive fair recompense.
To ensure that our leadership team continue to put customers at the heart of everything we do,
a customer metric is included in the executive scorecard that drives the remuneration of our
senior executive team.
Outcomes
When the size and scale of the COVID-19 pandemic became apparent, the Board endorsed
management’s action to support customers impacted by the pandemic. This included
heightened internal controls to prevent fraud and cyber crime.
During 2020, a number of claims were received in relation to historic pension transfer advice in
respect of the British Steel Pension Scheme provided by Lighthouse prior to its acquisition. This
subsequently led to the FCA initiating a skilled person’s review and an enforcement investigation,
as noted elsewhere in this report. As a result, the Board has ensured that, working closely with
the skilled person and the FCA, Lighthouse reviews relevant cases and offers remediation if the
historic pension transfer advice in respect of the British Steel Pension Scheme was not suitable.
Read more examples of
how these stakeholders
have been considered
Pages 50 and 51
The introduction of the new investment platform is a further example of how the Board
has overseen enhancements in how we engage with customers. Read more about this
on pages 44 and 45.
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Quilter | Annual report 2020
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Your Board discharged its responsibilities in 2020 by
Actions
Purpose
Reviewing and setting
the Group’s strategy
The Board held a two-day in person strategy meeting in August 2020 which met all the
government guidance for ‘gatherings’ in place at that time. The management team, guided by
the Board, assembled detailed analysis of each business area and details of industry trends
which provided key insights on which the strategy is based. The executive team then presented
a proposed long-term strategy which the Board tested and challenged. In setting the strategy,
the Board carefully considered the needs of customers, shareholders, employees, advisers, the
communities in which we operate and the need to maintain constructive relationships with our
regulators. A key consideration was whether the global pandemic was likely to make permanent
changes to the markets in which we operate, the expectations of our customers and the
changes the business would need to make to adjust to those changes. The Board endorsed the
overall direction of the strategy which requires the business to become more customer-centric
and to drive greater efficiency throughout our business to better serve our customers and
advisers and continue to enhance returns for our shareholders.
As part of the review of the Group strategy in the summer of 2020, the Board concluded
that management should conduct a strategic review of the Quilter International business.
Management were asked to provide the Board with a detailed analysis of a range of options
for the business including retention of the business, alternative growth strategies or a sale
to a third party, so that a fact-based decision that benefited all stakeholders in the long term
could be reached.
Setting stretching but
achievable financial and
operating targets for
management
In October and November 2020, the Board reviewed and approved a Business Plan for the
forthcoming three-year period. The (cid:37)usiness Plan sets financial and non-financial targets for the
period and shows the capital and liquidity impacts of that plan which are aligned to the Group’s
risk appetite. Given the significant uncertainty in the external environment at the time of setting
the Business Plan, management were asked to rebase some elements of the Business Plan to
take account of market movements in November 2020.
Reviewing the response
to COVID-19
Alongside the production of the Business Plan, management developed an Operating Plan that
set out the key initiatives and programmes of work required to deliver the Business Plan and the
Group Strategy. The Board carefully considered the resources available to deliver the Operating
Plan, the alignment of the financial and Operating Plans, the achievability of the plans and the
risks to delivery. Particularly, in 2020, the Board had to consider the challenges in delivering
significant change programmes while the business continues to work largely remotely.
(cid:58)hen the business moved to largely remote working in March 2020, and the first national
lockdown was announced, management carefully reviewed all planned change activities and
deprioritised certain programmes, such as new product launches for Quilter Investors. It was
clear that our revenues would be impacted by lower markets and that cost control would be
important to secure the long-term position of the business. Despite the imperative to control
costs, your Board supported management’s decision to also protect our employees. Some
redundancies that had been long planned to take place in the first half of 2020 were delayed,
given how difficult it would be for those seeking employment at that time. Management also
identified the key pro(cid:77)ects, such as the Platform Transformation Programme, which are critical
to the future of the Group and prioritised those areas to ensure delivery would be safely
achieved. The Board also considered how the experience of working remotely will permanently
change the way that our people wish to work and agreed to keep this under review.
Quilter | Annual report 2020
97
The work of the Board in 2020
continued
Your Board discharged its responsibilities in 2020 by (continued)
Actions
Purpose
Monitoring the delivery of
the Operating Plan and key
strategic programmes
Throughout the year, the (cid:37)oard has received quarterly updates from the Chief Executive Officer
on the delivery of the 2020 Operating Plan to ensure that the business continued to make
progress on delivery of its strategy and the Business Plan.
In addition, the Chief Operating Officer reported half yearly on the areas within her
responsibility. She confirmed that Quilter’s operations have remained resilient throughout 2020,
despite the challenges presented by COVID-19 and material improvements have been delivered
in our IT infrastructure and security.
Overseeing the Group’s
management of material
risks
The business remained financially strong throughout 2020 with robust capital and solvency
positions which should provide comfort to our shareholders, regulators and those we do
business with.
In addition to the usual quarterly reports from the Chief Risk Officer, the (cid:37)oard has spent time
overseeing the handling of customer complaints arising from the Lighthouse acquisition and
ensuring that any lessons arising from them have been fully learnt and embedded.
Ensuring the Group’s people
strategy and culture are
aligned with the business
strategy
The Board has continued to monitor closely the health, welfare and engagement of our people
and the culture of our business. Regular employee opinion surveys (Peakon surveys) confirmed
that the Group has an engaged and committed workforce and the Board encouraged
management to extend its work in these areas to include those advisers who we do not employ,
but are still critical to the success of our business.
At the Board’s request, management brought forward detailed plans on enhancing the diversity
of our workforce which are discussed on pages 52 and 53. The culture of the organisation is
considered to be well aligned to the Group’s purpose and strategy with a strong customer-
oriented mindset and it is clear that our colleagues have gone the extra mile in 2020 to continue
to support our customers despite the obvious challenges. The high visibility of the leadership
team through the isolation of home working has been strongly welcomed by our people. The
Board has requested more granular information on the culture of individual businesses to
ensure that any inconsistencies across the Group are identified and addressed.
Read more in the
Responsible Business
Report
Pages 52 and 53
Monitoring the investment
performance of our funds
and solutions
The Board has continued to regularly scrutinise the investment performance being delivered by
Quilter Investors and Quilter Cheviot for their respective customers. In a year of volatile markets
with at times unprecedented market falls, the Board has continued to emphasise the
importance of robust investment processes and strong monitoring of investment risk.
Monitoring how well
we serve our customers
The Board has continued to guide the development of a comprehensive set of metrics to ensure
that we are providing outstanding service to our customers. There is good evidence to confirm
that Quilter has continued to provide strong customer service despite the challenges faced in
2020 when the first UK national lockdown coincided with the first phased migration to our new
investment platform. Management reacted quickly when problems were identified in this
difficult period.
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Quilter | Annual report 2020
Governance
in action
Case study on capital management
Return of capital
In 2019 when the Board approved
the sale of Quilter Life Assurance to
ReAssure, the Board engaged with
its major shareholders to obtain their
views on the use of the sale proceeds.
Having also discussed the matter with
the Group’s brokers, the Board agreed
to return the sale proceeds to
shareholders by way of a share buyback
programme. The Board approved a
programme with a value of up to
£375 million, subject to remaining
within certain pre-set parameters over
share price and trading volumes. To
ensure appropriate oversight, and given
the challenges of buying back shares in
a fairly illiquid stock on the UK and
South African Stock Exchanges, the
Board was clear that the programme
needed to be subject to staged
regulatory and Board approval.
The Board delegated to the Return
of Capital Committee, chaired by Glyn
Jones, alongside the Chair of the Board
Risk Committee, Rosie Harris, and the
Chair of the Board Audit Committee,
George Reid, with our Chief Executive
Officer, Paul Feeney, and our Chief
Financial Officer, Mark Satchel, authority
to oversee the programme within the
parameters set by the Board and
consider on an ongoing basis whether
the return of capital continued to be
appropriate and in the best interests
of our shareholders.
In March 2020, the (cid:37)oard was finalising
our 2019 results at the same time as the
first signs emerged that CO(cid:57)ID-19 was
likely to become a global pandemic. The
Board Committee exercised close
scrutiny over the programme to ensure
that it remained in the best interests of
our shareholders and, as part of our
shareholder governance meetings held
in February 2020, reconfirmed with our
major shareholders remained
supportive of the launch of a share
buyback programme. Over the next few
months, the pandemic impacted
markets causing significant share price
volatility globally. At a time when many
other companies were suspending their
dividend payments, we stayed in close
contact with our lead regulators and
monitored Quilter’s share price, overall
capital, liquidity and free cash. During
2020, the Committee met on three
occasions and received updates from
management regarding the progress
of the share buyback programme and
ensured that the Company stayed
within risk appetite in terms of our
capital, liquidity and free cash
positions. Given the dislocations and
volatility in markets during 2020, it has
at times been challenging to maintain
the pace of the share buyback
programme, in part driven by the
current structure whereby the
programme is designed to buy back
an equivalent number of shares on
the London and Johannesburg Stock
Exchanges to maintain our current
shareholder profile.
Continuing to pay dividends in 2020
Since Listing, Quilter has paid two
dividends a year, in May and September,
in line with our published dividend
policy. Before approving our 2019 full
year results in March 2020, the Board
gave careful consideration to the
emerging situation with respect to the
COVID-19 pandemic and agreed that it
was appropriate to pay a final dividend
of 3.5 pence per share, which was
approved by shareholders at our
Annual General Meeting in May 2020.
In the following months, Quilter, along
with many other companies, paid close
attention to our capital and free cash
position and scrutinised what, if any,
interim dividend it would be
appropriate to pay in September 2020.
Aware of the importance of our
dividend to both private shareholders
and institutional investors, including
pension funds, the Board met in July
2020, to review in detail management’s
recommendation on the proposed
dividend rate. We also remained in close
and routine contact with our lead
regulators regarding our thinking in
respect of the dividend. Major
shareholders consulted indicated that a
smaller dividend at the lower end of the
40-60% target pay-out ratio would be
acceptable given the market
circumstances. Given our strong cash
and capital reserves, the Board agreed
that it would be appropriate to pay a
2020 interim dividend, but adopted
a cautious position given the market
conditions, progress on the share
buyback and the business outlook
at that time.
The Board has again deliberated in
depth on the pay-out ratio and final
dividend for 2020, which was
announced in March 2021, once again
taking into consideration our financial
position, the market conditions and
business outlook. The Board has
recommended to shareholders a full
year final dividend of 3.(cid:25) pence per
share. This will be put to shareholders
for approval at our 2021 Annual
General Meeting.
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Governance in action
continued
Employee engagement
The Quilter Board receives a wide range of information
on Quilter’s employees through the course of the year.
This ranges from the regular updates on People and Culture
presented by our HR Director, reports from the Chief
Executive Officer on current people initiatives and feedback
in response to such actions as well as analysis from our risk
team on the people risks in our business. Our risk team have
particularly highlighted the pressures on our employees
resulting from the high volume of change in the organisation.
None of these sources of information are as valuable as
direct meetings with our people which I have tried to achieve
in 2020 either virtually or in person.
Looking forward
Having taken over as the Quilter Non-executive Director
responsible for providing a linkage between the Quilter
Board and our people in May 2020, and having so far met
many people virtually, I am very much hoping to be able to
meet more Quilter staff face-to-face in 2021. I hope that my
interactions with the Quilter Employee Forum, the employee
talent sessions the Board has recently relaunched and my
regular visits to Quilter’s offices around the country will soon
be possible in person rather than virtually. In this hope, I will
be joined by many of my fellow Directors who in more
normal times would routinely travel to our various offices
to attend townhalls or roadshows and benefit from the
one-to-one conversations that this enables.
Paul Matthews
Independent Non-executive Director
I was delighted to be asked to succeed Cathy Turner as the
employee representative on the Quilter Board. Quilter is
fortunate to have employees who have a strong affinity with
the Group and support its exciting strategy. During a period of
rapid and sometimes difficult change to bring the business to
full maturity, coupled with a global pandemic which has meant
our employees have largely been operating remotely, it is
impressive that employee engagement has remained strong
during a challenging year.
Key themes
Supporting our people
in difficult times
Quilter conducts regular surveys on employee engagement and during 2020 there was a
particular focus on how well Quilter was supporting our employees through the pandemic and
keeping them informed on a fast-moving and largely unprecedented situation. Having placed
a high priority on employee wellbeing, with additional support provided by Quilter to both
employees and advisers, it was reassuring that employees were appreciative of these efforts.
This was confirmed by the strong results for specific questions in employee opinion surveys
about Quilter’s response to the pandemic and supporting our people. Employees also
recognised the significant efforts made to ensure that they had the right tools to fulfil their
roles after moving to remote working.
“ Quilter is doing a good job
of keeping me updated with
the information I need
right now”
Committee activity
“ Quilter is doing a good job
of supporting me during
COVID-19”
Committee activity
Score
8.0/10
Score
8.0/10
Note: Quilter Peakon Survey September 2020.
100
Quilter | Annual report 2020
Key themes
Leadership
In difficult times, visible and vocal leadership becomes even more crucial and when I (cid:77)oined a
meeting of the Quilter Employee Forum in September 2020, it was very clear that the efforts by
the senior leadership team to be highly visible and accessible during remote working had been
warmly welcomed by employees. Business and function leaders have successfully used video
messaging to engage directly with employees. Employees shared with me their feedback that
the cascading of key messages through line management was less effective and this will be an
area of further focus going forward.
Good progress has been made in setting expectations for Quilter’s leaders who are expected
to demonstrate inclusive and responsible leadership practices and this is an area that the Board
will monitor going forward.
“ Senior leaders role-model
the behaviours underpinning
our values”
Committee activity
“ My manager provides me
with the support I need to
complete my work”
Committee activity
Score
7.7/10
Score
8.3/10
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Aligning our culture and
values to our strategy
The proportion of our people who are inspired by the purpose and vision of Quilter is above
the norm for the financial services industry and the ma(cid:77)ority feel that the strategy is taking
Quilter in the right direction. Our employees highlight the need to build a better understanding
of the work of other businesses and departments to enhance the cohesion of the Group. This
is an area where we can improve even further with enhanced communications. There is strong
alignment for our employees with the Quilter values of Dependable, Stronger Together and
Pioneering and all three were above the average for the financial services industry. Some
employees noted an element of risk aversion in the business and the Board has asked to see
more granular analysis of the culture at a business level so that any material differences can
be addressed.
One important measure of a strong and healthy culture is the extent to which employees feel
able to voice concerns knowing that they will be listened to and appropriate action taken. The
communications to staff in this area have been refreshed during the year and the employee
survey makes it easy to highlight areas of potential concern and ensure that the organisation
learns the appropriate lessons when things do not go according to plan. George Reid, who is
our Whistleblowing champion, also references this in the Board Audit Committee report.
“ I am inspired by the
purpose and vision of
Quilter”
Committee activity
“ The overall business
strategy set by senior
leadership is taking Quilter
in the right direction”
Committee activity
“ I feel able to report risks
without fear of reprisal”
Committee activity
Score
7.4/10
Score
7.9/10
Score
8.2/10
Note: Quilter Peakon Survey September 2020.
Quilter | Annual report 2020
101
Board Corporate Governance and
Nominations Committee report
Dear Shareholder,
The Board Corporate Governance and
Nominations Committee is responsible
for overseeing the Quilter Corporate
Governance Framework and for ensuring
that the composition of the Board and the
skills and experience present within our
senior leadership team is appropriate to
support the successful delivery of the
Quilter strategy. Additionally, the Committee
is responsible for overseeing the delivery
of the Group’s responsible business and
responsible investing agenda. I set out
opposite how the Committee has discharged
its responsibilities in these areas.
In my Chairman’s statement on page 15,
I noted some of the changes to our Board.
This work has been overseen by this
Committee to ensure that we have a strong
Board with diverse and relevant experience.
During the year the Committee undertook
a thorough process to identify and assess
candidates which resulted in the
appointment of Tim Breeden to our Board.
You can read more about the process and
Tim’s impressions on pages 106 and 107.
The search in the second half of 2020 for an
ethnically diverse Non-executive Director
who could bring valuable additional skills
and experience to our Board led to the
appointment of Tazim Essani in March 2021.
Ta(cid:93)im brings corporate finance, strategy
and business transformation experience.
During the year, the Committee continued
to focus on the combined skillset and
Committee governance
capabilities of the Directors to ensure their
effectiveness in driving our transformation
strategy forward. (cid:58)e also continued to fulfil
our core responsibility of reviewing the
composition of the Board and Committees.
Based on its assessment for 2020, the
Committee is satisfied that, throughout the
year, all Non-executive Directors remained
independent in accordance with the Code.
In recommending Directors for re-election
at our AGM, the Committee considered
the performance of each Non-executive
Director, as confirmed by the (cid:37)oard
Effectiveness Review, and their ability to
continue meeting the time commitment
required, taking into consideration
individual capabilities, skills and
experiences and any relationships that
have been disclosed. All Directors were
considered to have the appropriate skills
and experience for their roles.
In addition, the Committee has considered
the overall strength of the executive talent
pipeline, together with detailed executive
succession planning aimed at supporting
the development of executives who will
support the delivery of Quilter’s strategy.
Further detail on executive succession
planning can be found on page 103.
Glyn Jones
Chairman
Glyn Jones
Chairman
Committee activity
Board evaluation 11%
Board and Board
Committee succession
planning 19%
Executive succession
planning and talent 24%
Corporate governance 23%
Responsible business
framework 23%
The Board Corporate Governance and Nominations Committee currently comprises the Chair
of the Board and two independent Non-executive Directors. Details of the skills and experience
of the Committee members can be found in their biographies on pages 84 and 85.
Committee meetings
attended/eligible to attend
Evaluation
As part of the 2019(cid:18)20 (cid:37)oard Effectiveness Review, the (cid:37)oard has
assessed that the Committee membership is appropriate in providing
challenge and oversight and that the Committee is operating effectively.
Discharging our
responsibilities
The Committee reviewed its activities over the previous 12 months
against its terms of reference and confirmed that it had fully discharged
its responsibilities in line with its remit. The terms of reference are
available at quilter.com.
Glyn Jones (C)
Tim Breedon
Suresh Kana
Ruth Markland
Cathy Turner
4/4
3/3
1/1
4/4
1/1
Attendance
The Chief Executive Officer and HR Director regularly attend Committee
meetings, except when it would not be appropriate for them to do so.
Collaboration
The Chairman briefs the Board on key discussions and provides a written
report to the Board, where feasible, after each meeting. The papers and
reports presented to the Committee are made available to all Quilter
Non-executive Directors.
Number of meetings
4
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Key areas of Committee focus
Board evaluation
Board and Board
Committee succession
planning
Executive succession
planning and talent
Corporate Governance
Responsible business and
responsible investing
Having completed a comprehensive, externally facilitated (cid:37)oard Effectiveness Review in 2019 the
Committee concluded that a lighter touch, internally facilitated review would be appropriate in
2020. Further details on the review can be found in the report on page 105 from Ruth Markland,
our Senior Independent Director, who oversaw the review at the Committee’s request.
The Quilter Board membership is regularly reviewed by the Committee using a Board Skills and
Experience Matrix to ensure that the Board has available to it all of the required skills to oversee
the delivery of Quilter’s strategy and long-term success. In line with best practice, the Committee
has also agreed the emergency succession arrangements for all of the key Board positions,
including the Chairman of the Board, the Senior Independent Director and the Board Committee
Chairs. Although strong candidates are available for each position on an emergency basis, it is
still likely that some external recruitment would be required for permanent successors given
that the Board is not large enough to carry a pool of succession candidates for all Board roles.
Following Dr Suresh Kana and Cathy Turner’s decision not to seek re-election at the AGM in
May 2020, a search was commissioned to add at least one Non-executive Director to the Board.
Details on the approach adopted to recruit Tim Breedon to the Board are set out overleaf. When
Jon Little decided to step down from the Board in light of his other commitments, a further
search was initiated, and the decision was taken to prioritise an ethnically diverse candidate who
would also bring valuable additional skills and experience to the Board. The Board was also keen
to continue to meet the target set by the Parker Review following the departure of Suresh Kana.
That search resulted in the Committee recommending the appointment of Tazim Essani to the
Board in March 2021. Further information on the diversity of our Board can be found on the
following page.
The Committee has also spent considerable time evaluating the succession plans for senior
executive roles. This included an assessment of the strengths of the senior management team,
any development areas and the plans in place to address those. The succession plans sought to
identify both emergency succession arrangements as well as longer-term succession candidates
from those already in the business. In conducting the review of these succession plans the
Committee carefully considered the need to create a pipeline of succession candidates that are
suitably diverse in order to achieve the Group’s objectives in this area which are discussed in
more detail overleaf.
The Board has for some time held breakfast meetings with talented individuals within
the organisation. Once it became clear that restrictions on face-to-face meetings would be
relatively long lasting, the decision was taken to move these talent successions to be virtual
meetings. We are very pleased to have reinstated this important link to potential future leaders
of our business.
The Quilter Corporate Governance Framework places material emphasis on the role of our
subsidiary Boards and during the year the Committee supported the changes to the Quilter
Financial Planning and Quilter Investors Boards. Both Boards now have new Chairs and, given
the importance to our customers of strong investment performance, the Quilter Investors
Board has established an Investment Oversight Committee focused on reviewing investment
processes, rules, controls and performance outcomes.
The Group’s Subsidiary Governance Manual has been reviewed and an updated version was
approved by the Committee early in 2021 that clarifies some of the reporting and escalation
processes from subsidiary Boards.
The pace of change and strong interest in responsible business and responsible investing has
continued to accelerate. A comprehensive review of the enhanced reporting now expected by
investors has been conducted and the Group’s response to those new expectations can be
seen in the Responsible Business report on pages 46 to 59. The Committee has also taken a
keen interest in the development of a responsible investing strategy. Responsible investing is an
area where Quilter sees significant potential to leverage Quilter’s unique skills. This is discussed
in more detail in the Chief Executive Officer’s statement on page 26.
Quilter | Annual report 2020
103
Board Corporate Governance and
Nominations Committee report
continued
Key areas of Committee focus (continued)
The Board and the Board Corporate Governance and Nominations Committee have given
significant consideration to the diversity of the (cid:37)oard and our workforce. A range of initiatives
have been launched or reinvigorated during the year to drive diversity and inclusion across our
businesses. These include establishing an Inclusion and Diversity Steering Committee chaired
by Paul Feeney, creating networks for BAME and LGBT+ colleagues and the adoption of diverse
short-lists for all roles at Executive Committee level and the executives who report to them.
A range of family-friendly policies have been implemented during the year. Significant progress
has been made in collecting comprehensive data on the diversity of our workforce to provide
the basis for further targeted action. It is also pleasing that Quilter met its target of 35% of
leadership roles being held by women. As at 31 December 2020, 26% of our senior management
team, comprising the Executive Committee, the Company Secretary and their direct reports,
are female but it is clear that more needs to be done.
The Board acknowledges that it has an obligation to both role-model and drive a culture of
diversity and inclusion across Quilter. Consideration is given to the combination of skills,
professional experience and personal qualities that are present and required on the Board in
line with its stated intent to create a more diverse membership. All appointments are made on
merit, taking account of the skills, experience, knowledge and background needed to ensure a
rounded and effective (cid:37)oard. There is more to be done to ensure the continued diversity of the
Board and creating opportunities for all is critical, so that a robust pipeline of diverse candidates
is available. We will continue to strongly pursue these goals.
No members of the Quilter Board identify as having a disability or as coming from the LGBT+
community. As shown below, the composition of the Quilter Board meets the recommendations of
the Hampton-Alexander Review for one third of its members to be women. This requirement has
been met at all times since the Group’s Listing in June 2018 and three of the (cid:37)oard’s five Committees
are chaired by female Directors. The Committee has carefully considered the recommendations
of the Parker Review and the Board’s membership met its requirement to have at least one ethnically
diverse Director on the Board up until May 2020, when Suresh Kana decided not to seek re-election
at the 2020 AGM. The Board Corporate Governance and Nominations Committee launched a search
in the second half of 2020 for a Non-executive Director who could bring valuable additional skills
and experience to the (cid:37)oard from an ethnically diverse background. The Committee identified
a short-list of candidates who met these criteria and recommended the appointment of Tazim
Essani to the Board. The composition of the Quilter Board once again aligns with the Parker
Review’s recommendations. During the year the Committee recommended to the Board the
adoption of a new Board Diversity Policy which is available on the Quilter website at quilter.com.
Four of our seven Board leadership roles are held by women. The Board currently comprises
nine white Directors and one ethnically diverse Director.
Current female representation
on Board
Current female representation
in Board leadership roles
Current ethnic diversity
of the Board
40%
57%
10%
Female
Male
Female
Male
Ethnically diverse
White
(cid:37)oard leadership roles are the Chairman, Senior Independent Director and Chairs of our five (cid:37)oard Committees.
Data as at 10 March 2021.
Board diversity
and inclusion
Read more in
the Responsible
Business Report
Pages 52 and 53
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Board effectiveness review
Ruth Markland
Senior Independent Director
The 2019/20 Board
effectiveness review
concluded that our Board
and Committees are fully
effective.
2019/20 effectiveness review and action plan
Having overseen the externally facilitated (cid:37)oard effectiveness
review in 2019 the Board Corporate Governance and
Nominations Committee also asked me to oversee the
internal review conducted in 2020. The review was conducted
by way of a questionnaire which was completed by all Board
members in September 2020 (except for Tim Breedon who
had recently joined the Board, in June 2020) and a small
number of executives who work closely with the Board.
The questionnaire used for the evaluation was similar to
that used for the 2019 review so that trend data was available,
and it covered the performance of the Board, each of its
Committees and individual Board members.
I am pleased to report that the review concluded that the
Board and the Board Committees continue to be fully
effective in the discharge of their responsibilities. As usual,
the review identified a small number of areas where
improvements could be made. An action plan to address
those areas of focus was agreed by the Board in November
2020 and the Board Corporate Governance and Nominations
Committee is monitoring the delivery of that action plan.
The (cid:37)oard effectiveness review included individual
feedback for each Non-executive Director and the Chairman.
Using the results of the review, the Chairman held one to
one feedback meetings with each Non-executive Director.
After consulting with my fellow Non-executive Directors as
Senior Independent Director, I then provided the feedback
to the Chairman.
2019/20 effectiveness review
The action plan approved by the Board in response to
the Board effectiveness review included actions to:
Decision taken to conduct a lighter touch internally
facilitated Board effectiveness review in 2019/20;
Internally facilitated review conducted in September
2020 by using a questionnaire designed to assess
progress on issues identified in previous review;
Review the management information and key
performance indicators used to oversee the progress
and performance of the business;
Share additional reporting on succession planning
with the Board;
Outputs of the 2019/20 Board and Committee
effectiveness review debated and agreed; and
Introduce additional reporting from the subsidiary
Boards; and
Action plan to address issues identified and agreed
Share more granular reporting on culture at a
by the Board and each Board Committee.
business level with the Board.
Quilter | Annual report 2020
105
Board Corporate Governance and
Nominations Committee report
continued
Refreshing the Board further strengthen the Board. Tim’s candidacy exceeded our
criteria, as he also brings a strong risk, governance and investor
lens to our Board. I am delighted we were able to appoint a
director of Tim’s calibre and experience.
Q. How did you approach the search?
An external executive search firm, Egon (cid:61)ehnder, was engaged
to assist in the recruitment. Egon (cid:61)ehnder have no other
connection to Quilter or any individual director. In line with our
(cid:37)oard Diversity Policy, we only engage search firms who have
signed up to the voluntary Code of Conduct on both gender
and ethnicity. A long-list of candidates was identified by the
search firm, from which a short-list of three candidates was
interviewed in the first instance by me, our Chief Executive
Officer and our HR Director. The candidates were
independently ranked by us against the agreed selection
criteria and there was unanimous agreement that Tim Breedon
was the outstanding candidate based on his stronger track
record in both the executive and non-executive phases of
his career. Second round interviews were conducted with,
amongst others, the Senior Independent Director, the
Chairs of the Board Audit and Board Risk Committee, and
independent references were taken up by the Chairman. The
Board Corporate Governance and Nominations Committee
considered feedback from the interviews and the references,
alongside an analysis of Tim’s other directorships to assess
whether there were any conflicts of interest or any issues in
terms of his ability to commit the appropriate time to Quilter.
Having concluded that there were no impediments to the
appointment, and that Tim’s skills and experienced mapped
strongly to the vacancy, the Board Corporate Governance and
Nominations Committee recommended Tim’s appointment
to the Board for their approval.
Q. How did you change your
recruitment process to take account
of remote working?
For the first time in my career, this entire search was conducted
virtually. All the key decisions to commence the search and all
the meetings between the short-listed candidates and the
Directors were conducted by video conference.
Q. How did you keep the whole Board
informed on progress of the
recruitment?
As Chairman, I kept the Board Corporate Governance and
Nominations Committee informed on progress and briefed the
Board in full on the process and the proposed appointment for
their approval. A detailed Board paper and action plan were
shared with the Board.
Glyn Jones
Chairman
Q. How does the Board decide
to appoint a new NED?
The Board Corporate Governance and Nominations
Committee is responsible to the Board for ensuring that the
Board composition is appropriate for the successful delivery
of the Quilter strategy. As part of that responsibility, the
Committee has agreed and reviews on a regular basis a Board
Skills and Experience matrix which identifies the skills and
experience that are required to deliver Quilter’s strategy and
promote the long-term success of Quilter. Directors’ skills and
experience are mapped to this matrix and this enables areas
where further strength is required to be identified. The (cid:37)oard
also considers Board composition as part of the Board
Effectiveness Review which you can read more about on
page 105 and is led by the Senior Independent Director,
Ruth Markland.
Q. Why did the Board need a new
non-executive Director?
As stated in our 2019 Annual Report, when Cathy Turner and
Dr Suresh Kana indicated their intention not to seek re-election
to the Quilter Board at the 2020 Annual General Meeting, the
Board Corporate Governance and Nominations Committee
agreed that an external search should be conducted to identify
at least one new Non-executive Director.
Q. What skills and experience were
you looking for?
The brief the Committee agreed was to conduct a search to
find a candidate who could bring strong listed company CEO
experience and ideally a track record as a strong independent
Non-executive Director with public company experience to
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Tim Breedon shares
his thoughts on joining
the Quilter Board
Tim Breedon
Independent Non-executive Director
Q. How much did you know about
Quilter before joining the Board?
As a result of my range of non-executive director roles across
the UK financial services industry I was very aware of Quilter
and its ambitions, and I had observed with interest the
Company’s successful listing and its continued progress
thereafter. I admired the entrepreneurial nature of the
leadership team and the careful stewardship by the
Chairman. It is a young and exciting business with a clear
strategy and a strong sense of purpose.
Q. Why did you want to join Quilter
and what skills and attributes do
you bring to the Board and Quilter?
Having been a CEO of a FTSE-100 company operating in the
UK long-term savings market, I intend to bring challenge,
advice and support to Quilter management on business
performance and decision making, as well as working with my
fellow Board members in developing strategy and overseeing
the delivery of long-term success for Quilter. I particularly
enjoy working with management teams to help them to
identify and exploit competitive advantage to deliver strong
and sustainable business growth.
Q. Joining during a pandemic,
how did you get to grips with
your new role?
It is testament to the Chairman, the Board and many Quilter
colleagues that I have felt so warmly welcomed, particularly as
due to pandemic restrictions, I have so far only been able to
participate in person at the annual strategy day. Quilter have
arranged access to secure technology that has enabled me to
join meetings and hold calls via secure video conferencing.
Whilst I miss personal interactions, this has been a good
substitute for face-to-face meetings.
Q. How long did it take to complete
your induction?
I was very impressed with the speed, thoroughness and
quality of the induction Quilter arranged for me. It was
detailed and well-structured. Corporate Secretariat made
arrangements for the induction and necessary background
materials to be made available in a secure Board portal, and
I met Quilter Executives by video conference or telephone.
The induction was completed promptly, and I am still learning
about Quilter. It takes time to get to know a business and I am
conscious that there is always more to do.
Q. What are your first impressions
of Quilter and its culture?
Despite Quilter’s long history as part of the Old Mutual Group,
it only became a listed company in 2018. As a result it is a
maturing business, changing rapidly, and is still working
towards fully achieving its desired business shape. It has
grown quickly through acquisition and there are
opportunities to further integrate the various elements and
to bring the Quilter Group together more. Rebranding is an
important part of this and the exercise is well underway to
symbolically demonstrate a cohesive group. Now that the
new investment platform is operational, the Group has what
it needs to move forward rapidly to grasp the strategic
opportunities ahead.
Q. What do you see as the main
opportunities and challenges
for Quilter?
The financial services industry has been under pressure for
some time now, challenged by global political and economic
change, market instability, increased regulatory scrutiny and
now a global pandemic. The external headwinds are strong,
but I am confident that Quilter is poised to deliver on its
potential and I am excited about how I can support
management on the next stage of their journey.
Quilter | Annual report 2020
107
Board Audit Committee
report
Dear Shareholder,
An important role for the Committee
throughout the year, and particularly during
the COVID-19 pandemic which required the
vast majority of our employees to perform
their roles remotely, has been providing
robust governance over the Group’s
financial reporting. During the year, we took
the decision early to defer the release of the
Group’s 2020 interim results by a few days
in order to ensure we could deliver a robust
set of financial statements, notwithstanding
the remote working environment and
the recent change of external auditors.
Maintaining the transparency and integrity
of our financial statements is of vital
importance to our stakeholders,
particularly in a period of significant
market volatility.
I reported to you last year that, following
a detailed and comprehensive audit tender
process, the Board would be
recommending the appointment of PwC as
the new auditors for the Group. PwC were
formally appointed by our shareholders
as the Group’s statutory auditors at the
Annual General Meeting in May 2020.
During the year, the Committee has closely
monitored the auditor transition process
and the preparations for and delivery
of PwC’s first audit to ensure their
effectiveness. Further details on the
external auditor transition process are
set out on page 115.
There is further information on how the
Committee has discharged its role over the
coming pages covering the following areas:
The Committee has continually assessed
the state of the financial control
environment throughout the year and is
content that remote working has not led to
any significant weakening in the operation
of our internal financial controls and the
controls over our financial reporting.
We have continued to oversee the
modernisation and optimisation of the
finance function and the preparations
for the migration to a new General Ledger.
The first phase of the migration has now
completed safely and as the work
progresses the Group will adopt
increasingly automated controls providing
real time assessments of control
effectiveness. The Committee also spent
time reviewing the impact of the Platform
Transformation Programme on financial
controls and reporting. Further information
on how the Committee has overseen the
Group’s financial reporting and controls can
be found on pages 109 to 112.
Another area where the pandemic required
us to adapt our usual approach was the
work of the Internal Audit function. The
Committee took swift action following the
onset of the pandemic to agree a revised
set of priorities and a more flexible planning
approach for the Internal Audit function,
further details of which are set out on
page 113.
Key areas of Committee focus:
– Internal Audit;
– external audit, including the auditor
transition; and
– committee governance
Looking ahead, the Committee will be
focused on ensuring that the completion
of the Platform Transformation Programme
and the launch of the new General Ledger
are fully leveraged to continue enhancing
the Group’s internal financial control
environment. The Committee has set
a clear set of objectives for what will be
needed to achieve these enhancements,
informed by the Controls Maturity
Assessment conducted by PwC, and I will
report on the progress made in the 2021
Annual Report.
I would also like to take this opportunity
to thank Suresh Kana, who served on the
Committee until May 2020, for his insightful
contributions during his appointment.
George Reid
Chair
108
Quilter | Annual report 2020
George Reid
Chair
Committee activity
Review of financial
statements 26%
Internal controls 18%
Internal and external
audit 31%
Regulatory compliance
and reporting 19%
Governance 6%
Committee meetings
attended/eligible to attend
George Reid (C)
Rosie Harris
Suresh Kana
Ruth Markland
13/13
13/13
5/5
13/13
Number of meetings
13
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Key areas of Committee focus
Key area
Purpose
Financial reporting
The Group’s accounts are prepared in accordance with International Financial Reporting
Standards ((cid:522)IFRS(cid:523)). Certain Alternative Performance Measures ((cid:522)APMs(cid:523)) are used to add insight
for Quilter’s shareholders on the performance of the business, aligned with how the business
is managed. The Committee has continued its close scrutiny of APMs to ensure that where
they are used they are clearly highlighted and explained and are reconciled to statutory
performance measures.
The Committee has reviewed the Accounting Policies and confirmed that they are appropriate
to be used for the 2020 financial statements. Specific attention has been paid to the disclosures
made in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
particularly the assumptions regarding provisions and unrecognised deferred tax assets. During
the year, the Committee has also reviewed the preparations for IFRS 17 Insurance Contracts and
its impact on the Group despite the delays in the implementation of this new standard and the
reduced impact following the sale of the Quilter Life Assurance business.
The Committee has reviewed the basis of accounting, the appropriateness of adopting the going
concern basis of preparation for the Group’s financial statements, and the Group’s viability
statement. In doing so, the Committee considered:
– the Group’s three-year Business Plan which includes consideration of the economic, regulatory,
competitive and risk environment; and
– the latest Group own risk and solvency statement, and internal capital adequacy assessment
process, which cover current and future risk profile and solvency positions based on a series
of core assumptions, stress tests and scenario analysis.
The form of the viability statement and period covered by the statement were specifically
considered by the Committee. The Committee was satisfied with the content of the viability
statement and supported the time period of the statement which aligns with the three-year
internal financial planning cycle. The viability statement can be found on pages 78 and 79.
The Committee reviewed and challenged the Interim Results for 2020 and the Annual Report
for 2020, which included consideration of changes to comparative amounts of the consolidation
of funds and the associated disclosures. The Committee’s reviews for the interim and full year
were supported by analysis and discussion provided by the Finance and Actuarial teams,
reports from the second line of defence on the solvency position and the reports of the
external auditors. Having considered these inputs and the Committee’s own independent
judgements, the Committee recommended to the Board the approval of each of these sets
of financial statements.
Quilter | Annual report 2020
109
Board Audit Committee report
continued
Key areas of Committee focus (continued)
Key area
Purpose
Accounting judgements
and estimates
The Committee has continued to receive good support from the Quilter finance team which has
enabled it to consider in advance of the end of each reporting period the approach that it would
wish to take on the key areas of (cid:77)udgement and estimates that impact the financial results.
Critical judgements and estimates, including principal estimates, deliberated by the Committee
during review of the 2020 Annual Report included the treatment of:
Area of focus
Issue/role of the Committee
Lighthouse pension transfer advice provision
and insurance recovery asset
Deferred tax assets
Impairment of goodwill
The Committee reviewed the basis for
recognition of the provision, in accordance with
the requirements of IAS 37, and the estimates
involved in the calculation. The information
available as part of the skilled persons review,
and how this was applied in the calculation of
the provision by management, was considered
and challenged where appropriate. The
Committee also reviewed the judgements
applied by management in determination of the
insurance recovery asset. The disclosures in the
Group’s financial statements were reviewed to
ensure compliance with IFRS.
The approach taken for the recognition of
deferred tax assets, and the estimations and
assumptions used, were reviewed by the
Committee, along with consideration of the
associated disclosures in the Group’s financial
statements for compliance with IAS 12.
The Committee considered the appropriateness
of the key assumptions underpinning the
Group’s goodwill impairment testing, and the
sensitivities modelled, which required more
focus this year in light of the COVID-19 and the
impact on the Group. The Committee reviewed
the associated disclosures in both the half-year
and year-end financial statements to ensure
these met the requirements under IFRS, and
provided the relevant information to the
readers of the financial statements.
In addition, the key performance indicators to be included in the Strategic Report were approved
by the Committee and the Committee is content that they have been appropriately disclosed.
Many of the above key areas of judgement and estimates are also commented on by PwC in
their Auditor’s Report on pages 1(cid:24)8 to 1(cid:25)(cid:25). The Committee has carefully reviewed the contents
of PwC’s opinion and considers that PwC’s views on these areas are closely aligned with those
of the Committee.
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Key areas of Committee focus (continued)
Report
Purpose
Fair, balanced and
understandable
There has been a comprehensive review process to support the Board in reaching its conclusion
that the 2020 Annual Report is fair, balanced and understandable and whether it provides the
necessary information for shareholders to assess the Group’s position, performance, business
model and strategy.
The process which enabled the Committee to reach this conclusion included:
– the production of the 2020 Annual Report, managed closely by the Chief Financial Officer,
with overall governance and co-ordination provided by a cross-functional team of senior
management;
– cross-functional support to drafting the 2020 Annual Report which included input from
Finance, Risk, Investor Relations, Corporate Secretariat, HR and wider business leaders(cid:30)
– a robust review process of inputs into the 2020 Annual Report by all contributors, to ensure
disclosures were balanced, accurate and verified, with further comprehensive reviews by senior
management;
– a review by the Company Secretary of all Board and Board Committee minutes to ensure all
material matters considered at Board-level meetings have been disclosed in the 2020 Annual
Report;
– a specific management paper detailing the 2020 year-end assessment of fair, balanced and
understandable;
– a formal review by the Board Audit Committee of the draft 2020 Annual Report in advance
of final sign-off; and
– a final review by the Quilter Board of Directors.
Having carefully reviewed and considered all relevant information, the Committee is satisfied
that, taken as a whole, the 2020 Annual Report is fair, balanced and understandable and has
confirmed that to the Quilter (cid:37)oard. This process was also undertaken in respect of the Group’s
2020 Interim Results to ensure that, taken as a whole, based on the information supplied to it
and challenged by the Committee, they were fair, balanced and understandable, and the
Committee advised the (cid:37)oard to that effect.
Quilter | Annual report 2020
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Board Audit Committee report
continued
Key areas of Committee focus (continued)
Report
Purpose
Controls over financial
reporting
Alternative performance
measures
CASS compliance
Regulatory reporting
Whistleblowing
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Quilter | Annual report 2020
As reported in prior years, there is an ongoing programme of work to strengthen and enhance
the internal financial controls and governance framework that underpins the Group’s financial
reporting. This work is being closely monitored by the Committee and management have
continued to report on the state of the financial control environment throughout the year, which
has shown that good progress is being made towards delivering the enhancements required.
The Committee has also spent time overseeing the work to ensure adequate controls on the
financial reporting processes for the new investment platform and reviewing the state of the
financial control environment within the Quilter Financial Planning business, given the recent
restructure of its finance team and the number of acquisitions undertaken in recent years.
The Committee has received frequent updates from the Head of Financial Control on how
the Finance function has operated and maintained the effectiveness of financial controls and
financial reporting processes given the national lockdowns, which required the ma(cid:77)ority of
finance staff to work remotely. To ensure sufficient focus on this key area of work, we agreed
to defer our 2020 interim results announcement by a few days. We have also analysed the
increased risk of fraud driven by the pandemic and the mitigating actions taken in response.
As part of the process to review and challenge the 2020 financial statements, the Committee
considered the processes and controls in place to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the financial statements. The Chair of the
Committee has reported on this to the Board.
The Committee understands that APMs are an area of particular focus in terms of the
understanding of the Group’s financial statements by shareholders and other stakeholders and
the enhancements made to these disclosures in 2019 have continued to be refined in the 2020
Annual Report. Careful consideration has been given to these disclosures and the Committee
is satisfied that they provide clear definitions and explanations of the APMs, as well as a
reconciliation of the APMs to the nearest IFRS measure which has been cross-referenced
to Quilter’s KPIs. See pages 270 to 273.
Monitoring compliance with the CASS rules, and the programmes of work under way in each
of the regulated businesses to maintain appropriate CASS controls, is crucial to protecting the
interests of Quilter’s customers. The Committee performs this role by reviewing reports on
CASS produced by the internal and external auditors, the second line of defence and by
management. This has included overseeing the impact of our Platform Transformation
Programme on our CASS processes and controls and the performance of third-party suppliers
who manage the CASS arrangements in certain parts of the business. We have also heard from
management about the challenges faced by the businesses in maintaining the CASS control
environment while operating remotely due to the pandemic and the actions taken to mitigate
any increased risk.
During the year, the Committee reviewed, challenged and recommended to the Board for
approval the Solvency II reporting for the Quilter businesses for the 2019 year end and, in doing
so, were supported by detailed reports on the disclosures from management, the second line
Actuarial function and the external auditors. The Committee also scrutinised and approved the
methodology and assumptions to be applied to the 2020 year-end Solvency II reporting and
reviewed the 2020 year-end consolidated Capital Requirements Directive IV disclosures for
the Group ahead of their publication on Quilter’s website.
Quilter is committed to ensuring a transparent and open culture that encourages employees
to speak up. To support this, it is important that the Group’s whistleblowing arrangements are
not only effective in practice but are seen by staff and all other stakeholders as being fair, safe,
rigorous and effective in addressing concerns. During the year, the Committee has reviewed the
effectiveness of the whistleblowing processes in place across the Group and reviewed the
details of specific whistleblowing complaints and the outcome of management’s investigations.
The Committee has continued to encourage management to embed a (cid:522)speak up(cid:523) culture in the
organisation and to find new ways to test that issues are being raised by our people. The Chair
of the Board Audit Committee is the Whistleblowing Champion for Quilter.
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Key areas of Committee focus (continued)
Report
Internal Audit
External audit
Purpose
Quilter’s shareholders and customers can take comfort that the Group’s Internal Audit function
is mature, appropriately focused and functioning efficiently and effectively. The Chief Internal
Auditor attends all meetings of the Committee and has reported in detail on the work
conducted by Internal Audit including key statistical analysis on the results of its work, the pace
at which management are addressing any issues raised and the extent to which management
have self-identified the issues being raised by Internal Audit. This is an important indicator of the
maturity of the Group’s control framework and this measure is tracked closely. The Committee
has regular meetings with the Chief Internal Auditor without management present, in
accordance with best practice.
In March 2020, an urgent review was undertaken to identify measures that the Internal Audit
function could reasonably take to ensure the welfare of its staff and to support the wider
business in navigating the CO(cid:57)ID-19 pandemic, whilst maintaining its effectiveness and
delivering on its mandate. The Committee approved a revised Internal Audit plan, which involved
postponing several non-critical reviews and introducing new audits specifically driven by the
pandemic, including the remote working control environment. We reviewed the Internal Audit
plan on a regular basis, to ensure it remained flexible and appropriate throughout the year given
the fast-moving situation.
In November 2020, the Committee approved a risk-based Internal Audit plan for 2021 focused
on the most critical areas for the Quilter business and supporting the delivery of good customer
outcomes. The Internal Audit plan was formulated to complement the second line of defence’s
plan for 2021 and was reviewed in conjunction with the Board Risk Committee. The Chief
Internal Auditor has confirmed that he has the necessary resources to deliver the 2021 Internal
Audit plan, including having contingency resources in place to ensure that they can respond to
unexpected demands.
It had been Quilter’s intention to commission an external quality assessment of the Internal
Audit function in 2020, however, in light of the pandemic, the Committee took the decision
to defer the external quality assessment to 2021. Instead, the Committee commissioned an
internal review of the effectiveness of the Internal Audit function, which sought views from
key stakeholders across our businesses and central functions. The outputs of this review
demonstrated that the Internal Audit function is operating effectively, is highly regarded by
senior management and makes a strong contribution to the control environment across the
Group. The function scored highly for independence, objectivity and integrity. The Internal Audit
function was encouraged to continue to enhance its use of technology to maximise efficiency
in delivery of its work.
It is crucial that Quilter benefits from a robust, high-quality external audit conducted by an
independent and professional audit firm. To this end, the Committee has received regular and
detailed reports from the external auditors throughout the period, covering all aspects of their
work. The Committee has also assessed management’s response to the external auditors’
internal control findings. In advance of each (cid:37)oard Audit Committee meeting, the Chair of
the Committee meets separately with PwC’s lead audit partner, Mark Pugh, to ensure the
discussions at Committee meetings are appropriately focused, challenging the conclusions
reached by management as well as the audit work performed thereon.
Following the external audit tender conducted in 2019, PwC were formally appointed as
the Group’s statutory auditors for the 2020 financial year by shareholders at the 2020 AGM.
Mark Pugh has been the lead audit partner for Quilter plc since PwC’s appointment. Details
of the auditor transition process are provided on page 115.
The Company has complied with the Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 for the financial year ended 31 December 2020.
Quilter | Annual report 2020
113
Board Audit Committee report
continued
Key areas of Committee focus (continued)
Report
Purpose
Auditors’ remuneration
Fees payable for audit services
(cid:581)Group and Parent Company
(cid:581)Subsidiaries
Additional fees payable to KPMG LLP related to the prior year audit of the Group
Total fees for audit services
Fees for audit-related assurance services
Total Group auditors’ remuneration – continuing operations
Total Group auditors’ remuneration – discontinued operations
Total Group auditors’ remuneration
Year ended
31 December
2020
£m
Year ended
31 December
2019
£m
1.8
2.8
0.7
5.3
1.(cid:25)
6.9
–
6.9
1.0
2.7
–
3.7
1.1
4.8
0.2
5.0
PwC partners and staff have attended all meetings of the Committee since their appointment,
withdrawing only when their attendance would be inappropriate. PwC have contributed strongly
to discussions on Quilter’s financial statements, the financial reporting processes and key
accounting and reporting judgements. In November 2020 a survey was conducted by the
Company Secretary of management’s initial assessment of PwC’s performance across a range
of criteria including independence, effectiveness, ob(cid:77)ectivity, industry knowledge, efficiency and
service quality. The results of that survey concluded that PwC had performed strongly and
delivered an effective service overall for the Group since appointment, including managing the
transition to taking on the audit in spite of the challenges of remote working. Accordingly, PwC
are recommended for re-appointment by shareholders at Quilter’s AGM to be held in May 2021.
Committee governance
The Board Audit Committee currently comprises three independent Non-executive Directors. The Chair of the Committee has
recent and relevant financial experience and the Committee as a whole has competence relevant to the business sectors that
Quilter operates within. Details of the skills and experience of the Committee members can be found in their biographies on
pages 8(cid:24) to 87.
Evaluation
Discharging our
responsibilities
Attendance
Collaboration
As part of the 2019(cid:18)20 (cid:37)oard Effectiveness Review, the (cid:37)oard has assessed that the
Committee membership is appropriate in providing challenge and oversight and that the
Committee is operating effectively.
The Committee reviewed its activities over the previous 12 months against its terms of
reference and confirmed that it had fully discharged its responsibilities in line with its remit.
The terms of reference are available at quilter.com.
Other Non-executive Directors have attended certain meetings of the Committee throughout
the year, in the interests of assisting with their own responsibilities and understanding the
work of the Board Audit Committee.
The Chair briefs the Board on key discussions and provides a written report to the Board after
each meeting. The papers and reports presented to the Committee are made available to all
Quilter Non-executive Directors. The Committee has continued to work collaboratively and
effectively with other (cid:37)oard Committees, particularly the (cid:37)oard Risk Committee and the (cid:37)oard
Technology and Operations Committee, on matters such as the oversight of the Platform
Transformation Programme and the approval of the Internal Audit plan. The Committee also
relies on, and is supported by, the detailed work conducted by the Audit Committees and
Governance, Audit and Risk Committees of Quilter’s significant subsidiaries.
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Quilter | Annual report 2020
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Auditor transition
PwC provided regular updates to the Committee on the status of the external auditor transition process throughout 2020.
Despite some challenges presented by the COVID-19 pandemic which required most of the transition process to be
completed remotely, all required work was completed on time with close collaboration from the outgoing auditors, KPMG.
Key elements of the transition process:
Independence
Shadowing
Walk-throughs
Audit planning
Controls Maturity Assessment
It was confirmed to the Committee that all non-audit assignments conducted by
PwC in 2019 had been completed and PwC confirmed their independence with
effect from 1 January 2020.
PwC started to attend the meetings of the Quilter Board Audit Committee
alongside KPMG in December 2019 and once their independence was confirmed
they commenced the review of KPMG’s audit files and working papers so they
could effectively shadow KPMG through the 2019 year-end audit process.
Full virtual walk-throughs of key business processes were conducted and meetings
held with management to enable PwC to gain a full understanding of the Quilter
business and its control environment in preparation for their first interim results
review and statutory audit.
PwC presented their audit plan for the 2020 year-end statutory audit
to the Committee, including the timetable, significant risks and the impact
of the pandemic.
As was agreed as part of the Audit Tender process, PwC used the information
gained through the audit transition process to provide the Committee with
a benchmarking Controls Assessment across the Group. While overall this
confirmed that the Group’s control environment is within PwC’s experience
range for similar financial services firms, helpful guidance was provided
on areas where improvements could be made.
Quilter | Annual report 2020
115
Board Risk Committee report
Despite a challenging external environment,
Quilter has continued to successfully deliver
the internal changes necessary to bring our
business to full maturity, although there is
still more to do. Since Listing, our business
has continued to evolve and we were able
to capitalise on the growing maturity of the
embedded Risk Framework to focus our
time on key business risk issues, such as
oversight of our advice business. At the
request of the Board, this Committee
has taken on additional scrutiny of how
our advisers do business and, when
appropriate, we will invite the Chairs
of the Governance, Audit and Risk
Committees of our Business Oversight
Boards to join our meetings to ensure
the Board Risk Committee is well informed
and cognisant of their view of their risk
profile. Our scrutiny will provide comfort
to our stakeholders that we manage this
business for our customers in a safe and
controlled manner.
We were pleased to welcome Tim Breedon
to the Committee in June 2020. Tim brings
great experience and highly relevant skills
to our membership.
Rosie Harris
Chair
Dear Shareholder,
During 2020 the Committee maintained
focus on the impact of macro-economic
developments and geopolitical issues on
the delivery of the Business Plan. This
included the UK withdrawal from the EU
and the US Presidential elections. However,
the year was also dominated by the sudden
and extreme impact of the global COVID-19
pandemic. All of these factors created
headwinds for net client cash flow,
profitability and margins.
As you can read in more detail on the
following pages, the pandemic rapidly
changed the nature and scale of some
of Quilter’s key risks, particularly our
operational risks as colleagues moved to
work remotely, the risks for our people of
this new way of working, and capital and
liquidity risks resulting from more volatile
market conditions.
The Group’s conservative risk appetite has
been maintained and despite the stresses
of market volatility and lack of consumer
confidence there have been no breaches
of targets. We continued close scrutiny of
capital and liquidity appetites and no issues
have arisen.
The growing maturity of the Risk
Framework has helped minimise the risks
of moving rapidly to a remote working
environment. The emphasis given by
management to staff and client safety,
both physical and digital, was clear to the
Committee. We were assured by the work
of both the Risk function and Internal Audit
that the risk and control framework
remained robust through the year.
Unsurprisingly, as the scale and longevity
of the pandemic became clear, we agreed
changes to the plans of the Risk and
Compliance teams to enable them to
concentrate more effort on the most
important risks. We postponed our plans to
review the effectiveness and performance
of the risk function to enable our colleagues
to focus on the changing risk profile. I am
pleased to confirm that despite only
meeting once in person in 2020, and
holding the rest of our meetings by
telephone and video conference, the
Committee has concluded as part of the
2019(cid:18)20 (cid:37)oard effectiveness review that
we discharged our responsibilities in full.
116
Quilter | Annual report 2020
Rosie Harris
Chair
Committee activity
Top risk oversight 54%
Risk appetite and profile,
including capital and
liquidity 20%
Change programmes 13%
Regulatory change 13%
Committee meetings
attended/eligible to attend
Rosie Harris (C)
Tim Breedon
Moira Kilcoyne
Paul Matthews
George Reid
9/9
5/6
9/9
9/9
9/9
Number of meetings
9
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Key areas of Committee focus
Report
Purpose
Being operationally
resilient and supporting
our stakeholders during
a global pandemic
Managing Quilter’s
top risks
Since March 2020 when the far-reaching implications of the pandemic became clear, this
Committee has focused on supporting management as they rapidly mobilised colleagues to
work remotely whilst ensuring Quilter was open for business. This demanded a careful balance
to manage colleague and adviser wellbeing, whilst ensuring that the necessary internal controls
were operating effectively given the change in working practices and also to ensure the new
risks arising from remote working were mitigated. I am pleased to report that there is no
evidence of any degradation of controls during this period. Indeed, we have strongly encouraged
management to capitalise on the efficiencies that remote working necessitated and embed
improved business practices in a controlled manner. We challenged management through the
year to consider any adverse impact on the risk profile.
As the external market conditions became more volatile, the Committee continued to monitor
closely the Group’s capital and liquidity and I am pleased that we remained strongly capitalised,
with liquidity remaining within risk appetite.
A further important role of the Committee is to ensure that the control framework is strong and
that the Group’s stress and scenario planning is comprehensive and robust. During the year, the
Committee debated extensively the scenarios used for our stress testing and approved these
on behalf of the Board. The parameters for the own risk and solvency assessment (“ORSA”) and
internal capital adequacy assessment process (“ICAAP”) reports were scrutinised and adjusted
in response to the tightening of market conditions during the year so that they were performed
on a more prudent basis.
In addition to the heightened risks for our people, we were mindful that our business is
reliant on the services provided by other suppliers who were also likely to be impacted by the
pandemic. To that end, we received regular updates on the performance of our third-party
suppliers, in collaboration with the Board Technology and Operations Committee who monitor
our most important technology suppliers, to ensure that our business was operationally resilient
and secure.
Our Chief Executive Officer and Chief Risk Officer update us at least quarterly on their views of
the top risks facing Quilter, how management are mitigating these risks and how this compares
to agreed risk appetite. This enables us to commission further in-depth updates on topics of
material interest. For our top risks we asked business leaders for their analysis of the key risk
issues and invited comments from our second line risk team, colleagues in internal audit and our
external auditors. (cid:58)here our risk profile was heightened, for example on operational resilience
for our systems and controls or our people as a result of the pandemic, we received more
frequent updates to keep pace with the fast-moving environment.
The Board asked us to act on its behalf to apply additional scrutiny on Advice Risk in Quilter
Financial Planning. We have asked to receive half yearly updates on the work to enhance the
control environment in that business. (cid:58)e will also continue to oversee management’s efforts
to embed the lessons learnt from recent acquisitions.
The welfare and wellbeing of our people this year especially has been an area of increased focus
and we were pleased to hear how the highly visible leadership provided by management during
the pandemic was welcomed by colleagues, as evidenced in colleague engagement scores. We
have kept a close watch on these scores and the reasons why people leave Quilter and have
asked HR to keep this under scrutiny.
In addition to the Chief Risk Officer’s report, we were further informed on conduct and risk
culture by reports from the compliance team including their annual plan. We continue to receive
regular updates on our engagement with UK and International regulators.
A key part of our role is ensuring as part of the annual planning process that our risk and
compliance teams remain suitably resourced and independent from first line management and
we remain confident that this is the case. In line with best practice, we have endorsed a new risk
team charter which will be rolled out in 2021.
Quilter | Annual report 2020
117
Board Risk Committee report
continued
Key areas of Committee focus (continued)
Report
Purpose
Monitoring and
assessing emerging
risks
An important part of the Committee’s work is monitoring new and emerging risks and ensuring
management are clear on the potential timing, scale and impact of these risks and how they can
be mitigated. During the year the Committee received regular reports on emerging risk issues,
and any changes to actual and potential legal and regulatory risk.
At the request of the Committee, management have analysed Quilter’s preparedness for
a negative UK interest rate scenario and we continue to keep a watching brief on this matter.
The reporting on emerging risks has been enhanced and the Committee has specifically
identified managing the impact of climate change risk and ESG to our risk radar and asked
management to update us on these topics in 2021. In addition, we are monitoring the impact
for Quilter of the changes in the prudential regime for investment firms.
Committee governance
The (cid:37)oard Risk Committee currently comprises five independent Non-executive Directors. Details of the skills and experience
of the Committee members can be found in their biographies on pages 85 to 87.
Evaluation
Discharging our
responsibilities
Attendance
Collaboration
As part of the 2019(cid:18)20 (cid:37)oard Effectiveness Review, the (cid:37)oard has assessed that the
Committee membership is appropriate in providing challenge and oversight and that the
Committee is operating effectively.
The Committee reviewed its activities over the previous 12 months against its terms of
reference and confirmed that it had fully discharged its responsibilities in line with its remit.
The terms of reference are available at quilter.com.
The Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Risk Officer
and Chief Internal Auditor regularly attend Committee meetings. The Group Chairman and, on
occasion, other Non-executive Directors attended Committee meetings for matters as desired.
The Chair briefs the Board on key discussions and provides a written report to the Board after
each meeting. The papers and reports presented to the Committee are made available to
all Quilter Non-executive Directors. The Chair continues to collaborate with other Committee
Chairs to ensure that issues are given appropriate scrutiny. The collaboration is supported
by the cross-committee membership with the Board Audit Committee, Board Technology
and Operations Committee and the Board Remuneration Committee.
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Quilter | Annual report 2020
Board Technology and
Operations Committee report
Dear Shareholder,
When I wrote to you last year, I stated that
our number one priority for 2020 was to
deliver the new investment platform safely
for our advisers and customers. At that
time, no one predicted that 2020 would
be dominated by the impacts of a global
pandemic which has touched so many
people in so many ways. Despite the
additional challenges this brought to our
migration programme, which are described
in more detail overleaf, I am pleased to
report that our new platform is in place
and operating successfully. Since year end,
and despite another national lockdown,
remaining clients have been migrated
successfully to the new investment
platform. This is a significant step forward
in enabling the delivery of our business
strategy and delivered in a way that
minimised disruption for our advisers
and customers. (cid:58)e will, of course, reflect
on what lessons from this programme we
can apply to other projects and oversee
management as they close down the
legacy platform.
As the impacts of the pandemic became
clear during Spring and Summer 2020 the
Committee adapted its areas of focus to
support management during these
unprecedented times. Our immediate
priority shifted to ensuring that colleagues
could work safely and securely, whilst
continuing to support our customers.
We ensured that appropriate controls were
in place to give us comfort that this was
indeed the case. I am, however, pleased
to report that once the immediate impacts
of COVID-19 were understood and Quilter’s
people mobilised to work largely remotely,
our Committee’s oversight continued as
planned albeit with renewed focus on
operational resilience and data security.
Moving forwards, the Committee is focused
on supporting management in delivering on
the opportunities for Quilter that arise from
the transformation of our technology base.
During 2021, we expect that many of the
planned improvement and change
programmes will be delivered. This will
transform Quilter’s technology estate to be
more simple, modern, agile, resilient and a
true enabler for our business and for our
colleagues, customers and advisers.
I would like to end by extending on behalf
of the Committee and the Board my thanks
for the unstinting effort and dedication of
the many colleagues, in Quilter and at our
external technology partners, in achieving
so much during such a challenging year.
Moira Kilcoyne
Chair
Moira Kilcoyne
Chair
Committee activity
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Operational resilience 11%
Platform Transformation
Programme 49%
Other change
programmes 10%
Technology and operations
strategy 18%
Committee meetings
attended/eligible to attend
Moira Kilcoyne (C)
Rosie Harris*
George Reid
14/14
12/14
14/14
* The Committee meetings that Rosie
Harris was unable to attend during
the year were additional meetings
arranged at short notice.
Number of meetings
14
Quilter | Annual report 2020
119
Board Technology and Operations Committee report
continued
Key areas of Committee focus
Report
Purpose
Platform Transformation
Programme
Cyber and IT security
Operational resilience
The Committee has spent much of its time providing oversight to the transformation
programme to introduce our new platform for customers and advisers. Any technology change
is challenging, and to deliver this during the extraordinary period of remote working is quite
exceptional. Alongside business updates we heard from risk and internal audit who worked
to challenge management and ensure that the best result for our advisers and customers was
achieved. As in prior years, we worked collaboratively with our technology partner, FNZ, and
were supported by Deloitte in managing this complex and challenging programme.
Given the importance of this programme to Quilter, we were joined on occasions by other
Board members, and the meetings were held jointly with our Quilter Investment Platform Board
Non-executive Directors. We closely monitored progress and challenged management to ensure
that the programme of change could be delivered safely. We were delighted when the second
phase of advisers and customers migrated over the period of 26 to 29 November 2020, resulting
in approximately 360,000 customers and around 80% of the total assets being administered on
the new platform technology. The remainder of our clients and customers, including more than
5,000 advisers holding around £14 billion of assets, were moved successfully over the period
26 to 28 February 2021.
You can read more about the programme and the impacts for our business on pages 44 and 45
of the Strategic Report.
Underpinning our technology and operational strategy is the need to keep our systems secure
and our data safe. Reflecting the extraordinary nature of 2020, many companies have seen an
increase in the levels of attempted fraud, including phishing attempts for staff and cloned firms
for customers. During the year, we received regular updates on our information security
improvement programme and our infrastructure transformation programme. We welcomed
management’s vigilance and continued focus on protecting our customers and our clients.
The enhancements made to our control measures have included the issuing of new technology
and tools to all staff to enable them to work securely whilst being remote, alongside enhanced
guidance and training to colleagues to support remote working. We have also reviewed progress
of the plans to further simplify our website domain strategy and will keep this under close
scrutiny in 2021. Given the interdependency between operations and technology during the
year, we asked management to ensure close co-ordination of these activities.
Given the ongoing external threat, IT and cyber security will remain one of Quilter’s top risks
and require ongoing focus and attention.
Another important area of focus was ensuring Quilter was operationally resilient. Following the
UK Government’s “Stay at Home” advice, 98% of colleagues were working remotely from late
March 2020. Colleagues were provided with technology to enable them to work effectively
and where appropriate, offices were made CO(cid:57)ID-19 secure to enable work that needed to be
performed in the office to continue to be delivered in that way. (cid:58)e ensured that management
maintained focus on IT and data security, reminding colleagues of their new responsibilities
during this unprecedented period.
Managing our external technology partners effectively is a key part of our resilience strategy
and during the year relationships were further strengthened and improved with technology
incidents and outages reduced as a result. The Committee routinely received updates on our
third-party suppliers, many of whom were also challenged by COVID-19 necessitating remote
working in other countries, including South Africa and India, where the COVID-19 impact was
experienced somewhat differently than the UK.
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Key areas of Committee focus (continued)
Report
Purpose
Oversight of change
programmes
IT risks and controls
oversight
During the year, we provided oversight and scrutiny as management worked through other
material transformation programmes, with execution timing carefully considered to prioritise
the platform transformation. These programmes included enhancements to our payment
systems in Quilter Financial Planning, a new General Ledger and other procurement systems
and the client relationship management system in Quilter Cheviot. We keenly anticipate the
formal lessons learnt process that businesses undertake as routine after such
implementations so that future change programmes can benefit from these insights.
The Committee further scrutinised the plans for the return of colleagues to our new Head
Office and how technology will enhance future working practices.
The Committee routinely received independent reviews from the Risk and Internal Audit
functions. These reviews complement the first line risk management by business areas. (cid:58)e
welcomed improvements in processes and have been encouraged by the growing maturity
in first line risk identification as they become more proactive in identifying and managing
risks across the Group.
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The Board Technology and Operations Committee currently comprises three independent Non-executive Directors.
Details of the skills and experience of the Committee members can be found in their biographies on pages 86 and 87.
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Evaluation
Discharging our
responsibilities
Attendance
Collaboration
As part of the 2019(cid:18)20 (cid:37)oard Effectiveness Review, the (cid:37)oard has assessed that the
Committee membership is appropriate in providing challenge and oversight and that
the Committee is operating effectively.
The Committee reviewed its activities over the previous 12 months against its terms of
reference and confirmed that it had fully discharged its responsibilities in line with its remit.
The terms of reference are available at quilter.com.
The Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Risk Officer
and Chief Information Officer regularly attend Committee meetings. On occasion, the
Group Chairman and other Non-executive Directors attended Committee meetings for
matters of particular interest, such as the Platform Transformation Programme.
The Chair briefs the Board on key discussions and provides a written report to the Board,
where feasible, after each meeting. The papers and reports presented to the Committee
are made available to all Quilter Non-executive Directors. During the year, eight additional
ad hoc meetings focusing on the Platform Transformation Programme were held jointly
with the Quilter Investment Platform Board Non-executive Directors to scrutinise matters
of common interest. Some of these additional meetings of the Committee and the Quilter
Investment Platform Board were held at short notice to examine key decisions and the
impact of COVID-19 on the migration plans.
Quilter | Annual report 2020
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Board Remuneration
Committee report
Dear Shareholder,
As Chair of the Board Remuneration
Committee ((cid:522)Committee(cid:523)) for my first year,
I am pleased to present on behalf of the
Board the Remuneration Report in respect
of the year ended 31 December 2020. This
statement and the accompanying Report
aims to ensure high levels of disclosure
regarding pay policy and transparency of
remuneration decision making.
Our current Remuneration Policy (“Policy”)
was approved by shareholders at the 2019
Annual General Meeting (“AGM”) with 97%
of votes in favour. For information only, we
have included a summary of our current
Policy on pages 128 to 132. Our Report for
2019 received 96% of votes in favour at the
last AGM. The Committee’s decisions, which
take into consideration the key drivers of
our Policy (alignment to culture, clarity,
simplicity, risk, predictability and
proportionality) are summarised in this
statement and set out in the Report.
(cid:58)e have explained the performance
outcomes in respect of the 2020 financial
year. Of particular note is that, on the
recommendation of the Executive
Directors, the Committee has exercised
its discretion to reduce short-term incentive
((cid:522)STI(cid:523)) outcomes to (cid:93)ero. (cid:58)e also set out
how we intend to continue operating our
Policy in 2021, and have added one
measure to the STI performance metrics,
as set out below.
As detailed in last year’s Report, Executive
Directors’ pension allowances are already
aligned with the wider Quilter workforce,
and a post-cessation share ownership
policy also applies, in accordance with the
Investment Association’s latest guidelines.
Business context in 2020
The operating environment in 2020
presented unprecedented challenges for
the business, with macro geopolitical issues
and the COVID-19 pandemic impacting
investor confidence and creating market
volatility throughout the year.
The COVID-19 pandemic required the
business to adapt quickly to ensure
continuous support for customers and
employees at a time of significant social
and economic disruption. The business
demonstrated strong operational resilience
to maintain high levels of service for
advisers and customers at the height of the
crisis, whilst simultaneously transitioning
98(cid:8) of our workforce to remote working.
Our 2020 results demonstrate that we have
a financially resilient business. (cid:58)e did not
use support measures made available to
companies by the UK Government, we did
not furlough any employees and we paid an
interim 2020 dividend to our shareholders.
Nevertheless, the volatile markets over
2020 coupled with a challenging
environment for new business flows
impacted revenue, mitigated in part by
proactive management actions and strong
expense discipline. Notwithstanding a
strong set of results given the
unprecedented market conditions, the
impact to business performance caused by
the external environment is such that 2020
profit is below the threshold level we set
ourselves at the start of the year. This is
reflected in the remuneration outcomes
set out in the Report.
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Ruth Markland
Chair
Committee activity
Group remuneration
policy 10%
Specific remuneration
arrangements 27%
Remuneration schemes,
including all-employee
schemes 36%
Governance 27%
Committee meetings
attended/eligible to attend
Ruth Markland (C)
Glyn Jones
Tim Breedon
Jon Little
Paul Matthews
Cathy Turner
8/8
8/8
3/3
5/7
4/4
4/4
Number of meetings
8
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Key performance highlights
– IFRS profit before tax (excluding amortisation, policyholder
Short-term incentive outcome
– (cid:58)hilst business performance has been robust in difficult
tax adjustments and other one-off items) was £87 million for
2020, compared to £141 million in 2019. In 2019, profit from
discontinued operations of £67 million was included, which
related to the Quilter Life Assurance business that was sold
on 31 December 2019. For remuneration purposes, the profit
was £63 million for 2020, compared to £128 million in 2019.
– NCCF of £1.6 billion was a material increase from £0.3 billion
in the previous year.
circumstances, our 2020 IFRS profit result for STI purposes
of £63 million was below the threshold STI level of £80 million.
As a result, 60% of the Executive Directors’ STI award was zero.
– (cid:58)hilst our risk appetite has been effectively embedded in
decision making and the management of the business, in
particular the prudent execution of the migration to our new
UK Platform, there is further work required to bolster the
overall control environment.
– AuMA increased by 7% during the year to close at £117.8
– Customer performance was strong across our key metrics,
billion, which includes (cid:101)(cid:24).8 billion of positive market
movement as a consequence of the equity market rally
late in the year.
– Expenses were closely managed with the Optimisation
programme delivering significant benefits.
including strong investment performance and service across
our business areas, with Quilter awarded 5 Stars in the
Financial Adviser Service Awards across investments,
protection and pensions, platform and discretionary fund
management.
– Good progress was made with strategic priorities;
– The Company also made good strategic progress in 2020,
Optimisation activity and operational improvements have
been implemented and we safely and securely completed
the largest transfer of advisers and assets in our phased
migration plan to our new UK Platform, which is now in
its final stage of delivery.
– (cid:58)e have increased customer focus across the business,
particularly in response to the COVID-19 pandemic and have
continued to make progress across our Customer Strategic
Risk Appetite Principles covering governance, products and
proposition, customer experience, suitability and servicing.
Overall, 2020 has been a year of resilient business
performance in a very challenging environment.
notably on the UK Platform Transformation Programme with
the successful phased migration of the majority of advisers
and assets onto the new platform.
– The management team demonstrated strong leadership
throughout 2020 to protect the interests of all stakeholders
during the COVID-19 pandemic.
– Overall this would have generated an STI award of 24%
of maximum for the Chief Executive Officer and 28%
of maximum for the Chief Financial Officer, prior to
consideration of risk-based ad(cid:77)ustments described below.
– As part of its review of 2020 performance, the Committee
considered the impact of any material risk events that arose
during the year and decided that a downward adjustment of
10% of maximum should be applied to the STI outcomes for
both Executive Directors. This adjustment was to reflect the
risks brought into Quilter relating to historic pension transfer
advice provided by Lighthouse to British Steel Pension
Scheme members prior to Quilter’s acquisition of Lighthouse
plc, which resulted in a net provision of £24 million to cover
redress costs and fees.
– The non-financial elements of the STI scorecard, which account
for up to 40% of the award, would have generated outcomes
after the risk-ad(cid:77)ustment referred to above of 14(cid:8) of maximum
for the Chief Executive Officer and 18% of maximum for the
Chief Financial Officer. However, having carefully considered
the overall STI outcomes for the wider workforce, the
Executive Directors recommended to the Committee that
they do not take receipt of any STI award for 2020 and
redirect the amounts that would have been payable toward
a small discretionary pool for other employees to recognise
their achievements in very challenging circumstances.
The Committee approved their recommendation.
Long-term incentive outcome
– The first long-term incentive (“LTI”) award was granted to
Executive Directors following the Company’s Listing in June
2018 (the “2018 LTI”). The performance conditions measure
compound annual profit growth from 2017 to 2020, and TSR
relative to the FTSE 250 (excluding investment trusts). The
award will vest in March 2021 with an outcome of 48.7% of
maximum for the Chief Executive and Chief Financial Officer,
as detailed in the Report.
Quilter | Annual report 2020
123
Board Remuneration Committee report
continued
Adjustments and exercise of discretion
– The Committee applied a risk-based downward STI
adjustment for the historic Lighthouse pension transfer
advice issues.
– In consideration of the impact of COVID-19 and the need to
appropriately target the available STI spend, the Committee
also exercised its discretion, at the recommendation of the
Executive Directors, to reduce their STI award to zero, and
redirect the STI funding for 2020 towards other employees.
– The financial performance targets in the 2018 LTI were
adjusted following the sale of Quilter Life Assurance.
This comprised two changes: Quilter Life Assurance profits
(adjusted for certain stranded costs) excluded from the
base year to ensure a like-for-like comparison with the
measurement year, and the target growth range was
amended, including a substantial increase in the growth
requirement for maximum vesting.
– No other discretion was exercised to override performance
or variable pay outcomes.
Considerations for the year ahead
(cid:58)e continue to monitor executive remuneration developments
within the industry and the regulatory landscape, and to
ensure that remuneration supports the alignment of executive
and shareholder interests and is consistent with the prudent
risk management of the business.
The Committee considered the overall remuneration
arrangements for the Executive Directors for 2021 in
accordance with the Policy. Key points are as follows:
– there will be no increase to the Executive Directors’ salaries
at the 1 April 2021 review date, and base salaries were also
not increased at the April 2020 review;
– the structure, non-financial performance metrics and
maximum award level of the STI awards in respect of 2021
will remain unchanged. However, the financial performance
metrics will include NCCF as a percentage of opening AuMA,
with a weighting of 20% of the overall scorecard, with the
weighting applied to IFRS profit before tax (excluding
amortisation, policyholder tax adjustments and other one-off
items) reducing from 60% to 40%, such that the total financial
performance weighting of the scorecard remains at 60%.
NCCF is an important lead indicator of business performance
and the Committee decided that it was the appropriate time
to incorporate it into the annual scorecard. STI for on-target
performance is set at 50% of maximum, which remains
unchanged;
– the structure, performance metrics and maximum award
opportunity of the LTI grants in 2021, including the maximum
level of awards, will also be unchanged; and
– there will be no increase in fees for the Board Chairman for
2021 and there will also be no increase to Non-executive
Directors’ fees for 2021.
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Consideration of shareholders’ views
The Committee actively engages with shareholders and
investor bodies and welcomes the opportunity to engage with
shareholders and discuss their views on remuneration issues
in advance of the 2021 AGM.
The current Policy was approved by shareholders at the
Company’s first AGM in 2019 and will be due for renewal at the
AGM in 2022. The Committee will undertake a review of the
Policy during 2021 to take account of latest market
developments, regulatory requirements and corporate
governance best practice and to ensure the Policy continues
to encourage and reward the growth of shareholder value, and
promotes the long-term sustainable success of the Company.
The Committee will consult with shareholders on any changes
proposed to the Policy ahead of the 2022 AGM.
Inclusion, diversity and the gender pay gap
A key priority for the Company is the continued commitment
to an inclusive culture and the equality and diversity of our
workforce. The Inclusion and Diversity agenda is led by Paul
Feeney. Further details can be found in the Responsible
Business report on page 53. During 2020 we made progress
across several areas, including:
– appointing a Group Head of Inclusion (cid:9) (cid:58)ellbeing, a new role
dedicated to our Inclusion, Diversity and (cid:58)ellbeing priorities
and supported by a new Inclusion and Diversity Steering
Committee, comprised of Quilter Executive Committee
members;
– updating our talent programme to ensure we can identify,
track and support individuals of under-represented
ethnicities and gender in progressing their careers in Quilter;
– refreshing our (cid:57)alues and leadership behaviour frameworks
to further reinforce our Inclusion and Diversity goals within
our culture; and
– continuing to evolve our recruitment processes to ensure
that we market roles, shortlist and select candidates on a fully
diverse and inclusive basis.
For 2020 we have reported a median gender pay gap of 30%
and a median bonus gap of 39(cid:8). (cid:58)hilst our pay gaps have
reduced since Gender Pay Gap Reporting was introduced
four years ago, we still have much further to go. Further details
regarding our gender pay gap figures can be found on page (cid:24)3
of the Responsible Business report.
Employee voice
Paul Matthews, Independent Non-executive Director,
member of the (cid:37)oard Remuneration and (cid:37)oard Risk
Committees and a Non-executive Director of Quilter Financial
Planning (cid:37)oard, took over responsibility for reflecting the
employee voice in the Boardroom following Cathy Turner’s
departure in May 2020. Paul engaged directly with our
Employee Forum during 2020 to gain valuable insight on the
matters pertaining to corporate strategy, change
management and culture. Further details on the progress
made during the year can be found in the Governance in
action report on pages 100 to 101.
The Committee is conscious of its heightened role during
times of significant uncertainty and in navigating the
unprecedented challenges caused by the COVID-19 pandemic
to ensure that remuneration outcomes for the Executive
Directors and wider workforce are appropriately aligned with
performance and shareholders’ experience. (cid:58)e will continue
Committee governance
to make careful decisions which balance the interests of all
stakeholders. I appreciate the ongoing support and feedback
from our shareholders.
From 9 March 2021, we look forward to bringing a fresh
perspective to the Committee with the appointment of a new
independent Non-executive Director, Tazim Essani.
I would also like to take this opportunity to thank my
predecessor, Cathy Turner, for her excellent chairmanship
prior to my appointment.
Ruth Markland
Chair
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The (cid:37)oard Remuneration Committee currently comprises five independent Non-executive Directors. Details of the skills
and experience of the Committee members can be found in their biographies on pages 84 to 86.
Evaluation
Discharging our
responsibilities
Attendance
Collaboration
As part of the 2019(cid:18)20 (cid:37)oard Effectiveness Review, the (cid:37)oard has assessed that the
Committee membership is appropriate in providing challenge and oversight and that
the Committee is operating effectively.
The Committee reviewed its activities over the previous 12 months against its terms of
reference and confirmed that it had fully discharged its responsibilities in line with its remit.
The terms of reference are available at quilter.com.
The Chief Executive Officer, HR Director, Reward Director and Jeremy Orbell, the
Committee’s independent remuneration adviser, regularly attend Committee meetings,
except when it would not be appropriate for them to do so.
The Chairman briefs the (cid:37)oard on key discussions and provides a written report to
the Board, where feasible, after each meeting. The papers and reports presented to the
Committee are made available to all Quilter Non-executive Directors. The members of
the (cid:37)oard Risk Committee are invited to (cid:77)oin Committee meetings when risk-ad(cid:77)usted
remuneration matters are being discussed.
Quilter | Annual report 2020
125
Remuneration at a glance
The following pages detail the remuneration paid to our Executive Directors and our Policy.
These two pages summarise the key elements.
Components of remuneration (chart illustrates the weighting of target outcomes)
Fixed pay
Salary, benefits and pension
Short-term incentive (“STI”)
+
Variable pay:
Total remuneration
Long-term incentive (“LTI”)
How much our Executive Directors earned in 2020
Single total figure of remuneration – Executive Directors
The following chart sets out the aggregate emoluments earned by the Directors in the year ended 31 December 2020.
Paul Feeney
£750k
Mark Satchel
£501k
£1,487k
£737k
£739k
£238k
Link between remuneration and business strategy
Short-term incentive Performance indicators
Metrics in executive
remuneration
2020
achievement
2020 weighted
outcome
Profit
IFRS profit before tax1
60% of 2020 STI awards
0% of max
0% of max
Non-financial
Risk management
10% of 2020 STI awards
50-70% of max
5-7% of max
Customer outcomes
10% of 2020 STI awards
65% of max
7% of max
Strategic personal
performance
20% of 2020 STI awards
60-70% of max
12-14% of max
Total before
adjustment
Risk ad(cid:77)ustment
COVID-19 adjustment
Total after
adjustment
24-28% of max
(10%) of max
(14-18%) of max
0% of max
Long-term incentive
Performance indicators
Metrics in executive
remuneration
2020 achievement
EPS growth
EPS compound annual
growth rate (“CAGR”)
70% of 2020 LTI award
EPS CAGR 2019-2022
Shareholder value
Total shareholder
return (relative)
30% of 2020 LTI award
TSR (relative) 2020-2022
Results in 2023
Results in 2023
1 IFRS profit before tax (excluding amortisation, policyholder tax ad(cid:77)ustments and one-off items).
2 Includes, but not limited to, key measures of performance such as NCCF.
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Shareholding
Paul Feeney
Mark Satchel
Ownership as %
2020 base salary1
291%
320%
Minimum
shareholding
required
(after 5 years)2
300%
300%
1 Includes personal holdings and the estimated net of tax value of unvested share awards which are not subject to performance conditions as at 31 December 2020.
2 Executive Directors have five years from the Company’s Listing date, or date of appointment, to meet the shareholding requirement.
Summary of the key elements of our Policy
The table below provides a high-level summary of the key remuneration elements under our Policy, which was approved at our
2019 AGM. The key elements of the Policy are set out in pages 128 to 132.
2020
2021
2022
2023
2024
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period
Short-term
incentive
Performance
period
Vesting
period
1/3
1/3
1/3
Normally reviewed annually with effect from 1 April.
Paul Feeney – £675,000
Mark Satchel – £450,000
Total incentive award in respect of Company and individual
performance.
Key performance measures and weighting:
– IFRS profit before tax (excluding amortisation, policyholder
tax ad(cid:77)ustments and one-off items) ((cid:25)0(cid:8))
– Customer(cid:18)Risk measures (20(cid:8))
– Personal objectives (20%)
Paul Feeney
Maximum opportunity 200% of salary
Mark Satchel
Maximum opportunity 200% of salary
Cash element of incentive outcome (50% of the whole award)
is paid in Q1 following the end of the performance year.
Deferred element of incentive outcome (50% of the whole
award) is granted in shares and vests in three equal tranches
in Q1 2022, Q1 2023 and Q1 2024 subject to the plan rules.
Long-term
incentive
Performance
period
Additional
holding period
Awards subject to three-year performance period ending
31 December 2021.
Key performance measures and weighting:
– EPS CAGR (70%)
– Total shareholder return ((cid:522)TSR(cid:523)) ranking relative to FTSE-2(cid:24)0
excluding investment trusts (30%)
Paul Feeney
Maximum opportunity 200% of salary
Mark Satchel
Maximum opportunity 200% of salary
Award vests in Q1 following end of the performance period
and subject to further two-year holding period.
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Directors’ Remuneration Policy
(summary)
Remuneration Policy for Executive Directors
The following table summarises the key components of
Executive Director remuneration arrangements, which form
part of the Policy. The Policy originally came into effect when
the business Listed in 2018 and was supported by
shareholders in a vote at the 2019 AGM, details of which are
provided on page 147 of this Report. The full Policy document
is contained in the 2018 Annual Report, which is available on
the Company website.
Remuneration element
Base salary
Purpose and link to strategy
Essential to attract and retain Executive Directors with the calibre, personal skills and attributes
to develop, lead and deliver the Group’s strategy.
Operation
Base salaries are paid in 12 equal monthly instalments during the year and normally are
reviewed annually with increases effective 1 April. In reviewing base salaries the Committee
takes into account a number of factors, including:
– Group and individual performance;
– the skills, experience and level of responsibilities of the Executive Director and his/her
market value;
– the scope, nature and size of the role;
– levels of increase across the wider employee population; and
– affordability, economic factors, external market data, business and personal performance.
The Committee considers the direct and indirect impacts of any base salary increases
on total remuneration.
Maximum opportunity
There are no prescribed maximum salary levels, but any salary increases will normally be in line
with percentage increases across the wider employee population.
In specific circumstances, the Committee may award increases above this level, for example(cid:29)
– where the base salary for a new recruit or promoted Executive Director has been set to allow
the individual to progress into the role over time;
– to reflect a material increase in the size or scope of an individual’s role or responsibilities;
– where a change is deemed necessary to reflect changes in the regulatory environment; and
– where the size, value or complexity of the Group warrants a higher salary positioning.
Performance metrics
Individual and Company performance will be taken into account in determining any salary
increases.
Proposed changes to application for 2021
No change in approach.
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Remuneration element
(cid:37)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:86)
Purpose and link to strategy
(cid:37)enefits are provided to Executive Directors to attract and retain the best talent for the business
and to ensure that the total package is competitive in the market.
Operation
The Committee’s policy is to provide Executive Directors with a market competitive level
of benefits taking into consideration benefits offered to other senior employees in the UK.
(cid:37)enefits currently provided to Executive Directors include(cid:29)
– private medical insurance;
– life assurance; and
– income protection.
The approach for benefit provisions for Executive Directors is to be consistent and operated
in line with the rest of the UK organisation. As such, from April 2020 personal accident insurance
ceased to be provided as a core benefit. Specific benefit provisions are sub(cid:77)ect to regular review
in line with market practice and may be sub(cid:77)ect to change from time to time.
In line with other Quilter employees, Executive Directors can access discounted Company
products and are eligible to participate in the Company’s voluntary benefits which they fund
themselves, sometimes through salary sacrifice. Executive Directors are eligible for other
benefits that are introduced for the wider workforce on broadly similar terms.
They are eligible to participate in the UK all-employee share plans on the same terms as other
employees, including the Company’s Share Incentive Plan and Sharesave Plan.
(cid:58)here the Committee considers it appropriate, other benefits may be provided on recruitment
or relocation for a defined period.
Any reasonable business-related expenses (including tax thereon if determined to be a taxable
benefit) can be reimbursed.
Maximum opportunity
In line with other UK employees, there is no maximum monetary level for benefits as this is
dependent on the individual’s circumstances, market practice and the cost to the Company.
Performance metrics
There are no performance conditions.
Proposed changes to application for 2021
No change in approach.
Remuneration element
Pension
Purpose and link to strategy
To provide a market-competitive contribution towards retirement benefits that helps to attract
and retain the best talent for the business.
Operation
Executive Directors are eligible to receive employer contributions to the Company’s pension plan
(which is a defined contribution plan) or a cash allowance in lieu of pension benefits, or a
combination. Contributions and(cid:18)or a cash alternative are paid monthly.
Maximum opportunity
10% of base salary per annum.
This is the same as the pension provision for the wider workforce.
Performance metrics
There are no performance conditions.
Proposed changes to application for 2021
No change in approach.
Quilter | Annual report 2020
129
Directors’ Remuneration Policy (summary)
continued
Remuneration element
Short-Term Incentives (“STI”)
Purpose and link to strategy
The STI plan is designed to align remuneration with performance against financial and strategic
business plan targets and personal pre-determined goals, within the Group’s risk appetite and
taking into consideration the Company’s culture and values, on an annual basis.
A portion of any award is deferred and delivered in shares to aid retention, encourage long-term
shareholding, discourage excessive risk-taking and align the executive and shareholder interests.
Operation
Performance targets and weightings are reviewed and set annually by the Committee taking
into account business plans and the Company’s risk appetite.
STI awards are funded from the overall Group bonus pool, which is approved each year
by the Committee.
STI pay-out for on-target performance is set at (cid:24)0(cid:8) of maximum.
Overall pool funding is also sub(cid:77)ect to risk ad(cid:77)ustment after the Committee’s consideration of
a comprehensive report from the Chief Risk Officer and recommendations from the (cid:37)oard Risk
Committee in relation to the nature and incidence of risk events and an overall assessment of
risk management relative to the Board’s risk appetite.
(cid:24)0(cid:8) of any STI awarded to an Executive Director is normally deferred in the form of Conditional
Awards under the Share Reward Plan ((cid:522)SRP(cid:523)), which vest annually in equal annual instalments
over a three-year period sub(cid:77)ect to the rules of the SRP.
Dividend equivalents may accrue on deferred awards during the deferral period and are paid
in the form of shares or, exceptionally, cash to the Executive Directors upon vesting.
Malus and clawback provisions apply to both cash and deferred portions of the STI awards
as described in further detail in ‘Risk ad(cid:77)ustments, malus and clawback’ on pages 137 to 138.
Maximum opportunity
The maximum STI opportunity for Executive Directors is set at 200(cid:8) of base salary for
stretch performance.
Performance metrics
The STI plan uses a balanced scorecard of Group and individual performance measures, which
are aligned with the key strategic priorities of the Group and designed to deliver sustainable
shareholder value.
Performance is measured based on a mix of financial, strategic and personal targets. The splits
between the performance measures and relative weighting of the targets are reviewed by the
Committee at the start of each year and set out in the Annual Report on Remuneration. The
ma(cid:77)ority of any annual bonus is sub(cid:77)ect to challenging financial measures, with at least (cid:24)0(cid:8)
of the scorecard reflecting financial performance.
(cid:58)hen determining the outcome of the performance measures, the Committee will seek the
advice of the Chief Risk Officer and the (cid:37)oard Risk Committee to ensure all relevant risk factors
are identified and the bonus pool and(cid:18)or individual awards ad(cid:77)usted accordingly.
Specific measures, targets and weightings will be set by the Committee annually and disclosed
on a retrospective basis.
Proposed changes to application for 2021
In 2021, the financial aspect of the STI award will include Net Client Cash Flow ((cid:522)NCCF(cid:523)) as a percentage of opening AuMA, as a
new measure on the scorecard. This metric will have a scorecard weighting of 20(cid:8), with the IFRS profit (excluding amortisation,
policyholder tax ad(cid:77)ustments and one-off items) weighting reduced from (cid:25)0(cid:8) to 40(cid:8), which results in the total financial aspect
of the scorecard remaining unchanged at a (cid:25)0(cid:8) weighting. There are no other proposed changes in approach.
130
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Remuneration element
Long-Term Incentives (“LTI”)
Purpose and link to strategy
To incentivise and reward Executive Directors for achieving superior long-term business
performance that creates shareholder value and maximises sustainable shareholder returns.
Operation
LTI awards are made under the Quilter plc Performance Share Plan ((cid:522)PSP(cid:523)). Awards are normally
granted annually as nil cost options, which are sub(cid:77)ect to performance conditions. Awards
normally vest after three years, sub(cid:77)ect to the achievement of performance conditions and
continued employment.
Financial performance targets are set annually by the Committee prior to the beginning of
the relevant performance period to provide alignment with the Company’s strategic priority
of delivering sustainable returns to shareholders over the long term. The targets may be sub(cid:77)ect
to review and possible amendment for future plan cycles.
Vested awards:
– are sub(cid:77)ect to a post-vesting holding period of two years during which the net-of-tax number
of shares may not normally be exercised or sold; and
– must be exercised within ten years of the grant date.
Dividend equivalents accrue during the vesting period and are released on the vesting date,
or date of exercise of the vested option. These will normally be delivered in the form of shares
on an assumed reinvested basis.
LTI awards are sub(cid:77)ect to malus and clawback provisions as described in further detail in ‘Risk
ad(cid:77)ustments, malus and clawback’ on page 139.
Maximum opportunity
The maximum annual value of a PSP award for any Executive Director is an award over Company
shares with a face value of 200% of base salary at the date of grant.
If the Committee deems that there are exceptional circumstances, such as the recruitment
of a key individual or a significant strategic initiative, the maximum PSP award may be increased
up to 400% of the Executive’s base salary.
Performance metrics
Performance measures are selected by the Committee for the relevant plan cycle prior to the
beginning of the relevant performance period. Measures are designed to align with the Group’s
strategic priority of delivering sustainable returns to shareholders over the long term.
Performance measures currently include an ad(cid:77)usted EPS CAGR (pre-dividend excluding
amortisation and goodwill) and TSR Ranking relative to the FTSE-2(cid:24)0 excluding investment trusts.
The Committee may introduce or re-weight performance measures so that they are directly
aligned with the Company’s strategic ob(cid:77)ectives for the performance period.
For each performance metric, a threshold and stretch level of performance is set. At threshold,
2(cid:24)(cid:8) of the relevant element vests rising on a straight-line basis to 100(cid:8) for attainment of levels
of performance between threshold and maximum targets.
(cid:58)hen determining the outcome of the performance measures, the Committee will seek the
advice of the Chief Risk Officer and the (cid:37)oard Risk Committee to ensure all relevant risk factors
are identified and the award outcomes ad(cid:77)usted accordingly. The Committee also has discretion
to reduce award outcomes to nil if required, via a risk management assessment based on a
report of risk exposures(cid:30) or to reflect financial underperformance not adequately reflected
in the financial measures.
Proposed changes to application for 2021
No change in approach.
Quilter | Annual report 2020
131
Directors’ Remuneration Policy (summary)
continued
Remuneration element
Shareholding requirement, including post-cessation
Purpose and link to strategy
To align Executive Directors’ interests with those of shareholders.
Operation
The Group operates a mandatory shareholding policy under which Executive Directors are
required to build up and maintain a shareholding in the Company with a value at least equal
to 300(cid:8) of base salary. Executive Directors are expected to meet the requirement within
five years of Admission or, for newly appointed Executive Directors, within five years of
appointment if later.
At least (cid:24)0(cid:8) of any shares vesting under Quilter share plans (on a net-of-tax basis) are expected
to be retained until the shareholding requirements are met.
In accordance with changes to the Code, the Committee has developed a post-cessation
shareholding policy taking into account emerging market practice and shareholder guidelines.
Executive Directors are required to hold shares for at least two years following cessation of their
appointment at the lower of the minimum shareholding requirement of 300(cid:8) of base salary or
the value of shares held at the point of departure (if the Executive Director is still in the five-year
accumulation period).
Any shares purchased by an Executive Director from the open market (i.e. separate to shares
originally awarded under a Company share plan) will be excluded from the post-cessation
holding requirement. However, only 2(cid:24)(cid:8) of the value of such purchased shares will count
towards the minimum shareholding requirement during employment. This will apply to shares
purchased after the date the post-cessation policy came into effect, in January 2020.
For any good leaver, unvested share awards that may be permitted to be retained shall vest on
their original vesting date(s) and remain sub(cid:77)ect to post-vesting holding periods post-termination.
The Committee has discretion to make ad(cid:77)ustments to the shareholding and post-cessation
shareholding requirement in exceptional circumstances.
Proposed changes to application for 2021
No change in approach.
132
Quilter | Annual report 2020
Annual Report on Remuneration
Audited
Content within an ‘Audited’ tab indicates that all the
information is audited.
Application of the Policy in 2021
Content within a shaded box indicates that the
information is planned for implementation in 2021.
The Report sets out how the Policy of the Company has been applied in 2020 and how the Committee intends to apply the Policy
going forward. An advisory shareholder resolution to approve this Report will be proposed at the AGM.
The table below sets out the single figure of remuneration for the full financial year 2020 together with 2019 comparator figures.
Audited
Executive Director
2020
Paul Feeney
Mark Satchel
2019
Paul Feeney
Mark Satchel – appointed to
the (cid:37)oard 13 March 20191
Tim Tookey – stepped down
from the (cid:37)oard 13 March
20191
Base salary
£’000
(cid:37)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:86)
£’000
Pension2
£’000
STI
£’000
LTI3
£’000
Other4
£’000
Total
£’000
Total
Fixed
£’000
Total
Variable
£’000
(cid:25)7(cid:24).0
4(cid:24)0.0
(cid:25)7(cid:24).0
3(cid:25)0.(cid:24)
7.(cid:24)
(cid:24).9
(cid:24).4
3.4
(cid:25)7.(cid:24)
4(cid:24).0
–
–
737.3
237.(cid:25)
–
–
1,487.3
738.(cid:24)
7(cid:24)0.0
(cid:24)00.9
737.3
237.(cid:25)
(cid:25)7.(cid:24)
1,0(cid:25)(cid:24).0
81.(cid:25)
1.8
1,89(cid:25).3
747.9
1,148.4
3(cid:25).0
(cid:25)00.8
(cid:25)1.(cid:24)
1.4
1,0(cid:25)3.7
399.9
(cid:25)(cid:25)3.7
121.0
1.7
3(cid:25).3
200.0
–
–
3(cid:24)9.0
1(cid:24)9.0
200.0
1 Mark Satchel and Tim Tookey’s 2019 remuneration is pro-rated for the period served as an Executive Director in 2019.
2 Pension includes contributions made under the Group defined contribution pension scheme plus, where applicable, amounts received as a pension allowance.
3 LTI is a vesting value determined as a result of the achievement of performance measures or targets relating to the performance period ending on 31 December
of the relevant financial years. These relate to the Performance Share Plan (see page 140). The value is calculated using the average share price over the final three
month period of the year ending 31 December 2020, which is (cid:101)1.3943. The actual vesting date is 2(cid:25) March 2021 and the actual value will be reflected in next year’s
Report. The amount of this figure attributable to share price depreciation is valued at ((cid:101)23,098) for Paul Feeney and ((cid:101)7,443) for Mark Satchel as at 31 December
2020.
4 Other includes dividends received in 2019 on shares awarded under the legacy Joint Share Ownership Plan, further details can be found in the 2019 Report.
Components of the single figure
There were no increases to Executive Director base salaries at the 1 April 2020 review date, and no increases are planned for the
1 April 2021 review date.
Audited
Executive Director
Paul Feeney
Mark Satchel
Annual base salary
as at 1 April 2020
£’000
Total base salary
paid in 2020 for
qualifying services
£’000
Total base salary
(cid:72)(cid:909)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:20)(cid:3)(cid:36)(cid:83)(cid:85)(cid:76)(cid:79)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)
£’000
(cid:25)7(cid:24).0
4(cid:24)0.0
(cid:25)7(cid:24).0
4(cid:24)0.0
(cid:25)7(cid:24).0
4(cid:24)0.0
Quilter | Annual report 2020
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Annual Report on Remuneration
continued
Benefits
(cid:37)enefits include life assurance, private medical cover, income protection and personal accident insurance. Personal accident
insurance ceased to be a core benefit from April 2020, therefore the 2020 amounts below are minimal and rounded to nil.
Audited
Name
2020
Paul Feeney
Mark Satchel
2019
Paul Feeney
Mark Satchel – appointed to the (cid:37)oard 13 March 2019
Tim Tookey – stepped down from the (cid:37)oard 13 March 2019
(cid:37)enefits for (cid:21)0(cid:21)(cid:20)
No changes to the approach.
Life
assurance
£’000
Medical
£’000
Income
protection
£’000
Personal
accident
insurance
£’000
3.1
2.2
2.3
1.4
0.9
1.4
1.1
1.3
1.1
0.2
3.0
2.(cid:25)
1.(cid:25)
0.8
0.(cid:25)
–
–
0.2
0.1
–
Pension
Pension includes contributions made under the Group defined contribution pension scheme and(cid:18)or amounts received as cash
in lieu of pension contributions due to the impact of HMRC limits. The pension provisions of Executive Director appointments are
aligned to the pension arrangements of the wider workforce, set at 10% of base salary.
Audited
Name
2020
Paul Feeney
Mark Satchel
2019
Paul Feeney
Mark Satchel – appointed to the (cid:37)oard 13 March 2019
Tim Tookey – stepped down from the (cid:37)oard 13 March 2019
(cid:37)enefits for (cid:21)0(cid:21)(cid:20)
No changes to the approach.
Cash in lieu
of pension
contribution
£’000
Contribution
to pension
scheme
£’000
Total
contribution
£’000
(cid:25)7.(cid:24)
39.2
(cid:25)7.(cid:24)
28.0
3(cid:25).3
–
(cid:24).8
–
8.0
–
(cid:25)7.(cid:24)
4(cid:24).0
(cid:25)7.(cid:24)
3(cid:25).0
3(cid:25).3
134
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2020 Short-Term Incentive (“STI”) Awards
For the purpose of determining the 2020 STI outcome, the Committee assessed the performance of the business and the
individuals by reference to a balanced scorecard of Financial ((cid:25)0(cid:8)), Customer(cid:18)Risk (20(cid:8)) and Strategic Personal performance
ob(cid:77)ectives (20(cid:8)) in line with the Policy.
The summary below reflects the Committee’s assessment of performance for the year ended 31 December 2020, before
consideration of any ad(cid:77)ustment for material risk events.
Group financial achievement
Audited
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)
IFRS profit before tax (excluding amortisation,
policyholder tax ad(cid:77)ustments and one-off items)
Weighting as
% of total STI
opportunity
Threshold
(25% of max)
Target
(50% of max)
Maximum
(100%)
Outcome
STI as
% of max
(cid:25)0(cid:8)
(cid:101)80m
(cid:101)100m
(cid:101)120m
(cid:101)(cid:25)3m
0%
IFRS profit reconciliation
In determining the outcome of the Group financial metric shown above, the Committee considered the impact of key programme
and acquisition costs on IFRS profit and approved a discretionary downward ad(cid:77)ustment to IFRS profit for STI purposes to ensure
it reflected a fair and reasonable outcome for the overall performance achieved. The ad(cid:77)ustments are detailed in the schedule
below, which provides a reconciliation between reported profit, the STI target and STI outcome.
Audited
(cid:21)(cid:19)(cid:21)(cid:19)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)
STI target
STI outcome
Ad(cid:77)usted profit (cid:69)efore tax (cid:11)(cid:69)efore financin(cid:74) costs(cid:12)
(cid:585)Debt financing costs
Ad(cid:77)usted profit (cid:69)efore tax (cid:11)after financin(cid:74) costs(cid:12)
(cid:585)UK Platform Transformation Programme ((cid:522)PTP(cid:523))1
(cid:585)Optimisation1
(cid:585)Quilter Life Assurance restructure
(cid:585)Quilter Investors’ build out costs2
(cid:585)One-off Managed Separation costs1
(cid:585)Customer remediation3
I(cid:41)(cid:53)(cid:54) profit (cid:69)efore tax (cid:11)excludin(cid:74) amortisation(cid:15)
policyholder tax ad(cid:77)ustments and one-off items(cid:12)
£(cid:20)(cid:25)(cid:27)m
((cid:101)10m)
£(cid:20)(cid:24)(cid:27)m
((cid:101)38m)
((cid:101)33m)
((cid:101)1m)
(cid:101)1m
–
–
£(cid:21)0(cid:21)m
((cid:101)10m)
£(cid:20)(cid:28)(cid:21)m
((cid:101)49m)
((cid:101)3(cid:25)m)
((cid:101)3m)
–
((cid:101)4m)
–
£(cid:20)(cid:25)(cid:27)m
((cid:101)10m)
£(cid:20)(cid:24)(cid:27)m
((cid:101)49m)
((cid:101)3(cid:25)m)
((cid:101)1m)
–
((cid:101)4m)
((cid:101)(cid:24)m)
£(cid:27)(cid:26)m
£(cid:20)00m
£(cid:25)(cid:22)m
1 The PTP and one-off Managed Separation costs relate to the rebrand of certain entities alongside the PTP programme. Although actual costs for these items
were below the plan expectation for the year, some of this underspend relates to the extended timeline of PTP delivery communicated to the market during 2020.
Optimisation costs were also lower than the plan expectation for the year due to the timing of delivery. All costs are still expected to be incurred at a later date.
As such, the Committee approved an ad(cid:77)ustment to these amounts to remove the benefit of below-plan spend in the outcome.
2 A provision release of (cid:101)1 million has been recognised in relation to the build of Quilter Investors following the sale of the Single Strategy business. As these costs
were a function of transaction and necessary for Quilter Investors to operate as a standalone business, the benefit of this credit has been excluded for
remuneration purposes.
3 The customer remediation ad(cid:77)ustment relates to the impact of the post-acquisition market movements on the pension transfer advice complaints relating
to Lighthouse.
Quilter | Annual report 2020
135
Annual Report on Remuneration
continued
Group risk and customer performance achievement
Key Group non-financial ob(cid:77)ectives represented a maximum of 20(cid:8) of the total STI opportunity. The risk measure assesses
the effectiveness of risk management at an overall corporate level for each of the Executive Directors. For the Customer element
of the scorecard, performance was assessed against key risk and performance indicators covering customer strategy and
governance, product and proposition, customer experience, advice, suitability and customer on-boarding and post-advice
servicing as measured by the Company’s Customer Strategic Risk Appetite Principles ((cid:522)SRAP(cid:523)), as well as a qualitative assessment
of broader customer focus. Performance commentary is given in the table below.
Audited
Customer and Risk
Performance measures
Risk Management
Framework
Effectiveness
Executive Director
Paul Feeney
Weighting as %
of total STI
opportunity
10%
Risk Management
Framework
Effectiveness
Mark Satchel
10%
Outcome as
% of max
(cid:24)0(cid:8)
70%
Key achievements in the year
– Strong tone from the top in setting an effective risk
culture, with evidence of front-end consideration
of risk in setting business strategy, embedding risk
into decision making and the overall management
of the business.
– Safely delivered the ma(cid:77)or migration of advisers
to our new UK Platform during a national lockdown,
without bringing significant risks to the business,
advisers or customers.
– Early action in response to CO(cid:57)ID-19, managing a
rapidly changing risk environment and positioning
Quilter well to manage through the crisis.
– The control environment in the Quilter Financial
Planning business required improvement and a
programme has been established to address this.
– Pro-active engagement and consideration of risk
in key decisions, ensuring effective second line
engagement.
– Improvements to business planning process with
clearer upfront articulation of strategic priorities,
improved flow of strategy to business initiatives and
operational activity with a greater focus on risks.
– Early action taken in the wake of CO(cid:57)ID-19(cid:30)
enhanced cash management, financial and capital
position reviews and scenario modelling.
Customer Outcomes
Paul Feeney and
Mark Satchel
10%
– Enhanced customer care and support throughout
(cid:25)(cid:24)(cid:8)
the pandemic across all business areas, whilst
receiving unprecedented high call volumes over
the tax year end.
– Maintained customer service and mitigated risk of
customer detriment during the PTP implementation
of a prudent phased migration approach.
– Strong investment performance following the Q1
2020 sharp fall, particularly in Cirilium Active in the
Quilter Investors business area.
– Commitment to customer and advisers recognised
by receiving a (cid:24) Star award for service in the
Financial Adviser’s Service Awards across
investments, protection and pensions, platform
and discretionary fund management.
136
Quilter | Annual report 2020
Strategic personal performance – achievement
Personal ob(cid:77)ectives represented a maximum of 20(cid:8) of total STI opportunity. A performance commentary is given in the table
below.
Audited
Executive
Director
Paul Feeney
Outcome as
% of max
(cid:25)0(cid:8)
Weighting as %
of total STI
opportunity Overview
Key achievements in the year
20% Ob(cid:77)ectives for 2020 were
focused on the strategic
development of the business
to maximise future growth
potential, whilst achieving
strong core business
performance and creating
value for shareholders.
– Strong leadership throughout the CO(cid:57)ID-19
pandemic, ensuring uninterrupted support for
customers, advisers and employees. Increased
support for employees’ and advisers’ wellbeing as
Quilter’s ‘Thrive’ programme sponsor.
– PTP prudently managed and poised for completion
in early 2021, following the safe and secure
execution of two migrations in 2020, despite the
disruption and restrictions caused by CO(cid:57)ID-19.
– The business demonstrated strong resilience
throughout the year, including financial and
operational strength, with a rapid response to the
unprecedented operating environment supported
by accelerated digitalisation across the business.
– Good progress made on important strategic
initiatives, in particular PTP, as well as delivery of the
workplace strategy on London property, progress
on a new payments system for Quilter Financial
Planning advisers and the Information Security
Improvement Plan.
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20% Ob(cid:77)ectives were to support
– Robust cash and liquidity monitoring, proactively
70%
our Optimisation goals,
deliver strong cost
management across the
business, whilst achieving
strong core business
performance and creating
value for shareholders.
managing risks and market volatility.
– Instilled strong cost discipline, delivering expenses
ahead of expectations.
– Oversaw management actions to realise cost
savings in response to the CO(cid:57)ID-19 crisis,
protecting shareholder interests.
– Optimisation programme progressing well with
(cid:101)4(cid:25) million in run-rate benefit delivered to date.
– Led the implementation of a new integrated
General Ledger system which is a key development
to the Optimisation programme.
Risk adjustment
As part of the review, the Committee considered whether the overall STI outcomes were appropriate in the context of overall
business performance and individual strategic(cid:18)personal ob(cid:77)ectives, and whether any exceptional risk events occurred which, in
the Committee’s opinion, may have materially affected the STI outcome. The Committee also considered an annual risk report and
the recommendations of the Chief Risk Officer and (cid:37)oard Risk Committee in respect of the incidence and materiality of any risk
issues arising during the year and an overall assessment of risk management relative to the Board’s risk appetite and risk culture
across the business.
The Committee decided that a discretionary risk-based downward ad(cid:77)ustment should be applied to both Executive Directors’
STI outcomes. This is in respect of the risks brought into the business relating to historic pension transfer advice provided by
Lighthouse to (cid:37)ritish Steel Pension Scheme members prior to Quilter’s acquisition of Lighthouse, which have resulted in a net
provision of (cid:101)24 million to cover redress costs and fees. The Committee concluded this constituted a material risk event for the
business and, given the Executive Directors have overall accountability for all business activity, decided that a downward
ad(cid:77)ustment equal to 10(cid:8) of maximum STI should be applied to the outcomes above.
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Quilter | Annual report 2020
137
Annual Report on Remuneration
continued
COVID-19 adjustment
The Executive Directors considered the impact of the CO(cid:57)ID-19 pandemic on business performance and the interests of all
stakeholders, and recommended to the Committee to receive (cid:93)ero STI award for 2020, and to instead direct any available funding
towards a small discretionary bonus pool to recognise the contribution of the wider workforce. The Committee considered the
post risk-ad(cid:77)usted STI outcomes in the context of the CO(cid:57)ID-19 pandemic, and that the wider employee base had done an
excellent (cid:77)ob in very challenging and unprecedented circumstances to continue to support our customers and maintain progress
with key strategic activity throughout this difficult period. On this basis, the Committee agreed with the Executive Directors and,
consequently, exercised discretion to reduce the Executive Directors STI award to (cid:93)ero for 2020.
Executive Director
Paul Feeney
Mark Satchel
Financial
performance
(cid:49)(cid:82)(cid:81)(cid:16)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
performance
% of salary
% of salary
0%
0%
47%
(cid:24)(cid:24)(cid:8)
Risk
adjustment
Reduction in
% of salary
(20(cid:8))
(20(cid:8))
COVID-19
adjustment
Reduction in
% of salary
(27(cid:8))
(3(cid:24)(cid:8))
Total STI
% of salary
0%
0%
Short-Term Incentive (“STI”) for 2021
In line with our Policy, both Executive Directors are eligible to receive up to 200(cid:8) of base salary. Performance will be based
on a combination of Group financial performance targets as well as strategic (including customer and risk measures) and
personal measures.
In 2021, the financial aspect of the STI award will also include NCCF as a percentage of opening AuMA, with a scorecard
weighting of 20(cid:8). The IFRS profit before tax (excluding amortisation, policyholder tax ad(cid:77)ustments and one-off items)
weighting will be reduced from (cid:25)0(cid:8) to 40(cid:8), resulting in the total financial aspect of the scorecard remaining unchanged
at (cid:25)0(cid:8).
There are no other changes to the scorecard metrics or weightings.
Actual targets for 2021 have not been disclosed due to commercial sensitivity. These targets will be disclosed in the 2021
Report.
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Quilter | Annual report 2020
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Vesting of Long-Term Incentive (“LTI”) Awards
On 31 December 2020, the awards granted on 2(cid:24) June 2018, the day the Company listed, under the PSP (which is an LTI plan)
reached the end of their performance period. These awards will vest on 2(cid:25) March 2021, with the vested shares sub(cid:77)ect to a
further two-year post-vesting holding period. The performance conditions which applied to the 2018 LTI and the performance
achieved are set out below.
Audited
Performance condition
EPS CAGR (2017-20)3
Relative TSR(cid:24)
Weighting
70%
30(cid:8)
Threshold1
(25% vesting)
Maximum1
(100% vesting)
Performance
Achieved2
(cid:24)(cid:8)4
Median
1(cid:24)(cid:8)4
(cid:25).8(cid:8)
Upper
quartile
(cid:25)4 out of 184
companies
A(cid:90)ard (cid:50)utcome
Weighted
Percentage of
Award Vesting
2(cid:25).9(cid:8)
21.8%
(cid:23)(cid:27)(cid:17)(cid:26)(cid:8)
1 Straight-line interpolation between points.
2 The Committee ad(cid:77)usted the EPS CAGR performance condition to reflect the sale of Quilter Life Assurance.
3 Ad(cid:77)usted Profit-based, pre-dividend excluding amortisation and goodwill.
4 The Committee ad(cid:77)usted the EPS CAGR threshold and maximum targets from (cid:25)-10(cid:8) to (cid:24)-1(cid:24)(cid:8) to reflect the sale of Quilter Life Assurance. This had the effect of
increasing the level of challenge in the targets, and reducing the pay-out for the EPS metric for 2017-20 from 27.9(cid:8) to 2(cid:25).9(cid:8).
(cid:24) Ranking relative to the constituents of the FTSE-2(cid:24)0 excluding Investment Trusts.
To ensure that performance could be fairly and consistently assessed against the performance conditions and the outcome
appropriately reflective of performance achieved, the Committee, supported by independent expert advice, considered the
impact of the sale of Quilter Life Assurance, which completed on 31 December 2019. The Committee decided to exclude Quilter
Life Assurance profits ad(cid:77)usted for certain stranded costs from the base year of the Ad(cid:77)usted Profit-based EPS CAGR calculation
to ensure the earnings growth was measured on a like-for-like basis between the end year and the base year. The Committee also
revised the CAGR performance range from the original targets of (cid:25)(cid:8) at threshold and 10(cid:8) at maximum, to (cid:24)(cid:8) at threshold and
1(cid:24)(cid:8) at maximum. This wider CAGR range aligns to the 2020 LTI award, the targets for which were set following the sale of Quilter
Life Assurance and reflect the expectation for an increased rate of earnings growth for the business excluding Quilter Life
Assurance. The Committee also considered the performance outcome against the original CAGR range of (cid:25)-10(cid:8) and decided the
approach to apply the (cid:24)-1(cid:24)(cid:8) range, which provided the lesser of the two potential vesting outcomes was appropriate. A
breakdown of the ad(cid:77)ustment is provided below(cid:29)
Audited
Performance condition
Ad(cid:77)usted Profit (cid:11)(cid:69)efore tax(cid:12)(cid:20)
(cid:585)less Quilter Life Assurance Profit
(cid:585)plus stranded costs
(cid:585)less finance costs(cid:21)
(cid:53)(cid:72)(cid:89)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:47)(cid:55)(cid:918)(cid:3)(cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:86)
Ad(cid:77)usted Profit (cid:38)A(cid:42)(cid:53) (cid:11)(cid:21)0(cid:20)(cid:26)-(cid:21)0(cid:12)(cid:20)
2017
£m
(cid:21)0(cid:28)
((cid:25)(cid:25))
(13)
–
130
2020
£m
(cid:20)(cid:25)(cid:27)
–
–
(10)
158
Outcome
(cid:25)(cid:17)(cid:27)(cid:8)
1 Pre-dividend excluding amortisation and goodwill.
2 In 2017, finance costs related to loans from Old Mutual plc and are not comparable to finance costs since Listing in 2018. Therefore, finance costs are
excluded from the base year, 2017, in the above calculation.
The Committee also considered whether the performance had been achieved within the Company’s agreed risk appetite and the
impact of any risk events during the performance period and concluded that no further discretionary ad(cid:77)ustment to the outcome
was required.
Quilter | Annual report 2020
139
Annual Report on Remuneration
continued
As a result of the 2018 LTI awards vesting at 48.7(cid:8), the Executive Director outcomes are as follows(cid:29)
Audited
Executive Director
Paul Feeney
Mark Satchel
Number of
shares granted
931,034
300,000
Share-settled
dividend
equivalents
1(cid:24)(cid:24),848
(cid:24)0,21(cid:25)
% of Awards
vesting
Number of
shares vesting
Value of shares
vesting (£000)1
48.7%
48.7%
(cid:24)28,7(cid:25)8
170,380
737.3
237.(cid:25)
1 Deemed value based on the average share price of the final three month period ended 31 December 2020 of (cid:101)1.3943, the actual value will be based on the share
price when the awards vest on 2(cid:25) March 2021.
Long-Term Incentive (“LTI”) Awards granted in 2020
Executive Directors are eligible to participate in the PSP, which is an LTI plan. The awards granted in 2020 are sub(cid:77)ect to the
following performance conditions:
Audited
Performance condition
Ad(cid:77)usted EPS CAGR (2019-22)2
Relative TSR3
1 Straight-line interpolation between points.
2 Pre-dividend excluding amortisation and goodwill.
3 Ranking relative to the constituents of the FTSE-2(cid:24)0 excluding Investment Trusts.
Weighting
70%
30(cid:8)
Threshold1
(25% vesting)
Maximum1
(100% vesting)
(cid:24)(cid:8)
1(cid:24)(cid:8)
Median
Upper quartile
At the end of the three-year performance period, the Committee will critically assess whether the formulaic vesting outcome
produced by the criteria is (cid:77)ustified. To do this, the Committee will look at several factors, including whether the result is reflective
of underlying performance and has been achieved within the Company’s agreed risk appetite. If such considerations mean that
the formulaic outcome of the vesting schedule is not felt to be (cid:77)ustified, then the Committee can exercise downward discretion.
The following LTI awards were granted in respect of the 2020 performance year(cid:29)
Audited
Executive
Director
Form of award
Date of award
Paul Feeney Nil cost options
Mark Satchel Nil cost options
27 March
2020
27 March
2020
Basis of award
(% of salary)
Share price
at the date
of grant
Nil cost
options
awarded
Face value
of award1
% vesting
at
threshold
Performance
200%
(cid:101)1.232(cid:24)
1,09(cid:24),33(cid:24)
(cid:101)1,3(cid:24)0,000
2(cid:24)(cid:8) 2020–2022
200%
(cid:101)1.232(cid:24)
730,223
(cid:101)900,000
2(cid:24)(cid:8) 2020–2022
1 The face value of the award figure is calculated by multiplying the number of shares awarded by the closing share price on the day before the award was granted, of
(cid:101)1.232(cid:24).
The Committee will consider the impact of the sale of Quilter Life Assurance and other material corporate events on all
outstanding LTI awards at the respective vesting dates, as disclosed in the 2019 Remuneration Report. As with the 2018 LTI
outcome, the details of any ad(cid:77)ustments applied by the Committee will be disclosed in the relevant Remuneration Report.
140
Quilter | Annual report 2020
Long-term Incentive Awards to be granted in 2021
The Committee intends to grant awards to the Executive Directors in March 2021 over nil cost options under the PSP with
a face value of 200% of base salary. There is no change proposed to the metrics, their respective weightings or the threshold
and maximum outcome performance targets. It should be noted that in setting the target EPS CAGR range the Committee
has taken into account the anticipated impact of the Company’s current share buyback programme.
Performance condition
Ad(cid:77)usted EPS CAGR (2020-23)2
Weighting
Threshold1
(25% vesting)
Maximum1
(100% vesting)
70%
8%
20%
Relative TSR3
30(cid:8)
Median Upper quartile
1 Straight-line interpolation between points.
2 Pre-dividend excluding amortisation and goodwill.
3 Ranking relative to the FTSE-2(cid:24)0 excluding Investment Trusts.
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Quilter | Annual report 2020
141
Annual Report on Remuneration
continued
Non-executive Director total remuneration
The total remuneration for the Non-executive Directors is set out in the table below. Non-executive Directors are not entitled to
any benefits, pension or pension equivalents, or awards under any of the equity plans. All Non-executive Directors have a service
contract with a three months’ notice period and an initial three-year term from appointment, sub(cid:77)ect to annual re-election at the
AGM, as detailed in the Policy. For 2020, the regular fees were paid at the following rate(cid:29)
Annual fees (Quilter Board)
(cid:585)Chairman
(cid:585)(cid:37)asic annual fee
Additional fees(cid:29)
(cid:585)Senior Independent Director
(cid:585)Chairs of (cid:37)oard Audit, Risk, Remuneration and Technology and Operations Committee
(cid:585)Members of the above Committees
(cid:585)Members of the (cid:37)oard Corporate Governance and Nominations Committee
(cid:41)ees (cid:11)(cid:54)u(cid:69)sidiary (cid:37)oards(cid:12)(cid:29)
(cid:585)Chairman of Subsidiary (cid:37)oards
(cid:585)(cid:37)oard Member of Quilter Financial Planning ((cid:522)QFP(cid:523)), Quilter Investors ((cid:522)QI(cid:523)), Quilter Cheviot ((cid:522)QC(cid:523))
(cid:37)oard Member of Quilter International ((cid:522)International(cid:523))
(cid:585)Members of the Subsidiary (cid:37)oard Committees
2020 fee
(cid:101)37(cid:24),000
(cid:101)(cid:25)(cid:24),000
(cid:101)20,000
(cid:101)2(cid:24),000
(cid:101)10,(cid:24)00
(cid:101)(cid:24),(cid:24)00
(cid:101)80,000
(cid:101)4(cid:24),000
(cid:585)(cid:101)3(cid:24),000
(cid:101)(cid:24),000
Audited
Non-executive
Director
Glyn Jones
Rosie Harris
Board &
Committee
membership
Subsidiary Board
& Committee
membership
Chairman
(cid:580) (C)
(cid:580) (C)(cid:580)
(cid:580)
QC (cid:37)oard and
GARC member
Fees for
2020
£’000
37(cid:24).0
Subsidiary
Board fees
£’000
–
Total for
2020
£’000
37(cid:24).0
Fees for
2019
£’000
37(cid:24).0
Subsidiary
Board fees
£’000
–
Total for
2019
£’000
37(cid:24).0
111.0
(cid:24)0.0
1(cid:25)1.0
111.0
(cid:24)0.0
1(cid:25)1.0
Moira Kilcoyne
(cid:580) (C)(cid:580)
George Reid1
Ruth Markland2
Paul Matthews3
Tim Breedon4
Cathy Turner(cid:24)
(cid:580) (C)(cid:580)
(cid:580)
(cid:580) (C)(cid:580)
(cid:580)
(cid:580) (cid:580)
(cid:580) (cid:580)
(cid:580)
(cid:580) (C)(cid:580)
Suresh Kana(cid:24)
(cid:580) (cid:580)
QIP Chair
International (cid:37)oard
member
QFP (cid:37)oard and
GARC member
QI Chair
100.(cid:24)
111.0
120.7
82.1
(cid:24)3.3
QI (cid:37)oard member
3(cid:24).4
30.0
(cid:24)(cid:25).(cid:25)
Jon Little(cid:24)
(cid:580)
QI Chair
(cid:37)oard (cid:38)ommittee (cid:46)ey(cid:29)
= Board
(cid:32) (cid:37)oard Audit Committee
(cid:32) (cid:37)oard Remuneration Committee
(cid:32) (cid:37)oard Risk Committee
–
100.(cid:24)
100.(cid:24)
–
100.(cid:24)
81.7
3(cid:24).0
(cid:24)0.4
23.8
1(cid:25).7
–
192.7
1(cid:24)(cid:24).7
132.(cid:24)
77.1
(cid:24)2.1
30.0
(cid:25)0.0
11(cid:25).(cid:25)
111.8
111.(cid:24)
7(cid:24).(cid:24)
–
9(cid:24).(cid:24)
81.0
7(cid:24).(cid:24)
8(cid:24).0
19(cid:25).8
3(cid:24).0
14(cid:25).(cid:24)
4(cid:24).4
120.9
–
–
4(cid:24).0
140.(cid:24)
–
81.0
82.4
1(cid:24)7.9
(cid:32) Senior Independent Non-executive Director
(cid:32) (cid:37)oard Technology and Operations Committee
(cid:32) (cid:37)oard Corporate Governance and Nominations
(C) (cid:32) Chair
1(cid:585) George Reid’s responsibilities reduced in 2020 following the sale of QLA on 31 December 2019 of which (cid:37)oard George Reid was Chair. Additionally George Reid
stood down from the Quilter (cid:58)ealth Solutions GARC on 30 April 2020.
2(cid:585) Ruth Markland was appointed Chair of the (cid:37)oard Remuneration Committee 14 May 2020.
3(cid:585) Paul Matthews was appointed to the Quilter (cid:37)oard Remuneration Committee on 14 May 2020. Paul is a member of the Quilter Financial Planning Limited (cid:37)oard
and, with effect from 1 January 2021, serves on its Audit Committee and Risk and Governance Committee, which has replaced its Governance Audit and Risk
Committee. Paul is in receipt of a temporary uplift in his Quilter Financial Planning Limited fees with effect from 1 January 2021, which reflects the additional
time commitment currently required in the business area.
4(cid:585) Tim (cid:37)reedon was appointed as an Independent Non-executive Director on 1 June 2020, QI (cid:37)oard member on 1 September 2020 and Chair on 1 October 2020.
(cid:24)(cid:585) Cathy Turner and Suresh Kana stood down from the Quilter (cid:37)oard and all Quilter-related appointments on 14 May 2020, Jon Little stood down from the Quilter
(cid:37)oard and all Quilter-related appointments on 30 September 2020.
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Quilter | Annual report 2020
TSR performance graphic over the period since Admission
£
150
120
90
60
Jun 2018
Dec 2018
Jun 2019
Dec 2019
Jun 2020
Dec 2020
Quilter
FTSE-250 excluding Investment Trusts
The graph above shows the Company’s TSR performance versus the FTSE-2(cid:24)0 excluding Investment Trusts over the period ended
31 December 2020. The FTSE-2(cid:24)0 has been chosen as the Company is a member of that index.
Group Chief Executive Officer pay
The table below contains the Chief Executive Officer’s annual remuneration since the Company listed in 2018(cid:29)
Financial year
2020
2019
2018
Name
Paul Feeney
Paul Feeney
Paul Feeney
Total remuneration
£’000
Annual bonus as
% of maximum
LTIP vesting as
% of maximum
1,487.3
1,89(cid:25).3
2,778.9
0%
79%
93(cid:8)
48.7%
n/a
n/a
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Percentage change in Directors remuneration compared to the average employee
The table below sets out the percentage change in salary or fee and STI between the Executive Directors and average employee
from 2019 to 2020. The annual change in salary is based on the salary of permanent UK employees as at 31 December 2019 and
31 December 2020, and the annual change in STI excludes employees that are not eligible for bonus. The annual increase in the
average employee salary is impacted by the inclusion of a high number of operational employees in the Quilter Life Assurance
business area in 2019, who are no longer employed by Quilter in 2020. This has led to an increase in average salary per employee
in 2020. As Executive Directors’ benefits have been aligned to other UK employees, the analysis of movement in average benefits
was not considered practical or meaningful and therefore not included in the below comparison. Further detail of Executive
Directors’ benefits can be found on page 134 of this Remuneration Report.
Executive Directors
Independent Non-executive Directors
Remuneration
outcome
Salary/fees
STI
Average
employee
Chief
Executive
(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
Chief
Financial
(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)
Glyn
Jones
Ruth
Markland
Rosie
Harris
George
Reid
Moira
Kilcoyne
Paul
Matthews
Tim
Breedon
(cid:24)(cid:8)
0%
0%
(49(cid:8))
(100(cid:8))
(100(cid:8))
0%
n/a
0%
n/a
0%
n/a
0%
n/a
0%
n/a
0%
n/a
0%
n/a
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Quilter | Annual report 2020
143
Annual Report on Remuneration
continued
Chief Executive Officer pay ratio
The table below sets out the ratio between the Chief Executive Officer’s total remuneration and the median, 2(cid:24)th and 7(cid:24)th
percentile of the total remuneration of full-time equivalent UK employees.
Total remuneration
Year
2020
2019
Salary
Year
2020
2019
Method
25th percentile
Median
75th percentile
25th percentile
Median
75th percentile
Option A
Option B
(cid:24)0(cid:29)1
(cid:25)2(cid:29)1
33(cid:29)1
39(cid:29)1
19:1
27:1
29,(cid:25)(cid:25)3
30,478
4(cid:24),349
48,48(cid:25)
78,3(cid:25)8
(cid:25)9,114
Pay ratio
All employees £
Method
25th percentile
Median
75th percentile
25th percentile
Median
75th percentile
Option A
Option B
28:1
28:1
19:1
18:1
11:1
14:1
24,000
24,333
3(cid:25),3(cid:24)0
37,001
(cid:25)1,000
48,(cid:25)(cid:25)7
Pay ratio
All employees £
Total remuneration includes salary, benefits, pension, short-term incentives and any value vested from long-term incentives
during the year. As some 2020 STI amounts across the wider workforce are sub(cid:77)ect to change until after the publication of this
report, the total remuneration may not be exact. However, any STI changes are expected to be minimal and it is unlikely the pay
ratios will change significantly once the STI amounts are determined. Our Chief Executive Officer has a higher proportion of
variable pay in total remuneration, which is the main factor driving the difference in the ratios between salary and total
remuneration.
From the three options disclosed in the regulations regarding the methodology to identify the employees at median, 2(cid:24)th and
7(cid:24)th percentiles for comparison between those and the Chief Executive Officer, we recognise that the most precise method, and
therefore often referred to as the preferred method, is Option A, which calculates the single figure for each UK employee. (cid:58)hilst
in 2019 we adopted Option B, which uses the Gender Pay Gap Reporting methodology to identify the employees at each quartile,
we have adopted Option A for 2020 and intend to continue reporting under this method in future years.
(cid:58)hilst adopting Option A has had a slight impact on the 2020 ratios when compared to 2019, the year-on-year variances at each
quartile, in particular the 7(cid:24)th percentile, reflect the reduction and change in profile of our workforce following the sale of Quilter
Life Assurance at the end of 2019, and the recommendation of the Chief Executive Officer to receive (cid:93)ero STI for 2020.
Gender pay gap
The Company reported a median gender pay gap of 30(cid:8) and a median bonus gap of 39(cid:8) for 2020. The results reflect the
under-representation of women in senior roles, which we recognise is a systemic issue facing the wealth management industry
and will require ongoing, multi-year efforts to resolve. Further details regarding our gender pay gap figures can be found on page
(cid:24)3 of the Responsible (cid:37)usiness report.
Relative importance of spend on pay
The following table sets out the profit, dividends and overall spend on pay in the years ended 31 December 2020 and
31 December 2019(cid:29)
Ad(cid:77)usted profit before tax ((cid:101)m)
Dividends1 ((cid:101)m)
Employee remuneration costs2 ((cid:101)m)
2020
1(cid:25)8
78
291
2019 % Change
23(cid:24)
9(cid:24)
31(cid:25)
(29(cid:8))
(18(cid:8))
(8(cid:8))
1 In 2019, the Company paid an interim dividend of 1.7 pence and a final dividend of 3.(cid:24) pence, with total dividends of (cid:101)9(cid:25) million estimated in the 2019 Report.
However, based on the final share count for 2019, the total dividends paid came to (cid:101)9(cid:24) million. For the 2020 financial year, the Company paid an interim dividend
of 1.0 pence and recommend a final dividend of 3.(cid:25) pence.
2 Employee remuneration costs represent the underlying employee costs within the ad(cid:77)usted profit view for Quilter, excluding the impact of one-off items. 2019 includes
(cid:101)22 million of costs relating to Quilter Life Assurance(cid:30) excluding these, 2019 costs were (cid:101)294 million, and the annual reduction is (cid:101)3 million, a 1(cid:8) change.
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Executive Directors’ shareholding and interests in Quilter Share Schemes
The table below shows the Executive Directors’ interests in Company share plans which will vest in future years sub(cid:77)ect to
performance and(cid:18)or continued service at 31 December 2020 together with any additional interests in shares held beneficially
by the Executive Directors outside of Group share schemes. The share price at 31 December 2020 was (cid:101)1.(cid:24)3(cid:25)0.
During the period 31 December 2020 to 10 March 2021, there were no exercises or dealings in the Company’s share awards
by the Directors.
Audited
Scheme interests at 31 December 2020
Performance condition
Paul Feeney
Mark Satchel
Legally owned
(shares)
Subject to SIP
(shares)
Subject to SAYE
(options)
Deferred STI and
other awards not
subject to
performance
conditions
(shares)
Subject to
performance
conditions under
the LTIP (shares)
(cid:25)(cid:24)0,340
(cid:25)(cid:24)(cid:24),392
1,(cid:24)33
1,(cid:24)33
24,000
14,400
1,182,877
(cid:24)27,073
3,24(cid:25),37(cid:24)
1,789,881
Executive Directors’ shareholding requirements
In line with the Remuneration Policy, each Executive Director is required to acquire and maintain a shareholding equivalent to
300(cid:8) of base salary (including shares beneficially held by the individual or his(cid:18)her spouse, the net of tax value of unvested share
interests within Company share plans which are not sub(cid:77)ect to performance conditions and 2(cid:24)(cid:8) of the value of beneficially held
shares purchased by the individual or his(cid:18)her spouse since the post-cessation shareholding policy came into effect).
As of 31 December 2020, Paul Feeney had not yet satisfied the minimum shareholding requirement but has up to five years from
the date of Admission or appointment (2(cid:24) June 2023 for Paul Feeney and 13 March 2024 for Mark Satchel) to achieve the
minimum.
Audited
Name
Paul Feeney
Mark Satchel
Value1
£’000
1,9(cid:25)4.3
1,438.1
Multiple of
base salary
291%
320(cid:8)
1 Includes the estimated net value of unvested share awards which are not sub(cid:77)ect to performance conditions. The calculation is based on the average share price of
the final three month period ended 31 December 2020 of (cid:101)1.3943, the actual value will be based on the share price when the awards vest on 2(cid:25) March 2021.
Quilter | Annual report 2020
145
Annual Report on Remuneration
continued
Directors’ personal holding and beneficial share interests
As at 31 December 2019 and 31 December 2020, the Executive and Non-executive Directors held the following legal and
beneficial interests in Ordinary Shares(cid:29)
Audited
Name
Paul Feeney
Mark Satchel
Glyn Jones
Rosie Harris
Moira Kilcoyne
George Reid
Ruth Markland
Paul Matthews
Tim Breedon
Cathy Turner1
Suresh Kana1
Jon Little1
31 December
2020
31 December
2019
(cid:25)(cid:24)0,340
(cid:25)(cid:24)(cid:24),392
800,000
17,241
34,482
20,(cid:25)89
20,(cid:25)89
30,000
–
(cid:25)8,98(cid:24)
–
20,(cid:25)89
(cid:24)80,(cid:24)44
377,(cid:24)7(cid:25)
800,000
17,241
34,482
20,(cid:25)89
20,(cid:25)89
30,000
n/a
(cid:25)8,9(cid:25)(cid:24)
–
20,(cid:25)89
1 Shareholding is as at the date of standing down as Independent Non-executive Directors, on 14 May 2020 for Cathy Turner and Suresh Kana, and 30 September
2020 for Jon Little.
During the period 31 December 2020 to 10 March 2021, there were no other changes to the interests in shares held by the
Directors as set out in the table above.
Legacy arrangements
In 2017, prior to the managed separation of Quilter from Old Mutual plc, a retention award was granted to Mark Satchel to
recognise the criticality of his role during and beyond the demerger and Listing of Quilter in 2018. The award was not sub(cid:77)ect to
any performance conditions and vested on 31 August 2020 on the third anniversary of the grant date. As the award was granted
prior to the Listing of the Company, and it was not a long-term incentive, it does not form part of his remuneration for qualifying
services as a Director of the Company and is not included within his aggregate emoluments for 2020. In accordance with our
principles of open and transparent disclosure, details of the award are set out below:
Audited
Executive Director
Date of vesting
Share price at
date of vesting1
Number of
shares vesting2
Value of shares
vesting (£000)
Cash-settled
dividend
equivalents
(£000)
Total value of
shares (£000)
Mark Satchel
31 August 2020
(cid:101)1.430(cid:24)
347,437
497.0
88.2
(cid:24)8(cid:24).2
1 Share price as at 28 August 2020 due to the date of vesting being a public holiday.
2 The award was originally granted over notional Old Mutual plc shares and converted to Quilter plc shares at Listing.
Payments within the year to past Directors
During 2020, Tim Tookey, the former Chief Financial Officer who stood down from the (cid:37)oard on 13 March 2019, received the
vesting of the one-off LTI award linked to the business preparation and execution of Listing in June 2018. The vesting outcome was
100(cid:8) of maximum on a pro-rata basis for the time Tim Tookey served as an Executive Director. The amount received upon vesting
on 1 May 2020 was (cid:101)1,(cid:25)9(cid:24),429 from 1,41(cid:24),21(cid:25) shares with a share price of (cid:101)1.1980.
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Quilter | Annual report 2020
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Payment for loss of office
During 2020, there were no payments made to any Directors for loss of office.
External directorships
The table below sets out external directorships held by the Executive Directors.
Executive Directors
External directorships held
Paul Feeney
Mark Satchel
None
None
Fees received
and retained
–
–
External advisers
On 1 August 2020, Alvare(cid:93) (cid:9) Marsal ((cid:522)A(cid:9)M(cid:523)) acquired Aon’s Executive Compensation team, resulting in A(cid:9)M becoming the
Committee’s new independent remuneration adviser. The individual providing independent advice to the Committee has
remained unchanged. During 2020, both firms provided advice covering annual remuneration report and policy disclosures,
market practice and incentive design. Apart from the above, A(cid:9)M or Aon have no other connection with the Company.
The Committee is satisfied that the advice received from A(cid:9)M is ob(cid:77)ective and independent, and the firm is a member of the
Remuneration Consultants Group, whose voluntary code of conduct is designed to ensure ob(cid:77)ective and independent advice
is given to Committees. The total fees paid in respect of remuneration advice during 2020 are as follows(cid:29)
Name
Alvare(cid:93) (cid:9) Marsal
Aon
Key areas of advice received
Annual remuneration report and policy disclosure, market practice,
incentive design
Annual remuneration report and policy disclosure, market practice,
incentive design
Total fees 2020
(cid:101)30,21(cid:24)
(cid:101)33,(cid:25)98
Statement of shareholder voting
During the Company’s AGM in May 2020, a resolution to approve the Directors’ Remuneration Report was moved and the votes
from shareholders cast For was 9(cid:25)(cid:8), and 4(cid:8) Against. Total votes (cid:58)ithheld were 2,(cid:25)31,(cid:24)2(cid:24), which is 0.14(cid:8) of issued share capital.
A resolution to approve the Directors’ Remuneration Policy was moved during the Company’s first AGM in May 2019(cid:30) the votes
from shareholders cast For was 97(cid:8), and 3(cid:8) Against. Total votes (cid:58)ithheld were 7,803,013, which is 0.41(cid:8) of issued share capital.
The next resolution to approve the Directors’ Remuneration Policy will be in 2022 following the upcoming Policy review.
The Company did not receive a significant percentage of votes against either resolution at the 2020 or the 2019 AGM.
Quilter | Annual report 2020
147
Our approach
to governance
UK Corporate Governance Code 2018 (the “Code”)
Quilter is subject to the Code and complied with all of its provisions during the year. Details of our Corporate Governance
Framework are available on our website at quilter.com(cid:18)corporategovernance. The Code is publicly available at
www.frc.org.uk.
Disclosure Guidance and Transparency Rules (“DTRs”)
By virtue of the information included in this Governance section of the Annual Report including our Directors’ Report
(pages 80 to 1(cid:24)(cid:24)) we comply with the corporate governance requirements of the FCA’s DTRs.
Johannesburg Stock Exchange (the “JSE”)
Quilter has a secondary listing on the Johannesburg Stock Exchange and is permitted by the JSE Listings Requirements
to follow the corporate governance practices of its primary listing market. Quilter is, however, mindful of the provisions
of the King I(cid:57) Governance principles and the expectations of our South African shareholders.
1. Board leadership and
Company purpose
The Chairman’s introduction on corporate governance on page 81 and the Board Governance
section on pages 90 to 101 set out how the Board has met its leadership and oversight
responsibilities under the Code during the year, including its role in promoting the success
of the Company, monitoring culture across the business and understanding the views of our
shareholders and other stakeholders. Details of our approach to workforce engagement and
the key themes arising from the employee feedback received during the year are set out on
pages 100 and 101.
Responsibility for monitoring the Group’s whistleblowing arrangements, which provide a means
for our workforce to raise concerns in confidence or anonymously, has been delegated to the
Board Audit Committee. Details of how this responsibility has been discharged during the year
can be found in the Board Audit Committee Chair’s report on page 112. Further information
on the Group’s whistleblowing arrangements can be found in the Responsible Business report
on page 59.
In accordance with the Companies Act 2006 and the Company’s Articles of Association,
the (cid:37)oard may authorise Conflicts of Interest. Directors are required to declare any potential
or actual Conflicts of Interest that could interfere with their ability to act in the best interests
of Quilter. The Company Secretary maintains a Conflicts of Interest register which is reviewed
by the Board and the Board Corporate Governance and Nominations Committee. Noting the
recommendations of the Code, the Board Corporate Governance and Nominations Committee
is required to pre-approve, on behalf of the (cid:37)oard, any new external appointments that a
Director wishes to adopt. During the year, the Board Corporate Governance and Nominations
Committee carefully reviewed requests to approve new external appointments for a number
of our Non-executive Directors, and concluded that these additional responsibilities would not
impact their time commitment or cause any potential conflicts of interest for Quilter. In addition,
the Committee further reviewed the impact for Quilter of Paul Feeney assuming the role of
Chair of the FCA Practitioner Panel and concluded that this was an appropriate appointment
for Paul to assume.
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2. Division of responsibilities
The (cid:37)oard is made up of a ma(cid:77)ority of independent Non-executive Directors and comprises
the Chairman, who was independent on appointment, two Executive Directors and seven
independent Non-executive Directors, including the Senior Independent Director. The
independence of each Non-executive Director is assessed on an annual basis against the
criteria set out in the Code.
It is a principle of UK company law that Executive and Non-executive Directors all have the
same duties and are sub(cid:77)ect to the same constraints. However, in line with the requirements
of the Code, there is a clear division of responsibilities at the head of Quilter between the
running of the (cid:37)oard and the executive responsibility for managing Quilter’s business. Our
Chairman is responsible for the leadership of the Board and managing the business of the
Board through setting its agenda and taking full account of the issues and concerns of Board
members. Our Chief Executive Officer is responsible for the day-to-day management of our
business and the leadership of the Quilter Executive Committee. Further information on the
Quilter Executive Committee can be found on pages 88 and 89.
The accountabilities, competencies and expectations required of each role on the (cid:37)oard,
including those required by the Code, have been documented in our (cid:37)oard Charter. This
includes the responsibilities of the Directors as a whole, including their responsibilities under
section 172(1) of the Companies Act 200(cid:25), and the role profiles of the Chairman, Senior
Independent Director, Committee Chairs, Non-executive Directors and Executive Directors.
Performance against these expectations was assessed in the 2019(cid:18)20 (cid:37)oard Effectiveness
Review, detailed in the report from our Senior Independent Director on page 105, and it was
confirmed that all Directors were discharging their roles effectively. The time commitment
expected of the Non-executive Directors is set out in the (cid:37)oard Charter and their letters of
appointment. The Board Corporate Governance and Nominations Committee reviews the
Board Charter annually to ensure it remains relevant and up to date. The Board Charter is
published on our website at quilter.com(cid:18)corporategovernance to ensure complete
transparency of the standards we set for ourselves.
As set out in the Board Charter, the Chairman is responsible for ensuring that the Board
receives accurate, timely and high-quality supporting information. This covers the Company’s
performance to enable the (cid:37)oard to take sound decisions, monitor effectively and provide
advice to promote the success of the Company. Working in collaboration with the Chairman,
the Company Secretary is responsible for ensuring good corporate governance and consults
with Directors to ensure that good information flows exist and that the (cid:37)oard receives the
information it requires to be effective.
The (cid:37)oard is the decision-making body for all matters of such importance as to be of
significance to Quilter as a whole because of their strategic, financial or reputational
implications or consequences. A summary of the matters that are reserved for the (cid:37)oard’s
decision, which includes (cid:37)oard appointments, Quilter’s strategy, financial statements, capital
expenditure and any ma(cid:77)or acquisitions, mergers or disposals, and the appointment and
removal of the Company Secretary, can be found at quilter.com(cid:18)corporategovernance.
Quilter | Annual report 2020
149
Our approach to governance
continued
3. Composition, succession
and evaluation
4. Audit, risk and
internal control
150
Quilter | Annual report 2020
The Board Corporate Governance and Nominations Committee is responsible for overseeing the
composition of the Board and its Committees and ensuring that it is an appropriate size and that
there is an appropriate balance of diversity in skills, experience, independence and knowledge.
It is also responsible for reviewing and making recommendations to the Board on succession
planning for the Board and key leadership positions within Quilter. Details of the composition of
the Board Corporate Governance and Nominations Committee, how it has discharged its duties
during the year and the 2019(cid:18)20 (cid:37)oard Effectiveness Review, including the resulting action plan,
can be found on pages 102 to 107.
The Chairman and all the Non-executive Directors have served on the (cid:37)oard for less than
five years. All the Directors are sub(cid:77)ect to annual re-election by shareholders and the specific
reasons why each Director’s contribution is, and continues to be, important to the Company’s
long-term sustainable success are set out in their biographies on pages 84 to 87.
Risk management and internal control
The Directors are responsible for ensuring that management maintains an effective system
of risk management and internal control and for assessing its effectiveness. Such a system is
designed to identify, evaluate and manage, rather than eliminate, the risk of failure to achieve
business objectives and can only provide reasonable and not absolute assurance against
material misstatement or loss.
Quilter is committed to operating within a strong system of internal control that enables
business to be transacted and risk taken without exposing itself to unacceptable potential losses
or reputational damage. The Quilter Group Governance Manual sets out the Group’s approach
to internal governance and establishes the mechanisms and processes by which management
implements the strategy set by the Board to direct the organisation, through setting the tone
and expectations from the top, delegating its authority and assessing compliance.
Quilter’s principles of internal control (covering financial, operational and compliance areas)
are to maintain:
– clearly defined delegated authorities;
– clearly defined lines of responsibility;
– robust recording and reporting of transactions to support the financial statements;
– financial reporting controls procedures and systems which are regularly reviewed;
– protection of assets; and
– financial crime prevention and detection.
The Enterprise Risk Management Framework is overseen by the Board Risk Committee and aims
to align strategy, capital, processes, people, technology and knowledge in order to evaluate and
manage business opportunities and threats in a structured, disciplined manner. The Group’s
principal risks and uncertainties are set out on pages 73 to 76.
The Board Audit Committee and the Board Risk Committee have a joint responsibility for the
oversight of the effectiveness of the internal control framework across Quilter. In addition,
the (cid:37)oard Technology and Operations Committee has oversight of operational matters more
broadly, with the (cid:37)oard Risk Committee having responsibility for oversight of Operational Risk.
The Board Audit Committee regularly reviews the system of internal control on behalf of the
Board and receives regular reports from management, Internal Audit and the Finance function
covering, in particular, financial controls. The chairs of the (cid:37)oard Audit Committee, the (cid:37)oard
Risk Committee and the (cid:37)oard Technology and Operations Committee regularly brief the (cid:37)oard
on the key matters discussed by these Committees. Throughout the year ended 31 December
2020 and to date, the Group has operated a system of internal control that provides reasonable
assurance of effective operations covering all controls, including financial and operational
controls and compliance with laws and regulations. Processes are in place for identifying,
evaluating and managing the principal risks facing the Group in accordance with the ‘Guidance
on Risk Management, Internal Control and Related Financial and Business Reporting’ published
by the Financial Reporting Council.
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Internal control over financial reporting
Management are also responsible for establishing and maintaining adequate internal control
over financial reporting. This is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with International Financial Reporting Standards (“IFRS”)
adopted pursuant to Regulation (EC) No 1(cid:25)0(cid:25)(cid:18)2002 as it applies in the European Union and
as issued by the International Accounting Standards Board (“IASB”). Internal control over
financial reporting includes policies and procedures that pertain to the maintenance of
records that, in reasonable detail:
– accurately and fairly reflect transactions and dispositions of assets;
– provide reasonable assurances that transactions are recorded as necessary to permit
the preparation of financial statements in accordance with IFRS and that receipts and
expenditures are being made only in accordance with authorisations of management
and the respective Directors; and
– provide reasonable assurance regarding prevention or timely detection of unauthorised
acquisition, use or disposition of assets that could have a material effect on the financial
statements.
Assurance that these controls are adequate and operating effectively is obtained through
monthly control self assessments and regular independent assurance activity undertaken by
first line management and Internal Audit, respectively. Conclusions are reported to the (cid:37)oard
Audit Committee which examines these and provides further challenge. Finally, the (cid:37)oard
scrutinises and approves results announcements and the Annual Report and ensures that
appropriate disclosures have been made. This governance process ensures that both
management and the (cid:37)oard are given sufficient opportunity to debate and challenge the
Group’s financial statements and other significant disclosures before they are made public.
Management have assessed the internal controls over financial reporting as of
31 December 2020 and concluded that, based on their assessment, they were effective.
The Board Audit Committee has reviewed this assessment as part of its review of the internal
controls over financial reporting. The Chair of the (cid:37)oard Audit Committee reports on the
review of controls over financial reporting and how the (cid:37)oard Audit Committee has
monitored the independence and effectiveness of the internal and external auditors
on pages 108 to 115.
The composition of the Board Audit Committee, the Board Risk Committee and the Board
Technology and Operations Committee is set out on pages 108, 11(cid:25) and 119, respectively.
The Board has delegated responsibility to the Board Remuneration Committee for the
consideration and approval of the remuneration arrangements for the Chairman, Executive
Directors and other senior executives. Fees paid to the Non-executive Directors are
considered regularly by the (cid:37)oard as a whole, with Non-executive Directors not participating.
The Board Remuneration Committee is also responsible for setting and recommending to the
Board for approval, the overarching objectives, principles and parameters of remuneration
policy across the Group, ensuring that Quilter is adopting a coherent approach to
remuneration in respect of all employees. Information on the composition of the Board
Remuneration Committee and its activities in 2020 can be found in the Board Remuneration
Committee Report on pages 122 to 147.
5. Remuneration
Quilter | Annual report 2020
151
Directors’ report
The Directors present their report for the
financial year ended 31 December 2020
Cautionary statement
This Annual Report has been prepared for, and only for, the
members of the Company, as a body, and no other persons.
The Company, its Directors, employees, agents or advisers
do not accept or assume responsibility to any other person
to whom this document is shown or into whose hands it may
come and any such responsibility or liability is expressly
disclaimed. By their nature, the statements concerning the
risks and uncertainties facing the Group in this Annual Report
involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge
and information available at the date of preparation of this
Annual Report and the Company undertakes no obligation
to update these forward-looking statements. Nothing in this
Annual Report should be construed as a profit forecast.
Corporate governance statement
The information that fulfils the requirements of the corporate
governance statement for the purposes of the FCA’s Disclosure
Guidance and Transparency Rules ((cid:522)DTRs(cid:523)) can be found in the
Governance Section of the Annual Report on pages 80 to 1(cid:24)1
(all of which forms part of this Directors’ Report) and in this
Directors’ Report.
Information included in the Strategic Report
The Company’s Strategic Report is on pages 1 to 79 and
includes the following information that would otherwise
be required to be disclosed in this Directors’ Report(cid:29)
(cid:54)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)
(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)
Likely future developments in the business
Engagement with employees
Engagement with suppliers, customers and others
Greenhouse gas emissions, energy consumption and
energy efficiency action
Financial risks
2(cid:25)
(cid:24)2 and (cid:24)3
(cid:24)0 to (cid:24)9
(cid:24)(cid:25) and (cid:24)7
73
Information to be disclosed under Listing Rule 9.8.4R
(cid:54)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)
Details of long-term incentive schemes
Director waivers of emoluments
Shareholder waivers of dividends
Shareholder waivers of future dividends
(cid:51)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)
122 to 147
138
1(cid:24)2
1(cid:24)2
Financial instruments and risk management
Information relating to financial instruments and financial risk
management ob(cid:77)ectives and policies can be found on pages
182 to 18(cid:24), 21(cid:24) and 21(cid:25), and 241 to 248.
Branches
During 2020, the Group has operated branches in Hong Kong,
Ireland, Jersey, Singapore, the United Arab Emirates and the
United Kingdom.
Profit and dividends
Statutory profit after tax for 2020 was (cid:101)88 million
(2019(cid:29) (cid:101)14(cid:25) million).
The Directors have recommended a final dividend for the
financial year ended 31 December 2020 of 3.(cid:25) pence per
Ordinary Share which will be paid out of distributable reserves,
subject to approval by shareholders at the 2021 Annual
General Meeting. Further information regarding the dividend,
including key dates, can be found at quilter.com(cid:18)dividends.
On 11 August 2020 the (cid:37)oard declared an interim dividend of
1.0 pence per Ordinary Share. The interim dividend was paid
on 21 September 2020 to shareholders on the UK and South
African share registers on 4 September 2020.
Shares are held in the Quilter employee benefit trust ((cid:522)E(cid:37)T(cid:523))
and the Equiniti Share Plans Trust ((cid:522)ESPT(cid:523)) in connection with
the operation of the Company’s share plans. Dividend waivers
are in place for those shares that have not been allocated to
employees.
Directors
The names of the current Directors of the Company, along with
their biographical details, are set out on pages 84 to 87 and are
incorporated into this report by reference. Changes to
Directors during the year are set out below(cid:29)
Name
Role
(cid:40)(cid:909)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:68)(cid:83)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:18)(cid:85)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Suresh Kana
Non-executive Director
Resigned 14 May 2020
Cathy Turner
Non-executive Director
Resigned 14 May 2020
Tim Breedon
Non-executive Director
Appointed 1 June 2020
Jon Little
Non-executive Director
Resigned 30 September 2020
Tazim Essani
Non-executive Director
Appointed 9 March 2021
Details of the Directors’ interests in the share capital of the
Company are set out in the Annual Report on Remuneration
on page 14(cid:25).
The powers given to the Directors are contained in the
Company’s Articles of Association and are sub(cid:77)ect to relevant
legislation and, in certain circumstances, including in relation
to the issuing or buying back by the Company of its shares,
subject to authority being given to the Directors by
shareholders in general meeting. The Articles of Association
also govern the appointment and replacement of Directors.
The (cid:37)oard has the power to appoint additional Directors or to
fill a casual vacancy amongst Directors. Any such Director only
holds office until the next Annual General Meeting ((cid:522)AGM(cid:523)) and
may offer themselves for re-election. The 2018 UK Corporate
Governance Code recommends that all directors should be
sub(cid:77)ect to annual re-election and all Directors will stand for
re-election at the 2021 AGM.
152
Quilter | Annual report 2020
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Articles of Association
The Articles of Association may be amended in accordance
with the provisions of the Companies Act 200(cid:25) by way of
a special resolution of the Company’s shareholders.
Information below sets out the provisions in the Articles
of Association in force as at the date of this report.
Share capital and control
The Company has Ordinary Shares in issue, representing
100(cid:8) of the total issued share capital as at 31 December
2020 and as at 2 March 2021 (the latest practicable date
for inclusion in this report). Details regarding changes in
the Company’s share capital can be found in note 2(cid:24) of the
financial statements on page 22(cid:25). The rights attaching to the
shares are set out in the Articles of Association and are
summarised below.
Voting rights of members
On a show of hands, every member or authorised corporate
representative present has one vote and every proxy present
has one vote except if the proxy has been duly appointed
by more than one member and has been instructed by
(or exercises his discretion given by) one or more of those
members to vote for the resolution and has been instructed
by (or exercises his discretion given by) one or more other of
those members to vote against it, in which case a proxy has
one vote for and one vote against the resolution. On a poll,
every member present in person or by proxy has one vote
for every share of which he is a holder. In the case of (cid:77)oint
holders, the vote of the person whose name stands first
in the register of members and who tenders a vote is
accepted to the exclusion of any votes tendered by any
other joint holders.
Unless the (cid:37)oard decides otherwise, a member shall not be
entitled to vote, either in person or by proxy, at any general
meeting of the Company in respect of any share held by him
unless all calls and other sums presently payable by him in
respect of that share have been paid.
Transfers
Save as described below, the Ordinary Shares are freely
transferable.
A member may transfer all or any of his shares in any manner
which is permitted by any applicable statutory provision and
is from time to time approved by the (cid:37)oard. The Company
shall maintain a record of uncertificated shares in accordance
with the relevant statutory provisions.
A member may transfer all or any of his certificated shares
by an instrument of transfer in any usual form, or in such
other form as the (cid:37)oard may approve. The instrument of
transfer shall be signed by or on behalf of the transferor and,
except in the case of a fully paid share, by or on behalf of the
transferee. The (cid:37)oard may, in its absolute discretion, refuse
to register any instrument of transfer of any certificated share
which is not fully paid up (but not so as to prevent dealings in
listed shares from taking place on an open and proper basis)
or on which the Company has a lien. The (cid:37)oard may also
refuse to register any instrument of transfer of a certificated
share unless it is left at the registered office, or such other
place as the (cid:37)oard may decide, for registration, accompanied
by the certificate for the shares to be transferred and such
other evidence (if any) as the (cid:37)oard may reasonably require
to prove title of the intending transferor or his right to transfer
shares(cid:30) and it is in respect of only one class of shares. If the
(cid:37)oard refuses to register a transfer of a certificated share it
shall, as soon as practicable and in any event within two
months after the date on which the instrument was lodged,
give to the transferee notice of the refusal together with its
reasons for refusal. The (cid:37)oard must provide the transferee
with such further information about the reasons for the
refusal as the transferee may reasonably request. Unless
otherwise agreed by the (cid:37)oard in any particular case, the
maximum number of persons who may be entered on the
register as (cid:77)oint holders of a share is four.
Variation of rights
If at any time the share capital is divided into different classes
of shares, the rights attached to any class (unless otherwise
provided by the terms of issue) may, whether or not the
Company is being wound up, be varied with the consent in
writing of the holders of three-fourths in nominal value of the
issued shares of that class or with the sanction of a special
resolution of the holders of the shares of that class.
Exercisability of rights under an employee share scheme
An E(cid:37)T operates in connection with certain of the Group’s
employee share plans ((cid:522)Plans(cid:523)). The Trustees of the E(cid:37)T may
exercise all rights attaching to the shares in accordance with
their fiduciary duties other than as specifically restricted in
the relevant Plan governing documents. The Trustee of the
E(cid:37)T has informed the Company that their normal policy is
to abstain from voting in respect of the Quilter shares held
in trust. The Trustee of the Quilter Share Incentive Plan ((cid:522)SIP(cid:523))
will vote as directed by SIP participants in respect of the
allocated shares but the Trustee will not otherwise vote
in respect of the unallocated shares held in the SIP Trust.
Purchase of own shares
At the AGM held on 14 May 2020, shareholders passed
resolutions to authorise the Company to purchase a
maximum of 189,981,04(cid:24) Ordinary Shares of 7 pence each,
representing 10(cid:8) of the Company’s issued Ordinary Share
capital at that time. The share buyback programme (the
(cid:522)(cid:37)uyback(cid:523)), first announced on 11 March 2020 and currently
using the authority granted by shareholders at last year’s
AGM, continues. The purpose of the (cid:37)uyback is to distribute
the net surplus proceeds arising from the sale of Quilter Life
Assurance to shareholders. As at 31 December 2020, the
Company had acquired 118,282,047 of its Ordinary Shares
of 7 pence each, representing (cid:25).(cid:25)3(cid:8) of the Company’s issued
share capital on the London Stock Exchange ((cid:522)LSE(cid:523)) and the
Johannesburg Stock Exchange ((cid:522)JSE(cid:523)), at an average price of
129.32 pence per share. The aggregate amount of
consideration paid for the Shares acquired under the
(cid:37)uyback was (cid:101)1(cid:24)2,9(cid:25)3,992. Shares bought back on the JSE
were purchased pursuant to contingent purchase contracts
with each of (a) J.P. Morgan Equities South Africa Proprietary
Quilter | Annual report 2020
153
Directors’ report
continued
Limited and (b) Goldman Sachs International, which were
approved by shareholders at the 2020 AGM. The contracts
enable the Company to buy back its shares on the JSE in similar
fashion and sub(cid:77)ect to the same overall limits as on-market
purchases on the LSE. The shares acquired under the (cid:37)uyback
were cancelled upon acquisition. Continuation of the (cid:37)uyback
is dependent on phased regulatory approvals and continuing
authority from our shareholders. The Directors are therefore,
in accordance with institutional guidelines, seeking renewal of
the share purchase authorities at the 2021 AGM. Further
information on the (cid:37)uyback can be found on pages 41, (cid:25)(cid:24) and 99.
The Odd-lot Offer, which was approved by shareholders
at the 2019 AGM, was launched on 11 March 2020 and closed
on 1(cid:24) May 2020. On 29 May 2020, the Odd-lot Offer was
implemented and the Company purchased a total of
1(cid:25),2(cid:25)3,3(cid:25)4 of its own Ordinary Shares of 7 pence each,
representing 0.87(cid:8) of the Company’s issued share capital
as at that date. The Odd-lot Offer was conducted across the
Company’s UK and South African share registers. The Company
purchased 1(cid:25)9,2(cid:25)4 Shares on the UK register at a price of
120.24 pence per Share and 1(cid:25),094,100 Shares on the South
African register at 2,812.(cid:25)3 South African cents per share.
The aggregate amount of the consideration paid was (cid:101)203,(cid:24)23
and 4(cid:24)2,(cid:25)(cid:25)7,484.83 South African Rand, respectively. The
shares purchased as part of the Odd-lot Offer were initially
held as treasury shares and were then transferred to the E(cid:37)T
on 1 June 2020. For more information on the Odd-lot Offer
please refer to pages 1(cid:24) and 2(cid:25)7.
Employment of disabled persons
Providing an environment where employees are safe and
there is equality of opportunity is a key element in enabling
our people to succeed and deliver the business strategy.
Using our diversity and our relationships to learn from one
another enables us to create one business that provides better
opportunities for our people and better outcomes for our
customers. We are committed to creating an inclusive culture
which embraces diversity. (cid:58)e therefore promote equal
opportunities and ensure that no applicant or colleague is
sub(cid:77)ect to less favourable treatment on the grounds of gender,
marital status, nationality, ethnicity, age, sexual orientation,
responsibilities for dependents, or physical or mental disability.
(cid:58)e are committed to continuing the employment of, and for
arranging training for, employees who have become disabled
while employed by Quilter. (cid:58)e select candidates for interview,
career development and promotion based on their skills,
qualifications, experience and potential.
Significant agreements (change of control)
All the Company’s Share Plans contain provisions relating
to a change of control. In the event of a change of control,
outstanding awards and options may be lapsed and replaced
with equivalent awards over shares in the new company,
sub(cid:77)ect to the (cid:37)oard Remuneration Committee’s discretion.
Alternatively, outstanding awards and options may vest and
become exercisable on a change of control sub(cid:77)ect, where
appropriate, to the assessment of performance at that time
and time pro-rating of awards. The (cid:37)oard Remuneration
Committee has discretion to waive time pro-rating to an extent.
Short-term incentive ((cid:522)STI(cid:523)) awards may continue to be paid in
respect of the full financial year pre and post change of control,
or a pro-rated STI award may be paid in respect of the portion
of the year that has elapsed at the point of change of control.
Exceptionally, the (cid:37)oard Remuneration Committee may
exercise its discretion to waive pro-rating.
On a change of control, including following a takeover bid, the
Company is required to enter into negotiations in good faith with
the lenders under the Group’s Revolving Credit Facility in respect
of any changes to its terms. If after such negotiations no
agreement has been reached, the Revolving Credit Facility would
be cancelled and existing drawdowns would become repayable.
The Group is also party to a number of supplier agreements that
may be terminated upon a change of control of the Company,
including following a takeover bid. In many cases, whether this
may apply depends on the identity or characteristics of the new
controller. This may result in the provision of certain services and
software licences being terminated early.
Directors’ indemnities
Qualifying third-party indemnity provisions (as defined by
section 234 of the Companies Act 200(cid:25)) were in force during
the course of the financial year ended 31 December 2020 for
the benefit of the then Directors and, at the date of this report,
are in force for the benefit of the Directors in relation to certain
losses and liabilities which they may incur (or have incurred) in
connection with their duties, powers and office. In addition, the
Company maintains Directors’ and Officers’ Liability Insurance
which gives appropriate cover for legal action brought against
its Directors.
Major shareholders
As at 31 December 2020, the Company had been notified,
in accordance with Rule (cid:24) of the FCA’s DTRs, of the following
holdings of voting rights in its Ordinary Share capital(cid:29)
(cid:49)(cid:68)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)
Allan Gray Unit Trust
Management (RF)
Proprietary Limited
Coronation Asset
Management (Pty) Ltd
Equiniti Trust (Jersey)
Limited2
Norges Bank
Prudential Portfolio
Managers (South
Africa) (PT(cid:60)) Ltd
Public Investment
Corporation of the
Republic of South
Africa
(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)
(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)
(cid:8)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)
(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)
(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)1
(cid:49)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:564)(cid:72)(cid:71)
(cid:25)8,880,114
304,072,00(cid:25)
8(cid:24),403,2(cid:24)0
92,(cid:24)81,(cid:24)(cid:25)1
3.(cid:25)2
17.03
4.(cid:24)8
4.98
Direct
Direct
Direct
Direct
91,942,798
4.83
Indirect
179,47(cid:25),894
10.04
Direct
1The percentage of voting rights detailed above was calculated at the time of the
relevant disclosures made in accordance with Rule (cid:24) of the FCA’s DTRs.
2These shares are held by Equiniti Trust ( Jersey) Limited in its capacity as Trustee
of the Quilter Employee (cid:37)enefit Trust.
154
Quilter | Annual report 2020
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As at 2 March 2021, the latest practicable date for inclusion
in this report, the following voting rights had been notified,
in accordance with Rule (cid:24) of the FCA’s DTRs(cid:29)
(cid:49)(cid:68)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:3)
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)
Allan Gray Unit Trust
Management (RF)
Proprietary Limited
Coronation Asset
Management (Pty) Ltd
Equiniti Trust (Jersey)
Limited2
Norges Bank
Prudential Portfolio
Managers (South
Africa) (PT(cid:60)) Ltd
Public Investment
Corporation of the
Republic of South
Africa
(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)
(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)
(cid:8)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:89)(cid:82)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)
(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)
(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)1
(cid:49)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:75)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:564)(cid:72)(cid:71)
(cid:25)8,880,114
304,072,00(cid:25)
8(cid:24),403,2(cid:24)0
70,9(cid:24)2,7(cid:24)2
3.(cid:25)2
17.03
4.(cid:24)8
3.99
Direct
Direct
Direct
Direct
91,942,798
4.83
Indirect
179,47(cid:25),894
10.04
Direct
1The percentage of voting rights detailed above was calculated at the time of the
relevant disclosures made in accordance with Rule (cid:24) of the FCA’s DTRs.
2These shares are held by Equiniti Trust ( Jersey) Limited in its capacity as Trustee
of the Quilter Employee (cid:37)enefit Trust.
Information provided to the Company by ma(cid:77)or shareholders
pursuant to the FCA’s DTRs is published via a Regulatory
Information Service and is available at quilter.com(cid:18)investor-
relations.
Donations
Quilter does not make monetary donations or gifts in kind
to political parties, elected officials or election candidates.
Accordingly, no such donations were made in 2020. However,
the Directors are seeking to renew the Company’s and its
subsidiaries’ authority to make donations not exceeding
(cid:101)(cid:24)0,000 in aggregate at the 2021 AGM. This is for the
purposes of ensuring that neither the Company nor its
subsidiaries inadvertently breach Part 14 of the Companies
Act 200(cid:25) by virtue of the relevant definitions being widely
drafted. Further information is available in the 2021
Notice of AGM.
Directors’ responsibility statements
The Directors are responsible for preparing the Annual
Report and the Parent Company and consolidated financial
statements in accordance with applicable law and regulations.
The Directors consider that the Annual Report, taken as
a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Company’s and the Group’s position, performance, business
model and strategy.
Each of the Directors in office as at the date of this report,
whose names are listed on pages 84 to 87, confirms that,
to the best of his or her knowledge(cid:29)
– the consolidated financial statements, which have been
prepared in accordance with International Financial
Reporting Standards adopted pursuant to Regulation (EC)
No 1(cid:25)0(cid:25)(cid:18)2002 as it applies in the European Union, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the Group(cid:30) and
– the Strategic Report and Directors’ Report include a fair
review of the development and performance of the
business and the position of the Company and the Group,
together with a description of the principal risks and
uncertainties that they face.
For further information on the comprehensive process
followed by the (cid:37)oard in order to reach these conclusions
please refer to the (cid:37)oard Audit Committee report on pages
108 to 11(cid:24).
Disclosure of information to Auditors
Each person who is a Director of the Company as at the date
of approval of this report confirms that(cid:29)
a) so far as the Director is aware, there is no relevant audit
information of which the Company’s Auditors are unaware(cid:30)
and
b) the Director has taken all the steps that he or she ought
to have taken as a Director in order to make him(cid:18)herself
aware of any relevant audit information and to establish
that the Company’s Auditors are aware of that information.
Auditors
The Directors are recommending the reappointment of
PricewaterhouseCoopers LLP as the Company’s statutory
auditors at the 2021 AGM.
AGM
The 2021 AGM of Quilter plc will be held at Senator House,
8(cid:24) Queen (cid:57)ictoria Street, London EC4(cid:57) 4A(cid:37) on Thursday
13 May 2021 at 11(cid:29)00am (UK time). Details of the business to
be transacted at the 2021 AGM are included in the Quilter plc
2021 Notice of AGM which can be found on our AGM Hub at
quilter.com(cid:18)agm. Under current UK Government guidance,
it is possible that shareholders may be unable to attend the
AGM in person. However, we will continue to review the
arrangements for holding the meeting in the light of the UK
Government Advice, and will provide up to date information
for shareholders, including the impact of any legal restrictions
the UK Government may impose, on our AGM Hub.
(cid:37)y order of the (cid:37)oard
Patrick Gonsalves
Company Secretary
10 March 2021
Quilter | Annual report 2020
155
Index to the consolidated financial statements
For the year ended 31 December 2020
Group Consolidated Financial Statements
157 Statement of Directors’ responsibilities
158 Auditors’ report
167 Consolidated income statement
168 Consolidated statement of comprehensive income
169 Consolidated statement of changes in equity
170 Consolidated statement of financial position
171 Consolidated statement of cash flows
Basis of Preparation and Significant Accounting Policies
172 1: Basis of preparation
173 2(cid:29) New standards and amendments to standards,
and interpretations adopted by the Group
174 3(cid:29) Future standards, amendments to standards,
and interpretations not early-adopted in these
financial statements
174 4(cid:29) Significant changes in the year
177 (cid:24)(cid:29) Significant accounting policies
Notes to the Consolidated Financial Statements
189 (cid:25)(cid:29) Acquisitions, disposals and discontinued operations
192 7: Alternative performance measures (“APMs”)
197 8: Segmental information
202 9: Details of revenue
203 10: Details of expenses
206 11: Tax
209 12: Earnings per share
210 13: Dividends
211 14(cid:29) Goodwill and intangible assets
213 1(cid:24)(cid:29) Property, plant and equipment
214 16: Loans and advances
214 17: Financial investments
215 18(cid:29) Derivative financial instruments – assets and liabilities
215 19(cid:29) Categories of financial instruments
216 20: Fair value methodology
222 21: Structured entities
223 22(cid:29) Trade, other receivables and other assets
223 23: Deferred acquisition costs and contract costs
224 24: Cash and cash equivalents
226 2(cid:24)(cid:29) Share capital, capital redemption reserve
and merger reserve
226 26: Share-based payments
229 27: Investment contract liabilities
230 28: Provisions
233 29: Tax assets and liabilities
235 30(cid:29) (cid:37)orrowings and lease liabilities
237 31(cid:29) Trade, other payables and other liabilities
237 32: Contract liabilities
238 33(cid:29) Post-employment benefits
240 34: Master netting or similar arrangements
241 35: Contingent liabilities
241 36: Commitments
241 37(cid:29) Capital and financial risk management
248 38: Fiduciary activities
248 39: Related party transactions
Appendices
250 A: Other accounting policies
252 (cid:37)(cid:29) Related undertakings
Financial Statements of the Company
256 Financial statements
259 Notes to the Company financial statements
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Quilter | Annual report 2020
Statement of Directors’ responsibilities
in respect of the Annual Report and the financial statements
Responsibility statement of the Directors in respect
of the Annual Report and Accounts
(cid:58)e confirm that to the best of our knowledge(cid:29)
– the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole(cid:30) and
– the strategic report includes a fair review of the development and
performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
(cid:58)e consider the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance,
business model and strategy.
Signed on behalf of the Board
Paul Feeney
Chief Executive Officer
10 March 2021
Mark Satchel
Chief Financial Officer
The Directors are responsible for preparing the Annual Report and the
Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that law
the Directors have prepared the Group and parent Company financial
statements in accordance with international financial reporting
standards in conformity with the requirements of the Companies Act
200(cid:25). Additionally, the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules require the directors to prepare the
Group financial statements in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union.
Under company law, Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and parent Company and of the profit or
loss of the Group for that period. In preparing the financial statements,
the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– state whether, for the Group and Company, international accounting
standards in conformity with the requirements of the Companies Act
200(cid:25) and, for the group, international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union(cid:30)
– make (cid:77)udgements and estimates that are reasonable and prudent(cid:30)
and
– prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and parent Company
will continue in business.
The Directors are also responsible for safeguarding the assets of the
Group and parent Company and hence for taking reasonable steps for
the prevention and detection of fraud and irregularities.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the parent
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and parent Company and enable
them to ensure that its financial statements and the Directors’
Remuneration Report comply with the Companies Act 200(cid:25).
The Directors are responsible for the maintenance and integrity of the
parent Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other (cid:77)urisdictions.
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Quilter | Annual report 2020
157
Independent auditors’ report to the members of Quilter plc
Report on the audit of the financial statements
Opinion
In our opinion, Quilter plc’s Group financial statements and parent
Company financial statements (the (cid:522)financial statements(cid:523))(cid:29)
– give a true and fair view of the state of the Group’s and of the parent
Company’s affairs as at 31 December 2020 and of the Group’s profit
and the Group’s and parent Company’s cash flows for the year
then ended;
– have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006; and
– have been prepared in accordance with the requirements of the
Companies Act 200(cid:25).
(cid:58)e have audited the financial statements, included within the Annual
Report, which comprise(cid:29) the Consolidated statement of financial position
and Company statement of financial position as at 31 December 2020(cid:30)
the Consolidated income statement, Consolidated statement of
comprehensive income, Consolidated statement of changes in equity,
Consolidated statement of cash flows, Company statement of cash flows
and Company statement of changes in equity for the year then ended;
and the notes to the financial statements, which include a description
of the significant accounting policies.
Our opinion is consistent with our reporting to the (cid:37)oard Audit
Committee.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in note 1 to the Group financial statements, the Group, in
addition to applying international accounting standards in conformity
with the requirements of the Companies Act 200(cid:25), has also applied
international financial reporting standards adopted pursuant to
Regulation (EC) No 1(cid:25)0(cid:25)(cid:18)2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly
prepared in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
Basis for opinion
(cid:58)e conducted our audit in accordance with International Standards on
Auditing (UK) ((cid:522)ISAs (UK)(cid:523)) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the
audit of the financial statements section of our report. (cid:58)e believe that
the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
(cid:58)e remained independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit
services prohibited by the FRC’s Ethical Standard were not provided
to the Group.
Other than those disclosed in note 10 to the financial statements,
we have provided no non-audit services to the Group in the period
under audit.
Our audit approach
Context
(cid:58)e were appointed as auditors by the Directors on 19 May 2020. In
planning for our first year audit of Quilter plc ((cid:522)the Group(cid:523)), we met with
the Board Audit Committee and members of management across the
business, to discuss and understand significant changes during the year,
and to understand their perspectives on associated business risks. (cid:58)e
used this insight, in addition to our assessment of the previous auditor’s
approach, when forming our own views regarding the business, as part
of developing our audit plan and when scoping and performing our audit
procedures. Due to the volatility of global equity markets during the
period under audit, we consider that the valuation of level 3 financial
assets has become inherently more sub(cid:77)ective and therefore this has
been included as a key audit matter for the current year. Over the year
further progress has been made in relation to the skilled person review
for the Lighthouse pension transfer advice provision resulting in a
revision to the provision recognised. As the review remains ongoing
there is a high degree of estimation involved in calculating this provision
and as such we consider this to also be an additional key audit matter this
year. The audit for the year ended 31 December 2020 has been carried
out fully remotely as a result of the CO(cid:57)ID-19 pandemic(cid:30) we have utilised
virtual technologies and collaborative workflow tools to obtain sufficient,
appropriate audit documentation whilst working in this environment.
Overview
Audit scope
– The Group, during the year to 31 December 2020, was structured
along two operating segments in addition to the head office activities,
each of which contain several reporting components. (cid:58)e conducted
audit testing over eleven components in total, which we selected
based on their financial significance to the consolidated results.
– Six components were sub(cid:77)ect to an audit of their complete financial
information.
– Specific audit procedures were also performed on certain balances
and transactions in respect of a further five components.
– Taken together, the procedures we performed over the six
components provided us with coverage of over 4(cid:25)(cid:8) of ad(cid:77)usted profit
before tax on an absolute basis, 82(cid:8) of total revenue and 81(cid:8) of the
total assets.
Key audit matters
– Goodwill impairment assessment (Group)
– Valuation of level 3 assets (Group)
– Lighthouse pension transfer advice provision (Group)
– Impairment assessment of investments in subsidiaries (parent)
– Impact of COVID-19 (Group and parent)
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Quilter | Annual report 2020
Materiality
– Overall Group materiality(cid:29) (cid:101)7,918,000 based on (cid:24)(cid:8) of Ad(cid:77)usted profit
before tax from continuing operations.
– Overall parent Company materiality(cid:29) (cid:101)31,000,000 based on 1(cid:8) of total
assets.
– Challenging assumptions made by management in accounting
estimates and (cid:77)udgements, in particular in relation to the impairment
assessments of goodwill and investments in subsidiaries, valuation of
the Lighthouse pension transfer advice provision, and the valuation of
level 3 assets as described in the related key audit matters below.
– Performance materiality(cid:29) (cid:101)(cid:24),938,(cid:24)00 (Group) and (cid:101)23,2(cid:24)0,000 (parent
– Identifying and testing (cid:77)ournal entries, in particular any (cid:77)ournal entries
posted with unusual account combinations, such as a credit to
revenue and a debit to the statement of financial position (other than
to expected accounts), which may be indicative of the overstatement
or manipulation of revenue.
– Designing audit procedures to incorporate unpredictability around
the nature, timing or extent of our testing.
– Detailed testing over the classification of costs allocated to business
transformation costs, which are considered as one-off and added
back to calculate the ad(cid:77)usted profit measure, in order to identify any
inappropriate classification which could be indicative of a material
manipulation of the ad(cid:77)usted profit measure.
There are inherent limitations in the audit procedures described above.
(cid:58)e are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and
transactions reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations,
or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional
(cid:77)udgement, were of most significance in the audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed
the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws
and regulations. (cid:58)e design procedures in line with our responsibilities,
outlined in the Auditors’ responsibilities for the audit of the financial
statements section, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are
capable of detecting irregularities, including fraud, is detailed below.
(cid:37)ased on our understanding of the Group and industry, we identified
that the principal risks of non-compliance with laws and regulations
related to breaches of UK and European regulatory principles, such as
those governed by the Prudential Regulation Authority (PRA) and the
Financial Conduct Authority (FCA), and unsuitable or prohibited business
practices, and we considered the extent to which non-compliance might
have a material effect on the financial statements. (cid:58)e also considered
those laws and regulations that have a direct impact on the preparation
of the financial statements such as the Companies Act 200(cid:25). (cid:58)e
evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting
inappropriate (cid:77)ournal entries to either inflate revenue or reduce
expenditure of the Group and the Company, and management bias in
accounting estimates and (cid:77)udgemental areas of the financial statements,
such as provisions. The Group engagement team shared this risk
assessment with the component auditors so that they could include
appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the Group engagement team and/or
component auditors included:
– Discussions with the (cid:37)oard, management, internal audit, management
involved in the risk and compliance functions and the Group and
Company’s legal function, including consideration of known or
suspected instances of non-compliance with laws and regulation
and fraud.
– Reviewing correspondence between the Group and the PRA and FCA
in relation to compliance with laws and regulations.
– Assessment of matters reported on the Group’s whistleblowing
register including the quality and results of management’s
investigation of such matters.
– Reviewing (cid:37)oard minutes as well as relevant meeting minutes,
including those of the (cid:37)oard Audit Committee, (cid:37)oard Remuneration
Committee, the (cid:37)oard Technology and Operations Committee and
the (cid:37)oard Risk Committee.
– Reviewing data regarding policyholder complaints, the Group’s and
Company’s register of litigation and claims, internal audit reports,
compliance reports in so far as they related to non-compliance with
laws and regulations and fraud.
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Quilter | Annual report 2020
159
Independent auditors’ report to the members of Quilter plc
Report on the audit of the financial statements continued
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment (Group)
Refer to page 110 of the (cid:37)oard Audit Committee Report and note 14 to the financial
statements.
The goodwill balance of (cid:101)3(cid:24)(cid:25)m (2019(cid:29) (cid:101)3(cid:24)0m) is sub(cid:77)ect to an annual impairment
review. No impairment charge has been recorded by management against the
goodwill balance in the current year.
Management analyse discounted cash flows at the operating segment level to
calculate the value in use for each operating segment. Judgement is used to
determine the appropriate level at which to perform the impairment assessment.
Cash flow forecasts are an area of particular focus given the (cid:77)udgements relating
to future ad(cid:77)usted profit growth and discount rate assumptions.
This has not been determined to be a significant audit risk due to the large amount
of headroom available in the model. However, this has been an area of audit focus
due to the inherent sub(cid:77)ectivity in the assumptions used within the model,
particularly forecasting the impact of CO(cid:57)ID-19 in the future cash flows.
Valuation of level 3 assets (Group)
Refer to notes 19 and 20 of the financial statements.
Level 3 assets have a higher degree of sub(cid:77)ectivity to the valuation process due to
the lack of an active market to base prices on. The level 3 asset balance as at 31
December 2020 is (cid:101)1,822m (2019(cid:29) (cid:101)1,717m) of which (cid:101)1,820m (2019(cid:29) (cid:101)1,717m) is
held within linked policyholder funds where all of the investment risk is borne by
policyholders and the value of the assets is exactly matched by a corresponding
liability to policyholders. The ma(cid:77)ority of the assets held are stale priced assets,
suspended funds and private equity investments.
The value in the financial statements reflects the year end price received from the
relevant external party. In the absence of an active market there is an inherently
higher estimation uncertainty involved in considering the appropriateness of the
valuation, particularly where these funds invest in higher risk assets such as
property. Due to the increased level of market volatility seen in the current financial
year as a result of CO(cid:57)ID-19, combined with the materiality of these assets, we have
determined this to be a significant audit risk.
(cid:58)e checked that the cash flow forecasts used by management in the assessment
of goodwill impairment were consistent with the approved three year business
plan. (cid:58)e evaluated the historical accuracy of the cash flow forecasts, including a
comparison of the current year actual results with the F(cid:60)20 figures included in the
prior year forecast. For certain key assumptions which underpinned the forecast
performance, such as growth of assets under management and the expected
impact of CO(cid:57)ID-19 in the business plan period, we corroborated these against
external market data where available. (cid:58)e challenged management on the inclusion
of certain cash flows where these looked to include future enhancements (such as
revenues from new products) or future restructuring activity. (cid:58)e found that the
forecasts have been completed on a basis consistent with prior years and were
an appropriate basis upon which management could base their conclusions.
We considered the appropriateness of performing the impairment assessment
at the operating segment level. This included consideration of whether any
impairment indicators existed at a more disaggregated level, of which none
were identified.
We engaged our internal valuation specialists to independently calculate a
reasonable range for both the discount rate and long term growth rate
assumptions. (cid:58)e found both of these assumptions to be more conservative than
our expected range, which is consistent with management’s conclusion that no
impairment is required.
We obtained and understood management’s sensitivity calculations over the
impairment assessment, as well as performing further sensitivity scenarios
ourselves. (cid:58)e determined that the impairment assessment was not highly
sensitive to any of the key assumptions, being the discount rate and the forecast
growth (including the long term growth rate) of cash flows. For each operating
segment we calculated the degree to which these assumptions would need to
move before an impairment was triggered. (cid:58)e discussed the likelihood of such
a movement with management and agreed with their conclusion that there was
no reasonable possible change that would give rise to an impairment.
The ma(cid:77)ority of level 3 assets are held within linked policyholder funds, as such
they have been tested using a specific overall materiality level of (cid:101)(cid:24)34m which we
have determined based on the guidance set out in Practice Note 20 issued by the
Financial Reporting Council ((cid:522)FRC(cid:523)) for audits of insurers. Our work to address the
valuation of the level 3 assets included the following procedures.
For those level 3 investments where publically available prices can be obtained we
have utilised our internal specialist pricing team to reprice these investments as at
31 December 2020 and investigated any differences identified.
(cid:58)e have confirmed the valuation of a sample of level 3 assets, based on targeting
the largest fund values, directly with the relevant external party (such as the fund
administrator or private Company). (cid:58)here confirmations were not returned we
performed alternative procedures, these procedures included obtaining the
custodian statements which were sent from the private companies to the Group
and confirming the value per these custodian statements to the value held by the
Group.
For a sample of level 3 assets, obtained the most recent audited financial
statements for the fund ensuring that there have been no adverse opinions and
agreeing the price held as at the audited financial statement date to the price
available in the fund audited financial statements. Movements between the prices
as at the audited financial statements date and the year end date of 31 December
2020 were reviewed against market movements to ensure that these were in line
with expectation.
Obtained the ISAE 3402 controls reports for each fund administrator
(where possible) and reviewed any exceptions which may impact our audit
of the level 3 assets.
(cid:37)ased on the audit procedures performed and evidence obtained, we concluded
that the valuation of level 3 assets was appropriate.
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Key audit matter
How our audit addressed the key audit matter
Lighthouse pension transfer advice provision (Group)
Refer to page 110 of the (cid:37)oard Audit Committee Report and note 28 to the financial
statements.
We have assessed and challenged the Group’s methodology and the assumptions
applied in arriving at the provisions. In demonstrating professional scepticism we
independently estimated the Lighthouse British Steel redress provision and
compared our calculation to management’s.
The Group holds a number of provisions, including relating to customer redress.
The most significant redress provision relates to unsuitable advice provided to
(cid:37)ritish Steel Pension Scheme members who transferred from that scheme to
a Defined Contribution scheme.
As at 31 December 2020, the total provision in respect of the (cid:37)ritish Steel members
was c.(cid:101)28m. This represented c.(cid:101)2(cid:24)m for redress and c.(cid:101)3m for professional fees.
The estimation of provision in relation to unsuitable advice for Defined (cid:37)enefit
to Defined Contribution pension scheme transfer cases requires detailed
information on individual members as well as significant (cid:77)udgement and
sub(cid:77)ectivity to be applied in relation to key assumptions, especially where data is
not fully available and actual patterns of behaviour are unknown.
Material assumptions include(cid:29) Actuarial valuations of defined benefit obligations
under prospective and actual loss scenarios; estimation of the current value of
assets held by members(cid:30) estimating the likelihood of complaints to arise as well as
the proportion of complaints that are likely to be upheld(cid:30) and estimating the
proportion of customers within the population who are eligible for drawing down
on their pension who may have drawn down on or prior to 31 December 2020.
(cid:58)e estimated potential defined benefit valuations as at 31 December 2020 with
the support of our internal actuarial experts. They used data from (cid:37)ritish Steel
Pension Scheme Transfer Packs to provide indicative valuations of members
interests. These outputs were compared with management’s expert’s calculations
to understand any material differences.
Furthermore we obtained evidence from management’s expert in relation to
actual asset performance and used this to rebase transfer values of scheme
members assets.
(cid:58)e also obtained data in relation to the split between prospective and actual loss
cases observed from management’s experts and used this as an indication of how
members may have behaved in the wider population. Our redress calculation
output was therefore weighted on a similar basis to experience to date.
We applied reasonable sensitivities (estimated return on assets and proportion
of customers that may have drawn down) to key assumptions within the provision
calculation to understand their impact.
We read management’s disclosure in relation to this provision in the context of the
requirements of IAS 37 and considered the suitability of the sensitivities disclosed.
Although not material to the calculation, further ad(cid:77)ustments were made in
arriving at individual redress estimates for advisor charges, personal tax and
interest.
In relation to the completeness of such defined benefit to defined contribution
redress provisions, we(cid:29) Considered management’s accounting policy and
recognition criteria in the context of the requirements of IAS 37(cid:30) reviewed the
listing of complaints as at year end for any evidence of material omissions of similar
cases(cid:30) read the output of internal reviews over suitability performed by
management(cid:30) read any relevant correspondence with regulators in relation to
unsuitable advice for D(cid:37) to DC transfers(cid:30) checked the population of cases
identified by management’s expert where a redress calculation had been
performed against our own listing(cid:30) and where cases of potentially unsuitable
advice for D(cid:37) to DC schemes had been internally identified, discussed with
management and considered whether a provision should be recognised in the
context of IAS 37 and our materiality.
The calculation of redress is a complex and market sensitive calculation. As noted
by management the appointed Skilled Person (and management’s expert for the
purposes of our audit) will be calculating the actual redress payable to individual
members. Therefore the final redress payable may be materially different to the
amount recognised as at 31 December 2020 as a result of market movements
and changes in actual behaviour of drawdown as more data emerges.
(cid:58)e are satisfied that the methodology applied by management in the context
of IAS 37 in estimating redress provisions did not result in a material difference
to our independent estimate.
Quilter | Annual report 2020
161
Independent auditors’ report to the members of Quilter plc
Report on the audit of the financial statements continued
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of investments in subsidiaries (parent)
Refer to note 4 of the parent Company financial statements.
The Company holds investments in subsidiaries of (cid:101)2,2(cid:24)4m (2019(cid:29) (cid:101)2,23(cid:24)m).
(cid:58)hilst these eliminate on consolidation in the Group financial statements,
they are recorded in the Company financial statements.
We have determined the impairment assessment over the investments in
subsidiaries to be a significant risk in light of the Group market capitalisation being
lower than the Company equity value at the balance sheet date. Management have
concluded that no impairment was required.
Impact of COVID-19 (Group and parent)
Refer to the disclosures in the Strategic report and notes 4 and 37 of the financial
statements.
The emergence of CO(cid:57)ID-19 in 2020 resulted in a significant change to the
business environment and impacted the value of assets under management/
administration during the year with adverse impact being seen on equity market
levels whereby there has been significant volatility in the financial markets.
Management has considered the impact of CO(cid:57)ID-19 on the financial statements,
including specifically looking at the impact on going concern for the Group. The
Directors have concluded that the Group and its active subsidiaries are, and will
continue to be for the foreseeable future, a going concern. In reaching this
conclusion the Directors have performed impairment assessments of goodwill
and the Company’s investment in subsidiaries, and conducted stress testing
against emerging risks, concluding that the Group can withstand a severe but
plausible downside scenario for at least the next 12 months.
The impairment assessment leveraged management’s calculations for the Group
goodwill impairment assessment referred to above. The key (cid:77)udgement used by
management in their impairment assessment is the underlying assumption that
the Company’s investments in Old Mutual (cid:58)ealth Holdings and Quilter Investors
represents the lowest level at which largely independent cash inflows are
generated. This assumption allows headroom to be transferred between
subsidiary entities.
We challenged management over this assumption on the basis that the business
plan is prepared at a more disaggregated level and requested management to
provide us with further analyses to demonstrate the significant degree of
integration between the businesses included in their defined cash generating unit.
(cid:58)e have corroborated the explanations we received through discussion with the
relevant component audit teams and review of relevant correspondence with the
regulator identifying some of the interdependencies.
Overall we are satisfied that there is enough evidence to support the basis of
management’s impairment assessment and therefore agree with the conclusion
that no impairment is required.
In assessing management’s consideration of the impact of CO(cid:57)ID-19 on the Quilter
plc Group and its subsidiaries we have performed the following procedures.
Obtained management’s updated going concern assessment and challenged the
rationale for assumptions on growth of assets under management(cid:18)administration
as well as asset returns. (cid:58)e used our knowledge of Quilter’s business
performance, and corroborated to external market evidence where available.
Our assessment included reviewing management’s stress testing as described
in the Viability Statement on pages 78 and 79 and ensuring that appropriate
consideration had been given to the potential impacts of CO(cid:57)ID-19.
Inquired and understood the actions taken by management to mitigate the
impacts of CO(cid:57)ID-19, including review of (cid:37)oard Risk Committee and (cid:37)oard Audit
Committee minutes.
Obtained management’s estimated Solvency capital position and evaluated these
for consistency of available information and against managements own target
capital ratios. (cid:58)e found that the Group maintained internal targets for its Group
Solvency Capital Requirement (SCR) ratio and remained compliant with all external
regulatory capital requirements as at the date of reporting.
Assessed the impact of remote working on the design and operating effectiveness
of key controls impacting the preparation of financial information, including
obtaining and reading relevant internal audit reports.
Assessed the disclosures performed by management in the financial statements
and checked the consistency of the disclosures with our knowledge of the Group
and markets based on our audit and other procedures.
(cid:37)ased on the audit procedures performed and evidence obtained, nothing has
come to our attention that suggests the use of the going concern basis of
preparation is inappropriate.
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How we tailored the audit scope
(cid:58)e tailored the scope of our audit to ensure that we performed enough
work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group and the parent Company,
the accounting processes and controls, and the industry in which they
operate.
Quilter plc has two operating segments. (cid:58)ithin these segments there
are around 70 reporting units, of which six are considered financially
significant due to their contribution to Group ad(cid:77)usted profit before tax,
and were sub(cid:77)ect to an audit of their complete financial information. In
addition, a further five reporting entities were in scope for specific audit
procedures, as these components contributed a significant proportion
of certain financial statement line items. Our scoping ensured that all six
of the Group’s business units had reporting components that were
sub(cid:77)ect to audit procedures over their financial information. Together
with the procedures performed at the Group level, including auditing the
consolidation and financial statement disclosures, taxation, and goodwill
impairment assessment, gave us the evidence we needed for our
opinion on the financial statements as a whole.
A significant proportion of the Group’s trading is based in the UK
resulting in the ma(cid:77)ority of the audit procedures being performed locally
by the UK audit team. Of the eleven components we have performed
audit procedures over, one of these components was based outside
the UK, in the Isle of Man, and therefore we receive inter-firm reporting
over the complete financial information of this component from
PwC Isle of Man.
(cid:58)e applied materiality of (cid:101)(cid:24)34 million to the classification of unit-linked
assets and liabilities in the consolidated statement of financial position,
the related line items in the consolidated income statement and related
notes, determined with reference to a benchmark of total assets, of
which it represents 1(cid:8). This materiality was applied solely for our work
on matters for which a misstatement is likely only to lead to a
reclassification between line items, in accordance with FRC Practice Note
20 The audit of Insurers in the United Kingdom.
The Group contains several regulated trading entities and is a regulated
insurance Group itself. Some activities are outsourced to third party
providers across the Group, such as investment administration. In
respect of the outsourced service providers we were able to gain
appropriate audit evidence through a combination of evaluating the
providers’ published assurance reports on internal control and
performing substantive procedures.
Materiality
The scope of our audit was influenced by our application of materiality.
(cid:58)e set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
(cid:37)ased on our professional (cid:77)udgement, we determined materiality for the
financial statements as a whole as follows(cid:29)
Key audit matter
Overall materiality
Financial statements – Group
(cid:101)7,918,000.
How we determined it
(cid:24)(cid:8) of Ad(cid:77)usted profit before tax from continuing operations
Rationale for
benchmark applied
(cid:37)ased on the benchmarks used in the annual report, ad(cid:77)usted profit before tax is
the primary measure used by shareholders in assessing the performance of the
Group, and is a generally accepted auditing benchmark where the exclusions in
arriving at the measure are non-recurring in nature. (cid:58)e have reviewed the items
excluded in calculating ad(cid:77)usted profit before tax and have confirmed that all
significant reconciling items are either one-off in nature or introduce volatility to
the income statement (namely policyholder tax ad(cid:77)ustments). However, a small
number appear to be recurring in nature (namely finance costs) and therefore we
have not excluded these when arriving at our ad(cid:77)usted profit benchmark for the
purposes of calculating materiality.
Financial statements – parent Company
(cid:101)31,000,000.
1(cid:8) of total assets
A benchmark of total assets has been
used as the Company’s primary
purpose is to act as a holding Company
with investments in the Group’s
subsidiaries, not to generate operating
profits and therefore a profit based
measure was not considered
appropriate.
For each component in the scope of our Group audit, we allocated a
materiality that is less than our overall Group materiality. The range of
materiality allocated across components was (cid:101)1,842,000 to (cid:101)7,000,000.
Certain components were audited to a local statutory audit materiality
that was also less than our overall Group materiality.
(cid:58)e use performance materiality to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use
performance materiality in determining the scope of our audit and
the nature and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample si(cid:93)es.
Our performance materiality was 7(cid:24)(cid:8) of overall materiality, amounting
to (cid:101)(cid:24),938,(cid:24)00 for the Group financial statements and (cid:101)23,2(cid:24)0,000 for
the parent Company financial statements.
In determining the performance materiality, we considered a number of
factors – the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls – and concluded that an amount at
the upper end of our normal range was appropriate.
(cid:58)e agreed with the (cid:37)oard Audit Committee that we would report to
them misstatements identified during our audit above (cid:101)(cid:24)00,000 (Group
audit) and (cid:101)1,(cid:24)(cid:24)0,000 (parent Company audit) as well as misstatements
below those amounts that, in our view, warranted reporting for
qualitative reasons.
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163
Independent auditors’ report to the members of Quilter plc
Report on the audit of the financial statements continued
Conclusions relating to going concern
Our evaluation of the Directors’ assessment of the Group’s and the
parent Company’s ability to continue to adopt the going concern basis
of accounting included:
– Obtained the Directors’ updated going concern assessment and
challenged the rationale for assumptions on growth of assets under
management(cid:18)administration and asset returns using our knowledge
of Quilter’s business performance, and corroborating to external
market evidence where available. Our assessment included reviewing
management’s stress testing and scenario analyses.
– Consideration of the impact of COVID-19 on the Directors’ assessment
to continue to adopt the going concern basis of accounting as set out
in the key audit matters of this report.
– Obtained management’s estimated Solvency capital position and
evaluated these for consistency of available information and against
management’s own target capital ratios. (cid:58)e found that the Group
maintained internal targets for its Group Solvency Capital
Requirement (SCR) ratio, and is forecast to remain compliant with all
external regulatory capital requirements for the period covered by the
going concern assessment; and
– Confirmed compliance with the debt covenants of the Groups’
borrowings, and the forecast continued compliance for the duration
of the period covered by the going concern assessment.
(cid:37)ased on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s and the parent
Company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised
for issue.
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted,
this conclusion is not a guarantee as to the Group’s and the parent
Company’s ability to continue as a going concern.
In relation to the parent Company’s reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the financial
statements about whether the Directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect
to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual
Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our
opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the
extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. (cid:58)e have nothing to report based on these
responsibilities.
(cid:58)ith respect to the Strategic report and Directors’ Report, we also
considered whether the disclosures required by the UK Companies
Act 200(cid:25) have been included.
(cid:37)ased on our work undertaken in the course of the audit, the Companies
Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit,
the information given in the Strategic report and Directors’ Report for
the year ended 31 December 2020 is consistent with the financial
statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the Group and parent
Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report
and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Annual Report on Remuneration to be
audited has been properly prepared in accordance with the Companies
Act 200(cid:25).
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Quilter | Annual report 2020
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in
relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the parent Company’s
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to
the corporate governance statement as other information are described
in the Reporting on other information section of this report.
(cid:37)ased on the work undertaken as part of our audit, we have concluded
that each of the following elements of the corporate governance
statement, included within the Governance Report is materially
consistent with the financial statements and our knowledge obtained
during the audit, and we have nothing material to add or draw attention
to in relation to:
– The Directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks(cid:30)
– The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated(cid:30)
– The Directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material
uncertainties to the Group’s and parent Company’s ability to continue
to do so over a period of at least twelve months from the date of
approval of the financial statements(cid:30)
– The Directors’ explanation as to their assessment of the Group’s and
parent Company’s prospects, the period this assessment covers and
why the period is appropriate(cid:30) and
– The Directors’ statement as to whether they have a reasonable
expectation that the parent Company will be able to continue in
operation and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our review of the Directors’ statement regarding the longer-term viability
of the Group was substantially less in scope than an audit and only
consisted of making inquiries and considering the Directors’ process
supporting their statement(cid:30) checking that the statement is in alignment
with the relevant provisions of the UK Corporate Governance Code(cid:30) and
considering whether the statement is consistent with the financial
statements and our knowledge and understanding of the Group and
parent Company and their environment obtained in the course of
the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit(cid:29)
– The Directors’ statement that they consider the Annual Report, taken
as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and
parent Company’s position, performance, business model and
strategy;
– The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems(cid:30) and
– The section of the Annual Report describing the work of the (cid:37)oard
Audit Committee.
(cid:58)e have nothing to report in respect of our responsibility to report when
the Directors’ statement relating to the parent Company’s compliance
with the Code does not properly disclose a departure from a relevant
provision of the Code specified under the Listing Rules for review by the
auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in
respect of the Annual Report and the financial statements, the Directors
are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that
they give a true and fair view. The Directors are also responsible for such
internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group’s and the parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
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Quilter | Annual report 2020
165
Independent auditors’ report to the members of Quilter plc
Report on the audit of the financial statements continued
Auditors’ responsibilities for the audit of the financial
statements
Our ob(cid:77)ectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these
financial statements.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for
testing, rather than testing complete populations. (cid:58)e will often seek
to target particular items for testing based on their si(cid:93)e or risk
characteristics. In other cases, we will use audit sampling to enable
us to draw a conclusion about the population from which the sample
is selected.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC’s website at(cid:29)
www.frc.org.uk(cid:18)auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for
the parent Company’s members as a body in accordance with Chapter 3
of Part 1(cid:25) of the Companies Act 200(cid:25) and for no other purpose. (cid:58)e do
not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior
consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 200(cid:25) we are required to report to you if,
in our opinion:
– we have not obtained all the information and explanations we require
for our audit; or
– adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
– certain disclosures of Directors’ remuneration specified by law are not
made; or
– the parent Company financial statements and the part of the Annual
Report on Remuneration to be audited are not in agreement with the
accounting records and returns.
(cid:58)e have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the (cid:37)oard Audit Committee, we were
appointed by the Directors on 14 May 2020 to audit the financial
statements for the year ended 31 December 2020 and subsequent
financial periods. This is therefore our first year of uninterrupted
engagement.
Mark Pugh
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
10 March 2021
166
Quilter | Annual report 2020
Consolidated income statement
For the year ended 31 December 2020
Income
Fee income and other income from service activities
Investment return
Other income
Total income
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs
Total expenses
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Tax expense attributable to policyholder returns
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
Income tax credit/(expense)
Less: tax expense attributable to policyholder returns
Tax credit attributable to equity holders
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
(Loss)(cid:18)profit after tax from discontinued operations
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)
Attributable to:
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:83)(cid:79)(cid:70)
Notes
9(a)
9(b)
27
10(a)
10(b)
10(e)
11(a)
11(a)
6(c)
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:83)(cid:79)(cid:70)
Basic
From continuing operations (pence)
From discontinued operations (pence)
12(b)
6(c)
Basic earnings per Ordinary Share (pence)
Diluted
From continuing operations (pence)
From discontinued operations (pence)
Diluted earnings per Ordinary Share (pence)
1See note 4(b) for details of changes to comparative amounts.
12(b)
12(b)
6(c)
12(b)
Year ended
31 December
2020
£m
Year ended
31 December
2019 restated¹
£m
795
3,89(cid:25)
20
4,711
(1)
(3,328)
(147)
(440)
(692)
(17)
837
(cid:25),(cid:24)(cid:25)(cid:25)
16
7,419
(1)
((cid:24),810)
(167)
(634)
(745)
(17)
(4,625)
(7,374)
86
(36)
50
3
36
39
89
(1)
88
45
(98)
(53)
(66)
98
32
(21)
167
146
88
146
(cid:24).1
(0.1)
5.0
(cid:24).0
(0.1)
4.9
(1.1)
9.1
8.0
(1.1)
8.9
7.8
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The notes on pages 172 to 2(cid:24)(cid:24) form an integral part of these consolidated financial statements.
Quilter | Annual report 2020
167
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Profit after tax
Exchange losses on translation of foreign operations
Items that may be reclassified subsequently to income statement
Measurement movements on defined benefit plans
Tax on amounts related to defined benefit pension plans
Items that will not be reclassified subsequently to income statement
Total other comprehensive expense, net of tax
Total comprehensive income
Attributable to:
Continuing operations
Discontinued operations
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:83)(cid:79)(cid:70)
Notes
33
6(d)
Year ended
31 December
2020
£m
88
–
Year ended
31 December
2019
£m
146
(1)
–
–
–
–
–
88
89
(1)
88
(1)
(7)
1
(6)
(7)
139
(28)
167
139
The notes on pages 172 to 2(cid:24)(cid:24) form an integral part of these consolidated financial statements.
168
Quilter | Annual report 2020
Consolidated statement of changes in equity
For the year ended 31 December 2020
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
e
p
o
r
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F
i
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a
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c
i
a
l
s
t
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m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
31 December 2020
Balance at 1 January 2020
Profit for the year
Total comprehensive income
Dividends
Shares repurchased in
the(cid:98)buyback(cid:98)programme1
Movement in own shares2
Equity share–based
payment(cid:98)transactions
Dividend equivalents
paid(cid:98)on(cid:98)vested(cid:98)shares
Total transactions with the
(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:98)(cid:82)(cid:73)(cid:98)(cid:87)(cid:75)(cid:72)(cid:98)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)
Balance at 31 December 2020
Notes
13
25
26(e)
Share
capital
£m
133
–
–
–
(8)
–
–
–
(8)
125
Share
premium
£m
58
–
–
–
Capital
redemption
reserve
£m
–
–
–
–
Merger
reserve
£m
149
–
–
–
Share-based
payments
reserve
£m
45
–
–
–
Other
reserves
£m
1
–
–
–
Retained
earnings
£m
1,685
88
88
(81)
–
–
–
–
–
58
8
–
–
–
8
8
–
–
–
–
–
149
–
–
(3)
–
(3)
42
–
–
–
–
–
1
(179)
(44)
28
(2)
Total
share-
holders’
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
£m
2,071
88
88
(81)
(179)
(44)
25
(2)
(278)
1,495
(281)
1,878
Retained
earnings
£m
1,191
(5)
1,186
146
(7)
139
(92)
439
(2)
Total
share-
holders’
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
£m
2,005
(5)
2,000
146
(7)
139
(92)
–
(2)
15
26
360
(68)
31 December 2019
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:519)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:87)(cid:3)(cid:69)(cid:72)(cid:74)(cid:76)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)
Ad(cid:77)ustment on initial application of IFRS 1(cid:25) (net of tax)
Notes
Share
capital
£m
133
–
Share
premium
£m
58
–
Merger
reserve
£m
588
–
Share-based
payments
reserve
£m
34
–
Other
reserves
£m
1
–
Balance at 1 January 2019
Profit for the year
Other comprehensive expense
Total comprehensive income
Dividends
Release of merger reserve
Movement in own shares
Equity share-based
payment transactions
Total transactions with the
owners of the Company
133
–
–
–
–
–
–
–
–
58
–
–
–
–
–
–
–
–
588
–
–
–
–
(439)
–
–
(439)
34
–
–
–
–
–
–
11
11
13
26(e)
1
–
–
–
–
–
–
–
–
2,071
Balance at 31 December 2019
1On 11 March 2020 the Company announced a share buyback programme to purchase shares up to a maximum value of (cid:101)37(cid:24) million, in order to reduce the share capital of the
Company. The programme commenced on 11 March 2020 and will continue into 2021. During the year ended 31 December 2020, the Company acquired 118.3 million shares for
a total consideration of (cid:101)1(cid:24)3 million and incurred additional costs of (cid:101)4 million. The shares, which have a nominal value of (cid:101)8 million, have subsequently been cancelled, giving
rise to a capital redemption reserve of the same value as required by the Companies Act 200(cid:25). In December 2020, the committed remaining share buyback for which
irrevocable instruction had been provided by the (cid:37)oard, of (cid:101)22 million, was accrued as a liability against retained earnings.
2Movement in own shares includes 1(cid:25).3 million shares repurchased for total consideration of (cid:101)21 million in respect of the previously announced Odd-lot Offer.
1,685
133
149
45
58
1
The notes on pages 172 to 2(cid:24)(cid:24) form an integral part of these consolidated financial statements.
Quilter | Annual report 2020
169
Consolidated statement of financial position
At 31 December 2020
Assets
Goodwill and intangible assets
Property, plant and equipment
Investments in associated undertakings
Deferred acquisition costs2
Contract costs
Loans and advances
Financial investments
Reinsurers’ share of insurance policyholder liabilities2
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Total assets
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Ordinary Share capital
Ordinary Share premium reserve
Capital redemption reserve
Merger reserve
Share-based payments reserve
Other reserves
Retained earnings
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Liabilities
Insurance contract liabilities2
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable
(cid:37)orrowings and lease liabilities
Trade, other payables and other liabilities
Contract liabilities
Derivative liabilities
Total liabilities
At
31 December
2020
£m
At
31 December
2019
restated¹
£m
556
142
1
–
413
219
(cid:25)3,274
–
78
24
701
43
1,921
592
143
1
–
455
217
(cid:24)7,207
–
43
13
605
22
2,2(cid:24)3
67,372
61,551
125
58
8
149
42
1
1,49(cid:24)
1,878
–
(cid:24)7,407
(cid:25),(cid:24)13
77
106
1
319
672
379
20
133
58
–
149
45
1
1,(cid:25)8(cid:24)
2,071
–
(cid:24)2,4(cid:24)(cid:24)
(cid:24),318
64
88
6
335
801
403
10
65,494
59,480
Notes
14
15
23
16
17
29(a)
29(c)
22
18
24
25(a)
25(a)
25(a)
25(b)
26(e)
27
28
29(b)
29(c)
30
31
32
18
At
1 January
2019
restated¹
£m
550
17
2
11
551
222
(cid:24)8,0(cid:24)4
2,1(cid:25)2
38
47
718
34
2,30(cid:24)
64,711
133
58
–
588
34
1
1,191
2,005
602
(cid:24)(cid:25),4(cid:24)0
3,833
94
59
5
197
979
456
31
62,706
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
1See note 4(b) for details of changes to comparative amounts.
2The consolidated statement of financial position at 1 January 2019 includes balances for Deferred acquisition costs, Reinsurers’ share of insurance policyholder liabilities
and Insurance contract liabilities relating to the Quilter Life Assurance ((cid:522)QLA(cid:523)) business that was sold on 31 December 2019.
67,372
61,551
64,711
The consolidated financial statements on pages 1(cid:25)7 to 2(cid:24)(cid:24) were approved by the (cid:37)oard of Directors and authorised for issue on 10 March 2021 and
signed on its behalf:
Paul Feeney
Chief Executive Officer
Mark Satchel
Chief Financial Officer
The notes on pages 172 to 2(cid:24)(cid:24) form an integral part of these consolidated financial statements.
170
Quilter | Annual report 2020
Consolidated statement of cash flows
For the year ended 31 December 2020
The cash flows presented in this statement cover all the Group’s activities (including cash flows within the Group’s discontinued operations) and
includes flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for cash and
cash equivalents in consolidated funds (as shown in note 24(a)).
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Cash flows from(cid:18)(used in) operating activities
Taxation paid
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:18)(cid:11)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:12)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Net (acquisitions)(cid:18)disposals of financial investments
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of interests in subsidiaries2
Net (payments)/proceeds from the disposal of interests in subsidiaries
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:11)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:12)(cid:18)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Dividends paid to ordinary equity holders of the Company
Finance costs on external borrowings
Payment of interest on lease liabilities
Payment of principal lease liabilities
Repurchase of shares3
Repurchase and cancellation of shares4
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Year ended
31 December
2020
£m
Notes
Year ended
31 December
2019
restated1
£m
24(b)
15
14(a)
6(a)
13
10(e)
30(b)
24(c)
1,473
(28)
1,445
(1,419)
(28)
(4)
(20)
(3)
(1,474)
(81)
(10)
(2)
(14)
(41)
(157)
(305)
(334)
2,2(cid:24)3
2
(2,03(cid:24))
(37)
(2,072)
2,1(cid:24)9
(8)
(5)
(87)
78
2,137
(92)
(10)
(3)
(13)
–
–
(118)
(53)
2,30(cid:24)
1
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)
1See note 4(b) for details of changes to comparative amounts.
2The acquisition of interests in subsidiaries balance includes (cid:101)20 million of contingent consideration payments relating to historical acquisitions (31 December 2019(cid:29) (cid:101)21 million).
3Repurchase of shares includes shares acquired under the Odd-lot Offer as explained in the consolidated statement of changes in equity, together with other shares acquired
for use within the Group’s employee share schemes.
4Repurchase and cancellation of shares are in respect of cash movements associated with the share buyback programme. Further details are included within the consolidated
statement of changes in equity.
2,253
1,921
24(a)
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g
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p
o
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c
e
R
e
p
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F
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c
i
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s
t
a
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m
e
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t
s
O
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h
e
r
i
n
f
o
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a
t
i
o
n
The notes on pages 172 to 2(cid:24)(cid:24) form an integral part of these consolidated financial statements.
Quilter | Annual report 2020
171
Basis of preparation and significant accounting policies
For the year ended 31 December 2020
General information
Quilter plc (the (cid:522)Company(cid:523)), a public limited company incorporated and domiciled in the United Kingdom ((cid:522)UK(cid:523)), together with its subsidiaries
(collectively, the (cid:522)Group(cid:523)) offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and
associates primarily in the UK with a presence in a number of cross-border markets.
The address of the registered office is Senator House, 8(cid:24) Queen (cid:57)ictoria Street, London, EC4(cid:57) 4A(cid:37).
1: Basis of preparation
The consolidated financial statements of Quilter plc for the year ended 31 December 2020 have been prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 200(cid:25) ((cid:522)IFRS(cid:523)) and the applicable legal requirements of the
Companies Act 200(cid:25). In addition to complying with international accounting standards in conformity with the requirements of the Companies Act
200(cid:25), the consolidated financial statements also comply with International Financial Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
These consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments,
and(cid:98)are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.
The separate financial statements of the Company are on pages 2(cid:24)(cid:25) to 2(cid:25)(cid:24). The Company financial statements are prepared in accordance with the
Group’s accounting policies, other than for investments in subsidiaries, which are stated at cost less impairments in accordance with IAS 27 Separate
Financial Statements.
Going concern
The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the business
and the effectiveness of the mitigating strategies which are or could be applied. This included an assessment of capital, liquidity and solvency over a
three-year planning period, which considered the impact of CO(cid:57)ID-19, and concluded that the Group can withstand a severe but plausible downside
scenario for at least the next 12 months after the date of signing the 2020 financial statements. This assessment incorporated a number of stress
tests covering a broad range of scenarios, including economic and market shocks, new business growth scenarios, severe business interruption, and
a progression of the CO(cid:57)ID-19 pandemic, equivalent to 1-200 year events. As a result, the Directors believe that the Group is well placed to manage its
business risks in the context of the current economic outlook and have sufficient financial resources to continue in business for a period of at least
12 months from the date of approval of these consolidated financial statements, and continue to adopt the going concern basis in preparing the
consolidated financial statements.
Basis of consolidation
The Group’s consolidated financial statements incorporate the assets, liabilities and the results of the Company and its subsidiaries. Subsidiaries are
those entities, including investment funds, controlled by the Group. More information on how the Group assesses whether it has control over an
entity is provided in accounting policy (cid:24)(a). Subsidiaries are consolidated from the date the Group obtains control and are excluded from consolidation
from the date the Group loses control.
(cid:58)here necessary, ad(cid:77)ustments are made to financial statements of subsidiaries to bring the accounting policies used in line with Group policies.
All(cid:98)intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated
on(cid:98)consolidation.
Liquidity analysis of the statement of financial position
The Group’s statement of financial position is in order of liquidity as is permitted by IAS 1 Presentation of Financial Statements. For each asset and liability
line item, those amounts expected to be recovered or settled after more than twelve months after the reporting date are disclosed separately in the
notes to the consolidated financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to exercise (cid:77)udgement in applying the Group’s significant accounting policies and make
estimates and assumptions that affect the reported amounts of net assets and liabilities at the date of the financial statements. The (cid:37)oard Audit
Committee reviews these areas of (cid:77)udgement and estimates and the appropriateness of significant accounting policies adopted in the preparation
of these financial statements.
The Group’s critical accounting (cid:77)udgements are detailed below and are those that management makes when applying its significant accounting
policies and that have the most effect on the net profit and net assets recognised in the Group’s financial statements.
172
Quilter | Annual report 2020
1: Basis of preparation continued
Critical accounting estimates and judgements continued
Area
Critical accounting judgements
Related notes
Recognition of insurance
recovery asset in respect
of (cid:47)i(cid:74)hthouse defined
(cid:69)enefit pension ad(cid:89)ice
For Lighthouse D(cid:37) pension transfer advice provided, management have applied (cid:77)udgement in order to determine whether an
asset can be reasonably estimated, and the measurement of such asset, in relation to an insurance recovery under Lighthouse’s
professional indemnity policies ((cid:522)PI Policies(cid:523)). Under the PI Policies, Lighthouse is entitled to be indemnified for a (cid:522)Claim(cid:523) (and
defence costs) in respect of legal liabilities arising in connection with Lighthouse’s D(cid:37) pension transfer advice activities(cid:30) however,
at the current time the insurers have not confirmed coverage for legal liabilities.
28
The Group’s critical accounting estimates are shown below and involve the most complex or sub(cid:77)ective assessments and assumptions, which have a
significant risk of resulting in material ad(cid:77)ustment to the net carrying amounts of assets and liabilities within the next financial year. Management uses
its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial
and accounting guidance to make predictions about future actions and events. Actual results may differ from those estimates.
Area
Critical accounting estimates
Related notes
Provision for cost of
(cid:47)i(cid:74)hthouse defined
(cid:69)enefit pension ad(cid:89)ice
An estimation of the provision required for the (cid:37)ritish Steel D(cid:37) pension transfer redress was determined based upon
calculations performed as part of the skilled person review, which was considered representative of the broader population to
form a reasonable estimate. The estimation per case is based upon FCA guidelines and modelling performed, and factors
including pension transfer value, date of retirement, discount rate and retail price indexation. The calculations were then
extrapolated to the entire population of (cid:37)ritish Steel D(cid:37) cases that were advised on by Lighthouse advisers. The proportion of
cases to be upheld, and therefore which requires redress payments to be made, was estimated based upon the current position
of the review performed by the skilled person of the Lighthouse D(cid:37) pension transfers.
Insurance recovery
asset in respect of
(cid:47)i(cid:74)hthouse defined
(cid:69)enefit pension ad(cid:89)ice
For Lighthouse D(cid:37) pension transfer advice provided, management have determined its best estimate of the insurance recovery
asset under Lighthouse’s professional indemnity policies. Under the PI Policies, Lighthouse is entitled to be indemnified for a
(cid:522)Claim(cid:523) (and defence costs) in respect of legal liabilities arising in connection with Lighthouse’s D(cid:37) pension transfer advice
activities(cid:30) however, at the current time the insurers have not confirmed coverage for legal liabilities.
Measurement of
deferred(cid:98)tax
The estimation of future taxable profits is performed as part of the annual business planning process, and is based on estimated
levels of AuMA, which are sub(cid:77)ect to a large number of factors including global stock market movements, related movements in
foreign exchange rates and net client cash flow, together with estimates of expenses and other charges. The business plan,
ad(cid:77)usted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised.
In general the Group assesses recoverability based on estimated taxable profits over a three-year planning hori(cid:93)on. (cid:58)here
credible longer-term profit forecasts are available, the specific entity may assess recoverability over a longer period, sub(cid:77)ect to a
higher level of sensitivity testing. Following the impact that CO(cid:57)ID-19 has had on global markets and, in particular, on the Group’s
expected future levels of AuMA, management have reassessed the sensitivity on the recoverability of deferred tax assets based
on the latest forecast cash flows.
28
28
29
Other principal estimates
The Group’s assessment of goodwill and intangible assets for impairment uses the latest cash flow forecasts from the Group’s three-year business
plan. These forecasts include estimates relating to equity market levels and growth in AuMA in future periods, together with levels of new business
growth, net client cash flow, revenue margins, and future expenses and discount rates (see note 14). Management do not believe that the use of these
estimates have a significant risk of causing a material ad(cid:77)ustment to the carrying amount of the assets within the next financial year.
2: New standards, amendments to standards, and interpretations adopted by the Group
There were no new standards or interpretations which became effective from 1 January 2020.
Amendments to standards:
The following amendments to the accounting standards, issued by the International Accounting Standards (cid:37)oard ((cid:522)IAS(cid:37)(cid:523)) and in conformity with the
requirements of the Companies Act 200(cid:25) and, for the Group, international financial reporting standards adopted pursuant to Regulation (EC) No
1(cid:25)0(cid:25)(cid:18)2002 as it applies in the European Union, have been adopted by the Group from 1 January 2020 with no material impact on the Group’s
consolidated results, financial position or disclosures(cid:29)
– Amendments to References to the Conceptual Framework in IFRS Standards
– Amendments to IFRS 3 Business Combinations (cid:514) (cid:39)efinition of a Business
– Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (cid:514) (cid:39)efinition of
Material
– Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures
– Interest Rate Benchmark Reform
– Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions
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Quilter | Annual report 2020
173
Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
3: Future standards, amendments to standards, and interpretations not early-adopted in these financial statements
Certain new standards, interpretations and amendments to existing standards have been published by the IAS(cid:37) that are mandatory for the Group’s
annual accounting periods beginning on or after 1 January 2021. The Group has not early adopted these standards, interpretations and amendments,
nor does the Group expect these to have a material impact on the Group’s consolidated financial statements.
– IFRS 17 Insurance contracts
The IASB issued IFRS 17 Insurance Contracts in May 2017, and Amendments to IFRS 17 in June 2020. (cid:58)hen IFRS 17 is endorsed in conformity with
the requirements of the Companies Act 200(cid:25) and, for the Group, international financial reporting standards adopted pursuant to Regulation (EC)
No 1(cid:25)0(cid:25)(cid:18)2002 as it applies in the European Union, it will replace its interim predecessor, IFRS 4 Insurance Contracts. IFRS 17 is a comprehensive
standard which provides a single accounting model for all insurance contracts. IFRS 17 will replace a wide range of different accounting practices
previously permitted, improving transparency and enabling investors and regulators to understand and compare the financial position and
performance of an insurer, irrespective of where they are based geographically.
The Group completed the sale of QLA to ReAssure on 31 December 2019. Following the sale, the impact of IFRS 17 is significantly reduced for the
Group with only a small number of insurance contracts remaining in the Quilter International business. Therefore, the impact of IFRS 17 is not
expected to be material.
The measurement model
The use of current estimates at each reporting date and an explicit risk ad(cid:77)ustment to measure obligations created by insurance contracts, provides
up to date information about cash flows and associated risk and timing. (cid:522)Day one(cid:523) profits are deferred and recognised in the income statement
through the release of the contractual service margin ((cid:522)CSM(cid:523)), which has the effect of recognising revenue as services are provided. This principle
is consistent with the treatment in IFRS 1(cid:24).
Presentation and disclosure
Insurers’ financial statements will be presented differently under IFRS 17. Insurers will be required to provide information about sources of profit
or losses from insurance and investment related services, comprising insurance revenue and insurance service expenses (underwriting activity),
as well as finance income or expense (investing activity). New performance metrics and KPIs will be required to explain business results to the
investment community. Disclosure requirements focus on amounts recognised in the financial statements, significant (cid:77)udgements and changes
in those (cid:77)udgements, as well as information about the nature and extent of risks that arise from insurance contracts.
Effective date
The IAS(cid:37) issued Amendments to IFRS 17 in June 2020, which defers the effective date of IFRS 17, such that it applies to entities with annual reporting
periods beginning on or after 1 January 2023. The standard is yet to be endorsed by the EU (draft endorsement issued in September 2020).
4: Significant changes in the year
4(a): Impacts of COVID-19
The Group’s focus in managing the response to CO(cid:57)ID-19 has been to ensure colleagues’ health and safety, maintain operational resilience with high
levels of client service and provide good outcomes for shareholders. (cid:58)hen the scale of the CO(cid:57)ID-19 pandemic became apparent, the Group
responded quickly to the challenges faced, with 98(cid:8) of the Group’s colleagues working remotely from late March 2020 and the accelerated delivery
of(cid:98)IT and remote telephony solutions allowing Quilter to maintain high client service levels and to support customers and advisers.
The Group reviewed its financial budgets and operating plans in response to the challenges arising from CO(cid:57)ID-19 and the unpredictable operating
outlook. The Group is operationally resilient and remains focused on completing its principal strategic pro(cid:77)ects. The continued volatility in financial
markets and the impact of more limited face-to-face contact within the advice segment is creating a challenging revenue environment and the Group
has updated its future cash flows accordingly. Against this backdrop, the Group has undertaken a number of management actions to reduce
expenses but has acknowledged that future operating margin outcomes will likely be below previous target guidance provided by management.
The(cid:98)Group did not use the support measures made available to companies by the UK Government.
An impairment assessment of the Group’s goodwill was performed at 30 June 2020, as the impact of CO(cid:57)ID-19 was deemed to be an indicator of
impairment, and again at 31 December 2020 as part of the annual impairment assessment. The assessments were carried out using the most recent
(cid:37)oard approved forecasts which incorporated market levels and future assumptions considered relevant in the current market conditions. The
assessment concluded that no impairment was required. A sensitivity analysis demonstrated that further significant changes to key assumptions
would be necessary before an impairment is required. Full details are included in note 14.
The Group has assessed the recoverable amount of deferred tax assets based on the taxable profits contained in the most recent (cid:37)oard approved
three-year forecasts which, as noted above, incorporate market levels and assumptions that reflect the impact of CO(cid:57)ID-19 and concluded that the
Group has sufficient future taxable profits and reversal of taxable temporary differences to support the (cid:101)78 million deferred tax asset recognised at
31 December 2020. Further details are included in note 29.
There have been no ma(cid:77)or changes to the Group’s capital and financial risk management as a result of CO(cid:57)ID-19. Full capital and financial risk
management disclosures are included within note 37.
Detailed discussion of the Group’s performance and financial position to 31 December 2020 are included in the Financial Review.
174
Quilter | Annual report 2020
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4: Significant changes in the year continued
4(b): Changes to comparative amounts
Changes to comparative amounts have been made in respect of consolidated investment funds and fee income receivable. The changes are
explained in detail in notes 4(b)(i) and 4(b)(ii) respectively, with no impact to the Group’s profit, equity or alternative performance measures. The
changes to the statement of financial position for the prior periods presented are shown below(cid:29)
Consolidated statement of financial position (extract)
Financial investments
Trade, other receivables and(cid:98)other(cid:98)assets
Derivative assets
Cash and cash equivalents
Other1
Total assets
31 December 2019
1 January 2019
As
reported
£m
(cid:24)9,34(cid:24)
Consolidated
funds
Note 4(b)(i)
£m
(2,138)
Fee income
receivable
Note 4(b)(ii)
£m
–
424
32
2,473
1,4(cid:25)4
(31)
(10)
(220)
–
212
–
–
–
Restated
£m
(cid:24)7,207
605
22
2,2(cid:24)3
1,4(cid:25)4
As
reported
£m
(cid:24)9,219
Consolidated
funds
Note 4(b)(i)
£m
(1,1(cid:25)(cid:24))
530
46
2,39(cid:24)
3,(cid:25)00
(42)
(12)
(90)
–
Fee income
receivable
Note 4(b)(ii)
£m
–
230
–
–
–
Restated
£m
(cid:24)8,0(cid:24)4
718
34
2,30(cid:24)
3,(cid:25)00
63,738
(2,399)
212
61,551
65,790
(1,309)
230
64,711
Third-party interests in consolidated funds
7,(cid:25)7(cid:24)
(2,3(cid:24)7)
(cid:24),318
(cid:24),11(cid:25)
(1,283)
Trade, other payables and other liabilities
Contract liabilities
Derivative liabilities
Other1
Total liabilities
836
191
17
(cid:24)2,948
61,667
(35)
–
(7)
–
–
–
212
–
–
801
403
10
999
226
37
(cid:24)2,948
59,480
(cid:24)7,407
63,785
(20)
–
(6)
–
–
–
230
–
–
3,833
979
456
31
(cid:24)7,407
(2,399)
212
(1,309)
230
62,706
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
1’Other’ represents remaining assets and liabilities not impacted by the changes to comparative amounts.
2,071
–
–
2,071
2,005
–
–
2,005
Changes in respect of consolidated investment funds have also impacted the Group’s consolidated income statement in the prior year. There are no
prior year income statement impacts arising from the fee income receivable reclassification.
Consolidated income statement (extract)
Year ended 31 December 2019
Fee income and other income from service activities
Investment return
Other income
Total income
Fee and commission expenses and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Other1
Total expenses
As
Reported
£m
936
Consolidated
funds
Note 4(b)(i)
£m
(99)
Restated
£m
837
(cid:25),(cid:24)(cid:25)(cid:25)
16
(300)
(6)
(405)
7,419
127
283
(5)
–
405
(167)
(634)
(745)
((cid:24),828)
(7,374)
(cid:25),8(cid:25)(cid:25)
22
7,824
(294)
(917)
(740)
((cid:24),828)
(7,779)
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
45
–
45
1’Other’ represents remaining expenses not impacted by the changes to comparative amounts.
Quilter | Annual report 2020
175
Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
4: Significant changes in the year continued
4(b): Changes to comparative amounts continued
The impact to the Group’s consolidated statement of cash flows in respect of changes in consolidated investment funds in the prior year is shown
below. There are no prior year cash flow statement impacts arising from the fee income receivable reclassification.
Consolidated statement of cash flows (extract)
Cash flows from(cid:18)(used in) operating activities
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:18)(cid:11)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:12)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Net (acquisitions)(cid:18)disposals of financial investments
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:11)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:12)(cid:18)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)
Year ended 31 December 2019
As
Reported
£m
(2,00(cid:25))
(2,043)
2,2(cid:25)0
2,238
77
2,39(cid:24)
2,473
Consolidated
funds
Note 4(b)(i)
£m
(29)
(29)
(101)
(101)
(130)
(90)
(220)
Restated
£m
(2,03(cid:24))
(2,072)
2,1(cid:24)9
2,137
(53)
2,30(cid:24)
2,253
4(b)(i): Consolidated funds
Following a review of the Group’s consolidated investment funds methodology, corrections to previously reported values have been made on the
consolidated statement of financial position and consolidated income statement (with corresponding impacts on the consolidated statement of cash
flows). There has been no impact on profit or equity for any of the periods presented. The nature of the changes is as follows(cid:29)
(cid:54)tatement of financial position impacts(cid:29)
– Changes to the calculation of minority ownership of certain fund investments have been made, reflecting a re-evaluation of the status of nominee
holdings, held by the Group on behalf of its clients, that had historically been included in the control assessment. This has resulted in a restatement
of fund assets and liabilities attributable to the Group, and an ad(cid:77)ustment to de-consolidate a number of investment funds where the Group was
incorrectly deemed to have been the controlling entity in previous periods.
Income statement impacts:
– The changes to the calculation of minority ownership described above have resulted in changes to a number of line items in the Group’s
consolidated income statement for the year ending 31 December 2019, as shown in the table above.
– In addition, fund management fee income received from consolidated funds and previously included within ‘Fee income and other income from
service activities’ has been eliminated on consolidation, resulting in it being re-presented primarily as investment return.
– A correction has been made in respect of realised and unrealised gains and losses on investments within a limited number of funds being
previously presented within the Group’s fee and commission expenses rather than investment return.
4(b)(ii): Fee income receivable
Fee Income Receivable ((cid:522)FIR(cid:523)) relates to premium based establishment fee income, where income is taken over an initial period of the contract. (cid:58)hen
a policy is written, future income is capitalised, and the resulting asset is subsequently amortised as the cash proceeds are received.
Deferred Fee Income ((cid:522)DFI(cid:523)) is the initial fee income, including FIR, which is deferred over the expected life of the contract as the services are provided.
DFI is recognised as a contract liability.
In the prior year, the Group’s FIR (all written within investment contracts in the Group’s International business which is part of the Group’s (cid:58)ealth
Platforms segment) and DFI were reported net within the statement of financial position within contract liabilities. This interpretation was made as
both balances arise within individual contracts and FIR was assumed to represent a contract asset (which are permitted to be presented net with
contract liabilities) rather than an unconditional receivable.
Following a review performed during the year, these FIR balances have been reclassified from a contract asset (previously netted within contract
liabilities) to a receivable, as consideration is only conditional upon the passage of time. The prior year balance has been restated accordingly.
This has no impact on reported profits or equity at the beginning or end of the prior year.
The impact of the changes to the consolidated statement of financial position is summarised in the table above.
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5: Significant accounting policies
The Group’s significant accounting policies are described below. There have been no changes to the Group’s significant accounting policies as a result
of changes in accounting standards during the year.
5(a): Group accounting
Subsidiaries
Subsidiary undertakings are those entities (investees) controlled by the Group. The Group controls an investee if, and only if, the Group has all of the
following three elements of control(cid:29)
– power over the investee(cid:30)
– exposure or rights to variable returns from its involvement with the investee(cid:30) and
– the ability to affect those returns through its power over the investee.
For operating entities this usually arises with a shareholding in the entity of (cid:24)0(cid:8) or more. The Group also consolidates certain of its interests in
open-ended investment companies ((cid:522)OEICs(cid:523)), unit trusts, mutual funds and similar investment vehicles (collectively (cid:522)investment funds(cid:523)). (cid:58)here, as is
often the case with investment funds, voting or similar rights are not the dominant factor in deciding who controls the investee, other factors are
considered in the control assessment. These are described in more detail below.
The Group continually assesses any changes to facts and circumstances to determine, in the context of the three elements of control listed above,
whether it still controls investees and is required to consolidate them.
Associates
Associates are entities in which the Group holds an interest and over which it has significant influence but not control, and are accounted for using the
equity method. Significant influence is the power to participate in the financial and operating policy decisions of the investee.
The Group has classified one entity, 3(cid:25)0 Dot Net Limited, as an associate company in the prior and current year.
Investment funds
The Group invests in a wide range of investment funds such as OEICs and unit trusts generally in respect of its unit-linked investment contracts where
investments are made to match clients’ investment choices. For some of these funds it also acts as fund manager. These funds invest predominantly
in equities, bonds, cash and cash equivalents. The Group holds interests in these investment funds mainly through the receipt of fund management
fees, in the case where the Group acts as fund manager, which provide a variable return based on the value of the funds under management and
other criteria, and in the case of third-party funds where fund performance has an impact on fund based fees within unit-linked investment contracts
and other similar client investment products. (cid:58)here the Group acts as fund manager it may also hold investments in the underlying funds, through
acquiring units or shares. (cid:58)here these investments are held in unit-linked funds, the Group has a secondary exposure to variable returns through the
management fees that it deducts from unit-linked policyholders’ account balances. The Group’s percentage ownership can fluctuate from day to day
according to the Group’s participation in them as clients’ underlying investment choices change.
(cid:58)hen assessing control of investment funds, the Group considers the purpose and design of the fund, scope of its decision making authority,
including its ability to direct relevant activities and to govern the operations of a fund so as to obtain variable returns from that fund and its ability to
use its power to affect these returns, both from the perspective of an investor and an asset manager. In addition, the Group assesses rights held by
other parties including substantive removal ((cid:522)kick-out(cid:523)) rights that may affect the Group’s ability to direct relevant activities.
On consolidation, the interests of parties other than the Group are classified as a liability in the Group’s statement of financial position and are
described as (cid:522)Third-party interests in consolidated funds(cid:523). Such interests are not recorded as non-controlling interests ((cid:522)NCIs(cid:523)) as they meet the
liability classification requirement set out in IAS 32 Financial Instruments: Presentation. These liabilities are regarded as current, as they are repayable
on demand, although it is not expected that they will be settled in a short time period.
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177
Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(a): Group accounting continued
Business combinations
The Group is required to use the acquisition method of accounting for business combinations. (cid:37)usiness combinations are accounted for at the
date that control is achieved (the acquisition date). The cost of a business combination is measured as the aggregate of the fair values (at the date
of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations
are recognised at their fair value at the acquisition date.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group
reports provisional amounts. (cid:58)here provisional amounts are reported these are ad(cid:77)usted during the measurement period which extends up to
a(cid:98)maximum of 12 months from the acquisition date. Additional assets or liabilities may also be recognised during this period, to reflect any new
information obtained about the facts and circumstances that existed at the date of acquisition that, if known, would have affected the amounts
recognised as on that date.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired entity
at the date of acquisition. Acquisition related costs are expensed as incurred.
Upon disposal, the Group derecognises a subsidiary or disposal group on the date on which control passes. The consolidated income statement
includes the results of a subsidiary or disposal group up to the date of disposal. The difference between the proceeds from the disposal of a subsidiary
undertaking and its carrying amount as at the date of disposal, including the cumulative amount of any related exchange differences that are
recognised in the foreign currency translation reserve, is recognised in the consolidated income statement as the gain or loss on disposal of the
subsidiary undertaking.
Common control combinations
Merger accounting is used by the Group for common control combinations, which are transactions between entities that are ultimately controlled by
the same party or parties. This method treats the merged entities as if they had been combined throughout the current and comparative accounting
periods. Merger accounting principles for these combinations result in the recognition of a merger reserve in the consolidated statement of financial
position, being the difference between the nominal value of any new shares issued by the parent Company for the acquisition of the shares of the
subsidiary and the subsidiary’s Net Asset (cid:57)alue ((cid:522)NA(cid:57)(cid:523)). Such transactions attract merger relief under section (cid:25)12 of the Companies Act 200(cid:25).
5(b): Fair value measurement
The Group uses fair value to measure the ma(cid:77)ority of its assets and liabilities. Fair value is a market-based measure and is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For a financial
instrument, the best evidence of fair value at initial recognition is normally the transaction price, which represents the fair value of the consideration
given or received.
(cid:58)here observable market prices in an active market, such as bid or offer (ask) prices are unavailable, fair value is measured using valuation techniques
based on the assumptions that market participants would use when pricing the asset or liability. If an asset or a liability measured at fair value has a
bid or an offer price, the price within the bid-offer spread that is most representative of fair value is used as the basis of the fair value measurement.
The quality of the fair value measurement for financial instruments is disclosed by way of the fair value hierarchy, whereby Level 1 represents a quoted
market price for identical financial assets and liabilities, Level 2 financial assets and liabilities are valued using inputs other than quoted prices in active
markets included in Level 1, either directly or indirectly, and Level 3 whereby financial assets and liabilities are valued using valuation techniques where
one or more significant inputs are unobservable.
Classifying financial instruments into the three levels outlined above provides an indication about the reliability of inputs used in determining fair
value. More information is provided in note 20.
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5: Significant accounting policies continued
5(c): Product classification
The Group’s life assurance contracts included in the (cid:58)ealth Platforms segment are categorised as either insurance contracts or investment contracts,
in accordance with the classification criteria set out in the paragraphs below.
Insurance contracts
The Group’s insurance contracts include traditional life and health insurance contracts including for the latter stand-alone critical illness and
long-term care policies (all within the disposed QLA business until its disposal at 31 December 2019), as well as the unbundled insurance component
of unit-linked contracts (described in more detail below in the (cid:522)Hybrid insurance and investment contracts – unbundling(cid:523) section). Life assurance
contracts are categorised as insurance contracts at the inception of the contract only if the contract transfers significant insurance risk. Insurance risk
is significant if, and only if, an insured event could cause the Group to make significant additional payments in any scenario, excluding scenarios that
lack commercial substance. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire. It is possible to
reclassify contracts as insurance contracts after inception if insurance risk becomes significant.
IFRS accounting for insurance contracts in UK companies was (cid:522)grandfathered(cid:523) at the date of transition to IFRS and determined in accordance with the
Statement of Recommended Practice on Accounting for Insurance Business (issued by the Association of British Insurers and subsequently
withdrawn from 1 January 201(cid:24)), which ad(cid:77)usted Solvency I balances to remove certain regulatory reserves and margins in assumptions.
Investment contracts
Investment contracts do not meet the definition of an insurance contract as they do not transfer significant insurance risk from the policyholder to the
insurer. Unit-linked investment contracts are separated into two components, being an investment management services component and a financial
liability. The financial liability component is designated at fair value through profit or loss ((cid:522)F(cid:57)TPL(cid:523)) as it is managed on a fair value basis, and its value is
directly linked to the market value of the underlying portfolio of assets. The Group does not directly benefit economically from returns from the assets
held to match policyholder liabilities, apart from secondary exposure to future annual management fees that the Group expects to receive over the
life of the policy.
“Hybrid” insurance and investment contracts – unbundling
Generally, life and pensions contracts allow for a single classification at product class level. For those contracts containing both an insurance
component and an investment component, the Group has elected to unbundle these contracts and account for each component separately. This
approach has been applied to a number of the Group’s unit-linked assurance business contract types where a significant component of insurance risk
exists.
5(d): Fee income and other income from service activities
Fee income and other income from service activities represent the fair value of services provided, net of value added tax. (cid:58)ithin Quilter, all businesses
act as a principal with the only exception to this being in Quilter Investors, where the management of certain funds is outsourced to external fund
managers.
Premium based fees
This relates to non-refundable fees taken on receipt of clients’ investments and recognised on receipt over the life of the contract, in line with the
performance obligation associated with the contract in respect of the administration of the underlying client records and client benefits. (cid:58)here fees
are received, either at inception or over an initial period for services not yet provided, the income is deferred and recognised as contract liabilities on
the statement of financial position and released to the income statement as services are provided over the lifetime of the contract (see note 32 for
further information).
In addition this also includes fees in respect of advice provided to clients, when the advice has been provided to the client and the financial adviser’s
performance obligation has been fully delivered. Accordingly, fee income is recognised at the inception of the financial product sold.
Fund based fees
This is periodic fee income based on the market valuation of the Group’s investment contracts. It is calculated and recognised on a daily basis in line
with the provision of investment management services.
Fixed fees
This is periodic fee income which is fixed in value according to underlying contract terms and relates to the provision of services and transactional
dealing fees. It is recognised on provision of the transaction or service.
Surrender fees
Surrender fee income relates to client charges received on the surrender of an investment contract or insurance contract, which is based on the value
of the policy and recognised on surrender of the policy.
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Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(d): Fee income and other income from service activities continued
Other fee and commission income
This includes charges taken from unit-linked funds to meet future policyholder tax liabilities. Depending on the nature of the tax liability, the charges
are either recognised at the point a transaction occurs on the unit-linked fund, or annually. This also includes fee and commission income within
consolidated funds’ income statements.
5(e): Investment return
Investment return comprises two elements(cid:29) (a) investment income and (b) realised and unrealised gains and losses on investments held at F(cid:57)TPL.
Investment income
Investment income includes dividends on equity securities which are recorded as revenue on the ex-dividend date and interest income which is
recognised using the effective interest rate method which allocates interest and other finance costs at a constant rate over the expected life of the
financial instrument.
Realised and unrealised gains and losses
A gain or loss on a financial investment is only realised on disposal or transfer and represents the difference between the proceeds received, net
of(cid:98)transaction costs, and its original cost (or amortised cost). Unrealised gains or losses, arising on investments which have not been disposed or
transferred, represent the difference between carrying value at the year end and the carrying value at the previous year end or purchase value
(if(cid:98)this(cid:98)occurs during the year), less the reversal of previously recognised unrealised gains or losses in respect of disposals made during the year.
Gains and losses resulting from changes in both market value and foreign exchange on investments classified at F(cid:57)TPL are recognised in the
consolidated income statement in the period in which they occur.
5(f): Premiums
Premiums receivable under insurance contracts are shown in the income statement gross of commission and exclude sales-based taxes and levies.
For regular (and recurring) premium contracts, receivables are recognised when payments are due. Premiums in respect of other insurance contracts
are recognised in the income statement when receivable, apart from premiums received in respect of unit-linked insurance contracts (see below).
(cid:58)here policies lapse due to non-receipt of premiums, then all the related premium income accrued but not received from the date they are deemed
to have lapsed is offset against premiums.
Premiums received in respect of unit-linked insurance contracts are recognised when the corresponding liability to the policyholder is established.
For(cid:98)single premium business, this is the date from which the policy is effective.
5(g): Deferred acquisition costs and contract costs
Investment contracts
Incremental costs, including fee and commission expenses, that are directly attributable to securing either unit-linked investment contracts or other
asset management services are deferred and recognised as contract costs. Contract costs are linked to the contractual right to benefit from providing
investment management services(cid:30) they are therefore amortised through the income statement consistent with the transfer to the customer of the
services to which the contract relates.
Insurance contracts
Incremental costs directly attributable to securing an insurance contract, such as initial commission and the costs of obtaining and processing such
business are deferred and a deferred acquisition cost ((cid:522)DAC(cid:523)) asset recognised, to the extent that they are expected to be recovered out of future
margins.
Insurance DAC is amortised as an expense on a straight line basis, ad(cid:77)usted for expected persistency, over the expected life of the contract, as the
services are provided (equal service provision assumed) but sub(cid:77)ect to a restriction whereby it is no longer than the period in which such costs are
expected to be recoverable out of future margins.
At the end of each reporting period, contract costs and DAC are reviewed for recoverability, by category of business, against future margins from the
related contracts. They are impaired in the income statement when they are no longer considered to be recoverable.
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5: Significant accounting policies continued
5(h): Investment contract liabilities
The ma(cid:77)ority of the Group’s investment contracts are unit-linked contracts. At inception, investment contract liabilities for unit-linked business are
classified as financial liabilities and measured at F(cid:57)TPL. For these contracts, the fair value liability is equal to the total value of units allocated to the
policyholders, based on the bid price of the underlying assets in the fund. The F(cid:57)TPL classification reflects the fact that the matching investment
portfolio, that backs the unit-linked liabilities, is managed, and its performance evaluated, on a fair value basis.
Contributions received on investment contracts are treated as policyholder deposits and credited directly to investment contract liabilities on the
statement of financial position, as opposed to being reported as revenue in the consolidated income statement. This practice is known as deposit
accounting. (cid:58)ithdrawals paid out to policyholders on investment contracts are treated as a reduction to policyholder deposits, reducing the
investment contract liabilities on the statement of financial position, as opposed to being recognised as expenses in the consolidated income
statement.
5(i): Insurance contract liabilities
Following the disposal of the Group’s QLA business (see note (cid:25)(b) for further details), insurance contract liabilities within the Group are (cid:101)nil at year
ended 31 December 2019 and year ended 31 December 2020, with only the Group’s income statement for year end 31 December 2019 impacted.
Claims
Insurance business claims reflect the cost of all claims arising during the year and include payments for maturities, annuities, surrender, death and
disability claims, as well as claims handling costs, incurred in connection with the negotiation and settlement of claims. They are recognised as
expenses in the income statement. Maturity and annuity claims are recorded as they fall due for payment. Death and disability claims and surrenders
are accounted for when notified. Reinsurance recoveries, in respect of these claims, are accounted for in the same period as the related claim.
Insurance contract liabilities
The Group calculates its long-term insurance contract liabilities, based on local regulatory requirements and actuarial principles consistent with those
applied in the local market. Liabilities are calculated using the gross premium valuation method, which is based on the amount of contractual
premiums receivable and includes explicit assumptions for interest and discount rates, as well as for mortality, morbidity, persistency and future
expenses. These assumptions are based on market data, internal experience data and also external data where either no internal experience data
exists or where internal data is too sparse to give credible estimates of the true expectation of experience. Anticipated future trends have been
allowed for in deriving mortality and morbidity assumptions. The liability for contractual benefits that are expected to be paid in the future is
determined as the discounted value of the excess of future expected outgoings over future expected income. Future expected outgoings include
claim costs, direct expenses and commissions. Future expected income includes premiums payable by policyholders. For anticipated future claims
that have been incurred but not yet paid, the Group establishes a provision for outstanding claims.
The method used to determine these liabilities makes allowance for the level of risk and uncertainty inherent in the business by the use of margins for
caution within the assumptions used to pro(cid:77)ect future income and outgoings. The portion of premiums received that relates to unexpired risks as at
the reporting period end is reported within the long-term insurance liabilities. The change in insurance contract liabilities, comprising the full
movement in the corresponding liabilities during the period, is recognised in the income statement.
Liability adequacy test
At each reporting date, the Group assesses whether the recognised insurance contract liabilities are adequate in light of current estimates of future
cash flows. This liability adequacy test is performed by comparing the carrying value of the insurance contract liabilities and the discounted
pro(cid:77)ections of future cash flows. If the carrying value is less than the future expected cash flows, the deficiency is initially recognised by writing down
the DAC asset. The recoverability of the DAC asset is tested against present value of in-force ((cid:522)P(cid:57)IF(cid:523)) business, determined on a best estimate basis,
with any deficit written off the DAC asset immediately. Any required write down in excess of the value of the DAC asset is recognised in the income
statement with a corresponding additional provision in the statement of financial position.
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Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(j): Reinsurance
Following the disposal of the QLA business on 31 December 2019 (see note (cid:25)(b) for further details), the Group’s reinsurance arrangements are
immaterial. As a result, the accounting policy below refers to the impacts of such reinsurance arrangements within the Group’s 2019 comparative
results.
Insurance contracts
The Group cedes reinsurance in the normal course of business for the purpose of limiting its claims costs. Ceded reinsurance contracts include
arrangements where regular risk premiums are paid by the Group to the reinsurer and an agreed share of claims are paid by the reinsurer to the
Group. These arrangements are in respect of underlying policies that are classified as insurance contracts. Accordingly, contracts with reinsurers are
assessed to establish whether they contain significant insurance risk to (cid:77)ustify such a classification. Only rights under contracts that give rise to a
transfer of significant insurance risk are accounted for as reinsurers’ share of policyholder liabilities.
Reinsurance premiums for ceded reinsurance are recognised as an expense on a basis that is consistent with the recognition basis for the premiums
on the related insurance contracts. Reinsurance recoveries are recognised in the income statement in the same period as the related claim.
Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually due at
the reporting date are separately recognised in other receivables and other payables respectively unless a right of offset exists, in which case the net
amount is reported on the consolidated statement of financial position. Assets, liabilities, income and expenses arising from ceded reinsurance
contracts are presented separately from the related assets, liabilities, income and expenses from the underlying insurance contracts because the
reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders.
The value of the benefits that the Group is entitled to under the ceded reinsurance arrangements are reported as (cid:522)reinsurers’ share of policyholder
liabilities(cid:523) in the statement of financial position. This is calculated as the difference between the insurance contract liability assuming no reinsurance
arrangement exists (the gross basis) and the liability with explicit allowance for all cash flows relating to the reinsurance arrangement (the net basis).
Insurance contract liabilities are calculated quarterly on the gross and net bases taking into account all relevant experience effects. The reinsurers’
share of insurance provisions is updated consistently with these calculations. Any resulting movement in the reinsurers’ share of insurance provisions
is recognised in the income statement.
Reinsurance assets are assessed for impairment at each reporting date. A reinsurance asset is impaired if there is ob(cid:77)ective evidence, as a result of an
event that occurred after its initial recognition, that the Group may not recover all amounts due to it under the terms of the contract and that the event
has an impact that can be measured reliably in respect of amounts expected to be received from the reinsurer. The reinsurers’ share of policyholder
liabilities is updated for any impairment. Any resulting movement in the reinsurers’ share of policyholder liabilities is recognised in the income
statement.
Investment contracts
Investments held on behalf of policyholders recognised by the Group that are fully managed by a third-party reinsurer are shown on the statement of
financial position within reinsurers’ share of investment contract liabilities, with the corresponding liability to the policyholder included within liabilities
for linked investment contracts.
5(k): Financial instruments (other than derivatives)
Financial instruments cover a wide range of financial assets, including financial investments, trade receivables and cash and cash equivalents and
certain financial liabilities, including investment contract liabilities, trade payables, and borrowings. Derivatives, which are also financial instruments,
are covered by accounting policy (cid:24)(m). Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the
Group becomes party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to receive
cash flows have expired or been forfeited by the Group. A financial liability is derecognised when the liability is extinguished.
The Group assesses the ob(cid:77)ective of a business model in which an asset is held at a portfolio level because this best represents the way the business
is managed and information is reported to management. The assessment considers the stated portfolio policies and ob(cid:77)ectives. The Group
determines its strategy in holding the financial asset, particularly considering whether the Group earns contractual interest revenue, for example to
match the duration of financial assets to the duration of liabilities that are funding those assets or to realise cash flows through the sale of the assets.
The frequency, volume and timing of sales in prior periods may be reviewed, along with the reasons for such sales and expectations about future
sales activity. These factors enable management to determine which financial assets should be measured at F(cid:57)TPL.
Initial measurement
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially
measured at fair value plus, for an item not at F(cid:57)TPL, transaction costs that are directly attributable to its acquisition.
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5: Significant accounting policies continued
5(k): Financial instruments (other than derivatives) continued
Subsequent measurement
The classification of financial assets depends on (i) the purpose for which they were acquired, (ii) the business model in which a financial asset is
managed, and (iii) its contractual cash flow characteristics. Two categories are applicable to the Group’s financial assets(cid:29) F(cid:57)TPL and(cid:98)amortised cost.
This classification determines the subsequent measurement basis. The following accounting policies apply to the subsequent measurement of
financial assets.
Measurement basis
Accounting policies
Financial assets at FVTPL
These financial assets are subsequently measured at fair value. Net gains and losses, including interest and dividend income, are recognised
in profit or loss.
Amortised cost
These financial assets are subsequently measured at amortised cost using the effective interest rate method. The amortised cost is reduced
by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on
de-recognition is recognised in profit or loss.
Amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and unless recognised as F(cid:57)TPL on initial recognition
applying the Fair (cid:57)alue Option (see below)(cid:29)
– the asset is held within a business model whose ob(cid:77)ective is to hold assets to collect contractual cash flows(cid:30) and
– the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount
outstanding on specified dates.
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as
consideration of the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time
and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
All other financial assets that are not measured at amortised cost are classified and measured at F(cid:57)TPL.
Financial investments
Derivative financial assets (the ma(cid:77)ority of which are as a result of the consolidated funds, as described in note (cid:24)(a)) are classified and measured at
F(cid:57)TPL. In addition, on initial recognition, the Group may irrevocably designate a financial asset at F(cid:57)TPL that otherwise meets the requirements to be
measured at amortised cost, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise (the Fair (cid:57)alue Option).
The Group’s interests in pooled investment funds, equity securities and debt securities are mandatorily at F(cid:57)TPL, as they are part of groups of
financial assets which are managed and whose performance is evaluated on a fair value basis. These investments are recognised at fair value initially
and subsequently, with changes in fair value recognised in investment return in the consolidated income statement.
Fixed term deposits with a maturity profile exceeding three months are categorised as financial investments and are measured at amortised cost.
The Group recognises purchases and sales of financial investments on trade date, which is the date that the Group commits to purchase or sell the
assets. The costs associated with investment transactions are included within expenses in the consolidated income statement.
Loans and advances
Loans with fixed maturities, including policyholder loans, are recognised when cash is advanced to borrowers or policyholders. Policyholder loans
are interest free and are mandatorily at F(cid:57)TPL since they are taken from the policyholder’s unit-linked account and thereby matched to underlying
unit-linked liabilities held at F(cid:57)TPL, which are unaffected by the transaction. Other loans and advances are carried at amortised cost using the
effective interest rate method. These assets are sub(cid:77)ect to the impairment requirements outlined below.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits, money market collective investment funds and other short-term deposits with
an original maturity of three months or less.
Cash and cash equivalents held within money market collective investment funds are classified as F(cid:57)TPL. All other cash and cash equivalents are
classified as amortised cost which means they are initially recognised at fair value and subsequently carried at amortised cost using the effective
interest method and are sub(cid:77)ect to the impairment requirements outlined below. The carrying amount of cash and cash equivalents, other than
money market collective investment funds which are measured at fair value, approximates to their fair value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. At inception,
investment contract liabilities for unit-linked business are recognised as financial liabilities and measured at F(cid:57)TPL. Other financial liabilities, including
the Group’s borrowings and trade payables, are measured at amortised cost using the effective interest method.
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Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(k): Financial instruments (other than derivatives) continued
Trade payables and receivables
Trade payables and receivables are classified at amortised cost. Due to their short-term nature, their carrying amount is considered to be the same
as their fair value.
Investments in subsidiaries
Parent Company investments in subsidiary undertakings are initially stated at cost. Subsequently, investments in subsidiary undertakings are stated
at cost less any provision for impairment. An investment in a subsidiary is deemed to be impaired when its carrying amount is greater than its
estimated recoverable amount, and there is evidence to suggest that the impairment occurred subsequent to the initial recognition of the asset in the
financial statements. All impairments are recognised in the parent Company income statement as they occur.
Impairment of financial assets
The expected loss accounting model for credit losses applies to financial assets measured at amortised cost, but not to financial assets at F(cid:57)TPL.
Financial assets at amortised cost include trade receivables, cash and cash equivalents (excluding money market collective investment funds which
are measured at fair value), fixed term deposits and loans and advances.
Credit loss allowances are measured on each reporting date according to a three stage expected credit loss ((cid:522)ECL(cid:523)) impairment model(cid:29)
Performing financial assets:
Stage 1
From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial
recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the next
12(cid:98)months or its maturity date ((cid:522)12-month ECL(cid:523)).
Stage 2
Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to the
credit losses expected from all possible default events over the remaining lifetime of the asset ((cid:522)Lifetime ECL(cid:523)).
The assessment of whether there has been a significant increase in credit risk requires considerable (cid:77)udgement, based on the lifetime probability of
default ((cid:522)PD(cid:523)). Stage 1 and 2 allowances are held against performing loans(cid:30) the main difference between stage 1 and stage 2 allowances is the time
hori(cid:93)on. Stage 1 allowances are estimated using the PD with a maximum period of 12 months, while stage 2 allowances are estimated using the PD
over the remaining lifetime of the asset.
Impaired financial assets:
Stage 3
(cid:58)hen a financial asset is considered to be credit-impaired, the allowance for credit losses ((cid:522)ACL(cid:523)) continues to represent lifetime expected credit
losses. However, interest income is calculated based on the amortised cost of the asset, net of the loss allowance, rather than its gross
carrying(cid:98)amount.
Application of the impairment model
The Group applies the ECL model to all financial assets that are measured at amortised cost(cid:29)
– Trade receivables, to which the simplified approach prescribed by IFRS 9 is applied. This approach requires the recognition of a Lifetime ECL
allowance on day one and thereafter.
– Loans, cash and cash equivalents, and fixed term deposits at amortised cost, to which the general three stage model (described above) is applied,
whereby a 12 month ECL is recognised initially and the balance is monitored for significant increases in credit risk which triggers the recognition
of a Lifetime ECL allowance.
ECLs are a probability-weighted estimate of credit losses. ECLs for financial assets that are not credit-impaired at the reporting date are measured
as the present value of all cash shortfalls (i.e. the difference between the cash flows due in accordance with the contract and the cash flows that the
Group expects to receive). ECLs for financial assets that are credit-impaired at the reporting date are measured as the difference between the gross
carrying amount and the present value of estimated future cash flows. ECLs are discounted at the effective interest rate of the financial asset.
The(cid:98)maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
The measurement of ECLs considers information about past events and current conditions, as well as supportable information about future events
and economic conditions. The Group has implemented its impairment methodology for estimating the ACL, taking into account forward-looking
information in determining the appropriate level of allowance. In addition, it has identified indicators and set up procedures for monitoring for
significant increases in credit risk.
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5: Significant accounting policies continued
5(k): Financial instruments (other than derivatives) continued
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired
when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a
financial asset is credit-impaired includes events such as significant financial difficulty of the borrower or issuer, a breach of contract such as a default
or past due event or the restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider. The assumption that
the credit risk for balances over 30 days significantly increases has been rebutted on the basis that some balances will exceed 30 days in the normal
course of the settlement cycle and, therefore, there is no increase in the credit risk.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Write-offs
Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of the amount being recovered. This is generally
the case when the Group concludes that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay
the amounts sub(cid:77)ect to the write-off.
5(l): Contract assets
Contract assets are classified as non-financial. Due to their short-term nature, their carrying amount is considered to be the same as their fair value.
The expected loss accounting model for credit losses applies to contract assets, The Group applies the ECL model to contract assets, which are
measured at amortised cost. The simplified approach prescribed by IFRS 9 is applied to contract assets. This approach requires the recognition of
a(cid:98)Lifetime ECL allowance on day one and thereafter.
5(m): Derivatives
The Group uses derivative financial instruments to manage well-defined foreign exchange risks arising out of the normal course of business and has
used forward foreign exchange contracts to reduce the currency risk on certain US Dollar, Euro and Swedish Krona denominated future revenues and
accounts receivables. Management determines the classification of derivatives at initial recognition and classifies derivatives as mandatorily at F(cid:57)TPL.
All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
The only other derivatives recognised in the Group’s statement of financial position are as a result of the consolidation of funds (described in note (cid:24)(a)).
5(n): Employee benefits
Pension obligations
The Group operates two types of pension plans which have been established for eligible employees of the Group(cid:29)
Defined contribution schemes where the Group makes contributions to members’ pension plans but has no further payment obligations once the
contributions have been paid.
Defined benefit plans which provide pension payments upon retirement to members as defined by the plan rules. The Group has funded these
liabilities by ring-fencing assets in trustee-administered funds.
Defined contribution pension obligation
Under a defined contribution plan, the Group’s legal or constructive obligation is limited to the amount it agrees to contribute to a pension fund
and there is no obligation to pay further contributions if the fund does not hold sufficient assets to pay benefits. Contributions in respect of defined
contribution schemes for current service are expensed in the income statement as staff costs and other employee-related costs when incurred.
Defined benefit pension obligation
A defined benefit pension plan typically defines the amount of pension benefit that an employee will receive on retirement. For these plans, the
Group’s defined benefit obligation is calculated by independent actuaries using the pro(cid:77)ected unit credit method, which measures the pension
obligation as the present value of estimated future cash outflows. The discount rate used is determined based on the yields for investment grade
corporate bonds that have maturity dates approximating to the terms of the Group’s obligations. Plan assets are measured at their fair value at the
reporting date. The net surplus or deficit of the defined benefit plan is recognised as an asset or liability in the statement of financial position and
represents the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets.
An asset is recognised only where there is an unconditional right to future benefits. The current and past service cost curtailments and settlements
are charged to other expenses in the income statement.
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Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(n): Employee benefits continued
Remeasurements which comprise gains and losses as a result of experience ad(cid:77)ustments and changes in actuarial assumptions, the actual return on
plan assets (excluding interest) and the effect of the asset ceiling are recognised immediately in other comprehensive income in the period in which
they occur. Remeasurements are not reclassified to the income statement in subsequent periods. Administration costs (other than the costs of
managing plan assets) are recognised in the income statement when the service is provided.
(cid:58)hen the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the
gain or loss on curtailment, is recognised immediately in the income statement when the plan amendment or curtailment occurs.
Employee share-based payments
The Group operates a number of share incentive plans for its employees. These involve an award of shares or options in the Group (equity-settled
share-based payments).
The Group’s incentive plans have conditions attached before the employee becomes entitled to the award. These can be performance and(cid:18)or service
conditions (vesting conditions) or conditions that are often wholly within the control of the employee, for example where the employee has to provide
funding during the vesting period, which is then used to exercise share options (non-vesting condition).
Performance conditions may be market-based or non-market based. Market performance conditions are those related to an entity’s equity, such as
achieving a specified share price or target based on a comparison of the entity’s share price with an index of share prices. Non-market performance
conditions are those related to an entity’s profit or revenue targets, an example of which would be Earnings per Share ((cid:522)EPS(cid:523)). Market-based
performance conditions and non-vesting conditions are taken into account when estimating the fair value of the share or option awards at the
measurement date. The fair value of the share awards or options is not ad(cid:77)usted to take into account non-market performance features. These are
taken into consideration by ad(cid:77)usting the number of equity instruments in the share-based payment measurement and this ad(cid:77)ustment is made each
period until the equity instruments vest.
The fair value of share-based payment awards granted is recognised as an expense in the income statement over the vesting period which accords
with the period for which related services are provided by the employee. A corresponding increase in equity is recognised for equity-settled plans and
a corresponding financial liability for cash-settled plans.
For equity-settled plans, the fair value is determined at grant date and not subsequently re-measured. For cash-settled plans, the fair value is
re-measured at each reporting date and the date of settlement, with any changes in fair value recognised in the profit or loss for the period and the
liability ad(cid:77)usted accordingly.
At each period end the Group reassesses the number of equity instruments expected to vest and recognises any difference between the revised and
original estimate in the income statement with a corresponding ad(cid:77)ustment to the share-based payments reserve in equity.
At the time the equity instruments vest, the amount recognised in the share-based payments reserve in respect of those equity instruments is
transferred to retained earnings.
5(o): Tax
Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and
any ad(cid:77)ustment to income tax payable in respect of previous years. Current tax is charged or credited to the income statement, except when it relates
to items recognised directly in equity or in other comprehensive income.
Deferred tax
Deferred taxes are calculated according to the statement of financial position method, based on temporary differences between the tax base of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset is realised.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences can be utilised.
Deferred tax is charged or credited to the income statement, except when it relates to items recognised directly in equity or in other comprehensive
income. In certain circumstances, as permitted by accounting guidance, deferred tax balances are not recognised. In particular, where the liability
relates to the initial recognition of goodwill, or transactions that are not a business combination and at the time of their occurrence affect neither
accounting nor taxable profit. Note 29(b) includes further detail of circumstances in which the Group does not recognise temporary differences.
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5: Significant accounting policies continued
5(o): Tax continued
Policyholder tax
Certain products are sub(cid:77)ect to tax on the policyholder investment returns. This ‘policyholder tax’ is an element of the Group’s total tax expense.
To(cid:98)make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders’ profits is shown separately.
The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years.
The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders’ profits.
5(p): Goodwill and intangible assets
The recognition of goodwill arises on the acquisition of a business and represents the premium paid over the fair value of the Group’s share of the
identifiable assets and liabilities acquired at the date of acquisition. Intangible assets include intangible assets initially recognised as part of a business
combination, purchased assets and internally generated assets, such as software development costs related to amounts recognised for in-house
systems development.
Goodwill and goodwill impairment
Goodwill arising on the Group’s investments in subsidiaries is shown as a separate asset, while that on associates, where it arises, is included within
the carrying value of those investments. Goodwill is recognised as an asset at cost at the date when control is achieved (the acquisition date) and is
subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised but is sub(cid:77)ect to annual impairment reviews.
Goodwill is allocated to one or more cash-generating units ((cid:522)CGUs(cid:523)) expected to benefit from the synergies of the combination, where the CGU
represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or
group of assets. Goodwill is reviewed for impairment at least once annually, as a matter of course even if there is no indication of impairment, and
whenever an event or change in circumstances occurs which indicates a potential impairment. For impairment testing, the carrying value of goodwill
is(cid:98)compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment loss is recognised
immediately in profit or loss and is not subsequently reversed.
On disposal of an operation within a group of CGUs to which goodwill has been allocated, the goodwill associated with that operation is included in the
carrying amount of the operation when determining the gain or loss on disposal. It is measured based on the relative values of the operation disposed
of and the portion of the CGU retained.
Intangible assets acquired as part of a business combination
Intangible assets acquired as part of a business combination are recognised where they are separately identifiable and can be measured reliably.
Acquired intangible assets consist primarily of contractual relationships such as customer relationships and distribution channels. Such items are
capitalised at their fair value, represented by the estimated net present value of the future cash flows from the relevant relationships acquired at the
date of acquisition. (cid:37)rands and similar items acquired as part of a business combination are capitalised at their fair value based on a ‘relief from
royalty’ valuation methodology.
Subsequent to initial recognition, acquired intangible assets are measured at cost less amortisation and any recognised impairment losses.
Amortisation is recognised at rates calculated to write off the cost or valuation less estimated residual value, using a straight-line method over their
estimated useful lives as set out below(cid:29)
8 years
– Distribution channels
7-10 years
– Customer relationships
5 years
– Brands
The economic lives are determined by considering relevant factors such as usage of the asset, product life cycles, potential obsolescence, competitive
position and stability of the industry. The amortisation period is re-evaluated at the end of each financial year end.
Internally developed software
There are a number of factors taken into account when considering whether internally developed software meets the recognition criteria in IAS 38
Intangible Assets. (cid:58)here, for example, a third-party provider retains ownership of the software, this will not meet the control criterion in the standard
(i.e. the power to obtain benefits from the asset) and the costs will be expensed as incurred.
(cid:58)here it is capitalised, internally developed software is held at cost less accumulated amortisation and impairment losses. Such software is
recognised in the statement of financial position if, and only if, it is probable that the relevant future economic benefits attributable to the software will
flow to the Group and its cost can be measured reliably.
Costs incurred in the research phase are expensed, whereas costs incurred in the development phase are capitalised, sub(cid:77)ect to meeting specific
criteria, as set out in the relevant accounting guidance, the main one being that future economic benefits can be identified as a result of the
development expenditure. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of the relevant software,
which range between three and five years, depending on the nature and use of the software.
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Basis of preparation and significant accounting policies
For the year ended 31 December 2020 continued
5: Significant accounting policies continued
5(p): Goodwill and intangible assets continued
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is expensed as incurred.
Impairment testing for intangible assets
For intangible assets with finite lives, impairment charges are recognised where evidence of impairment is observed. Indicators of impairment can be
based on external factors, such as significant adverse changes to the asset as part of the overall business environment and internal factors, such as
worse than expected performance reflected in the Group’s three-year (cid:37)usiness Plan. If an indication of impairment exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is calculated as the higher of fair value
less costs to sell and value in use. If the recoverable amount of an intangible asset is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense in the income statement immediately,
unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. (cid:58)here an intangible
asset is not yet available for use, it is sub(cid:77)ect to an annual impairment test by comparing the carrying value with the recoverable amount. The
recoverable amount is estimated by considering the ability of the asset to generate sufficient future economic benefits to recover the carrying value.
5(q): Assets and liabilities held for sale and discontinued operations
Assets (and disposal groups) are classified as held for sale if their carrying amount is expected to be recovered through a sales transaction rather
than(cid:98)through continuing use. This condition is regarded as having been met only when the sale is highly probable and the asset (or disposal group) is
available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition
as a completed sale within one year of the date of classification. Assets and liabilities held for sale are presented separately in the consolidated
statement of financial position.
Assets and liabilities (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and their fair value less costs
to sell. No depreciation or amortisation is charged on a non-current asset while classified as held for sale or while part of a disposal group once it has
been classified as held for sale.
The Group classifies areas of the business as discontinued operations where they have been disposed of, or are classified as held for sale at the year
end, which either represent a separate ma(cid:77)or line of business or geographical area, or are part of a plan to dispose of one, or are subsidiaries acquired
exclusively with a view to resale.
(cid:58)hen an asset (or disposal group) ceases to be classified as held for sale, the individual assets and liabilities cease to be shown separately in the
statement of financial position at the end of the year in which the classification changes. Comparatives are not restated. If the line of business was
previously presented as a discontinued operation and subsequently ceases to be classified as held for sale, profit and loss and cash flows of the
comparative period are restated to show that line of business as a continuing operation. Further information can be found in note (cid:25).
5(r): Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more probable than not that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions
are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date. (cid:58)here the effect of the time
value of money is material, provisions are discounted and represent the present value of the expected expenditure. Provisions are not recognised for
future operating costs or losses.
The Group recognises specific provisions where they arise for the situations outlined below(cid:29)
– Client compensation and related costs, when the Group compensates clients in the context of providing fair customer outcomes.
– Onerous contracts, when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the
obligations under the contract.
– Corporate restructuring, only if the Group has approved a detailed formal plan and raised a valid expectation among those parties directly affected,
that the plan will be carried out either by having commenced implementation or by publicly announcing the plan’s main features. Such provisions
include the direct expenditure arising from the restructuring, such as employee termination payments but not those costs associated with the
ongoing activities of the Group.
– Legal uncertainties and the settlement of other claims.
Contingent liabilities are possible obligations of the Group of which the timing and amount are sub(cid:77)ect to significant uncertainty. Contingent liabilities
are not recognised in the consolidated statement of financial position, unless they are assumed by the Group as part of a business combination. They
are however disclosed, unless they are considered to be remote. If a contingent liability becomes probable and the amount can be reliably measured
it(cid:98)is no longer treated as contingent and recognised as a liability.
Contingent assets, which are possible benefits to the Group, are only disclosed if it is probable that the Group will receive the benefit. If such a benefit
becomes virtually certain, it is no longer considered contingent and is recognised on the consolidated statement of financial position as an asset.
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Notes to the consolidated financial statements
For the year ended 31 December 2020
6: Acquisitions, disposals and discontinued operations
6(a): Business acquisitions
Business acquisitions completed during the year ended 31 December 2020
There have been no material acquisitions during the year ended 31 December 2020.
Business acquisitions completed during the year ended 31 December 2019
Charles Derby Group Limited (“CDG”) acquisition on 14 February 2019
The purchase price of (cid:101)31 million was allocated based on the fair value of net assets acquired at the date of acquisition, determined in accordance
with IFRS 3 Business Combinations. These allocations are now final and the Group recognised goodwill of (cid:101)23 million in relation to this acquisition.
Lighthouse Group plc (“Lighthouse”) acquisition on 12 June 2019
The estimated fair value of net assets acquired in Lighthouse of (cid:101)13 million, included a provision of (cid:101)12 million in respect of pension transfer advice
provided to certain Lighthouse clients between 201(cid:25) and 2018, prior to the Group’s acquisition of Lighthouse in June 2019.
As a result of an investigation by the FCA into defined benefit ((cid:522)D(cid:37)(cid:523)) pension transfer advice, including advice provided to (cid:37)ritish Steel employees by
Lighthouse, and an additional number of complaints received during 2020, the Group increased its scope for the provision to include all (cid:37)ritish Steel
customers, rather than only those who have raised a complaint, and performed a detailed case review (further details of which are included in note
28). This resulted in an increase to the provision at acquisition of a further (cid:101)12 million, which brought the provision balance to (cid:101)24 million. An insurance
recovery asset of (cid:101)3 million related to the provision was recognised at 30 June 2020, representing management’s assessment of the fair value on a
best estimate basis. Discussions with Lighthouse’s insurers remain ongoing. A further review of the tax treatment resulted in the recognition of a
deferred tax asset of (cid:101)2 million. The impact upon the fair value of net assets acquired as a result of the (cid:37)ritish Steel D(cid:37) pension transfer advice
provision, insurance recovery asset and deferred tax asset at acquisition is a net liability of (cid:101)19 million, which is an increase in the net liability of (cid:101)7
million from the (cid:101)12 million estimated balance reported recognised at 31 December 2019.
The final determination of the fair value of net assets acquired in Lighthouse is assessed as (cid:101)(cid:25) million, and the Group has recognised goodwill of
(cid:101)40 million in relation to this acquisition, which is an increase in goodwill of (cid:101)7 million from the estimated balance recognised at 31 December 2019.
No further ad(cid:77)ustments can be made to the fair value of net assets acquired as the Group is now beyond the 12-month post-acquisition period
permitted for such entries under IFRS 3 Business Combinations.
Contingent consideration arising from business combinations
The table below details the movements in the contingent consideration balance (see note 31) during the current and prior year arising from the
business acquisitions in earlier years detailed above.
Opening balance
Acquisitions during the year
Payments
Financing interest charge
Other movements
Closing balance
31 December
2020
£m
39
–
(20)
2
(5)
31 December
2019
£m
37
22
(21)
3
(2)
16
39
Contingent consideration represents management’s best estimate of the amount payable in relation to each acquisition discounted to net present
value. The basis of each acquisition varies but includes payments based upon a percentage of the level of assets under administration, funds under
management and levels of ongoing fee income at future dates. Management estimate that a 20(cid:8) increase(cid:18)(decrease) in these key underlying
assumptions would have resulted in a (cid:101)3 million(cid:18)(cid:101)(4) million movement in the year-end contingent consideration balance.
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189
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
6: Acquisitions, disposals and discontinued operations continued
6(b): Business disposals
Year ended 31 December 2020
There have been no disposals during the year ended 31 December 2020.
Year ended 31 December 2019
On 31 December 2019, the Group completed the sale of the Quilter Life Assurance ((cid:522)QLA(cid:523)) business (consisting of two of the Group’s subsidiary
undertakings(cid:29) Old Mutual (cid:58)ealth Life Assurance Limited and Old Mutual (cid:58)ealth Pensions Trustee Limited) to ReAssure Group for total consideration
of (cid:101)44(cid:25) million. The Group recognised a profit on the disposal of QLA of (cid:101)103 million. Provisions established in respect of this disposal are shown in
note 28.
(Loss)/profit on sale of operations
Consideration received
Less: transaction and separation costs1
Net (costs)/proceeds from sale
Carrying value of net assets disposed
Goodwill allocated and disposed
Year ended
31 December
2020
£m
(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:47)(cid:76)(cid:73)(cid:72)
Assurance and
Single Strategy
business
£m
–
(1)
(1)
–
–
Year ended
31 December
2019
£m
Quilter Life
Assurance
£m
446
(19)
427
(294)
(30)
(cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12)(cid:18)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)
1An additional (cid:101)1 million of transaction and separation costs relating to the historical sales of the QLA and Single Strategy businesses have been recognised in the year ended 31
December 2020.
103
(1)
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6: Acquisitions, disposals and discontinued operations continued
6(c): Discontinued operations – income statement
The Group’s discontinued operations principally relate to the QLA business that was disposed of on 31 December 2019 and the associated profit on sale.
Year ended
31 December
2020
£m
Year ended
31 December
2019
£m
Notes
Income
Gross earned premiums
Premiums ceded to reinsurers
Net earned premiums
Fee income and other income from service activities
Investment return
Total income
Expenses
Claims and benefits paid
Reinsurance recoveries
Net insurance claims and benefits incurred
Change in reinsurance assets and liabilities
Change in insurance contract liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Other operating and administrative expenses
Total expenses
(Loss)(cid:18)profit on sale of operations before tax
(cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12)(cid:18)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Tax expense attributable to policyholder returns
(cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12)(cid:18)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Income tax expense
Less: tax expense attributable to policyholder returns
Tax expense attributable to equity holders
(cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12)(cid:18)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Attributable to:
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:83)(cid:79)(cid:70)
9(a)
9(b)
27
10(a)
10(b)
6(b)
11(a)
11(a)
(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:50)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:88)(cid:76)(cid:79)(cid:87)(cid:72)(cid:85)(cid:3)(cid:83)(cid:79)(cid:70)
Basic – from discontinued operations (pence)
Diluted – from discontinued operations (pence)
12(b)
12(b)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(1)
–
(1)
–
–
–
(1)
(1)
(0.1)
(0.1)
145
(86)
59
164
1,38(cid:25)
1,609
(98)
72
(26)
121
(134)
(1,3(cid:25)4)
(45)
(8)
(1,456)
103
256
(76)
180
(89)
76
(13)
167
167
9.1
8.9
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Quilter | Annual report 2020
191
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
6: Acquisitions, disposals and discontinued operations continued
6(d): Discontinued operations – Statement of comprehensive income
(Loss)(cid:18)profit after tax
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:11)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:12)(cid:18)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
6(e): Discontinued operations – Net cash flows
Total net cash flows used in operating activities
Total net cash (used in)/from investing activities
Total net cash used in financing activities
(cid:49)(cid:72)(cid:87)(cid:3)(cid:71)(cid:72)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
7: Alternative performance measures (“APMs”)
7(a): Adjusted profit and reconciliation to profit after tax
Year ended
31 December
2020
£m
(1)
Year ended
31 December
2019
£m
167
(1)
167
Year ended
31 December
2020
£m
–
(10)
–
Year ended
31 December
2019
£m
(3,789)
3,7(cid:25)(cid:24)
(130)
(10)
(154)
Basis of preparation of adjusted profit
Ad(cid:77)usted profit is one of the Group’s Alternative Performance Measures and reflects the Directors’ view of the underlying performance of the Group.
It is used for management decision making and internal performance management and is the profit measure presented in the Group’s segmental
reporting. Ad(cid:77)usted profit is a non-GAAP measure which ad(cid:77)usts the Group’s IFRS profit for specified items as detailed in note 7(b). The definition
of ad(cid:77)usted profit is unchanged from the last annual financial statements.
Year ended 31 December 2020
Year ended 31 December 2019
Notes
Continuing
operations
£m
90
114
(36)
Discontinued
operations
£m
–
–
–
Continuing
operations
£m
103
112
(33)
Discontinued
operations¹
£m
–
53
–
Total
£m
90
114
(36)
168
–
168
(42)
(1)
(70)
–
(10)
9
(5)
182
(26)
156
(54)
–
(77)
(6)
(10)
(62)
–
53
26
79
–
103
–
–
–
(12)
10
101
180
76
(89)
167
(119)
(209)
49
36
3
88
(53)
98
(66)
(21)
Total
£m
103
165
(33)
235
–
235
(54)
103
(77)
(6)
(10)
(74)
10
(108)
127
174
(155)
146
–
–
–
–
(1)
–
–
–
–
–
(1)
(1)
–
–
(1)
Advice and Wealth Management
Wealth Platforms
Head Office
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)
Reallocation of QLA costs
168
–
168
(42)
–
(70)
–
(10)
9
(5)
(118)
50
36
3
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Ad(cid:77)usting items(cid:29)
Impact of acquisition and disposal related accounting
(Loss)(cid:18)profit on business disposals
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax ad(cid:77)ustments
Customer remediation
Total adjusting items before tax
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)
Tax attributable to policyholder returns
Income tax credit/(expense)
8(b)
7(b)(i)
6(b)
7(b)(ii)
7(b)(iii)
7(b)(iv)
7(b)(v)
7(b)(vi)
11(a)
11(a),(b)
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)2
89
1Discontinued operations includes the results of the Quilter Life Assurance ((cid:522)QLA(cid:523)) business in 2019.
2IFRS profit(cid:18)(loss) after tax.
192
Quilter | Annual report 2020
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7: Alternative performance measures (“APMs”) continued
7(b): Adjusting items
In determining ad(cid:77)usted profit before tax, certain ad(cid:77)ustments are made to IFRS profit before tax to reflect the underlying performance of the Group.
These are detailed below.
7(b)(i): Impact of acquisition and disposal related accounting
The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over the fair
value of the Group’s share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business
Combinations). The Group excludes any impairment of goodwill from ad(cid:77)usted profit as well as the amortisation and impairment of acquired other
intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to
past(cid:98)disposals.
The effect of these ad(cid:77)ustments to determine ad(cid:77)usted profit are summarised below. All ad(cid:77)ustments are in respect of continuing operations.
Amortisation of other acquired intangible assets
Fair value gains on revaluation of contingent consideration
Acquisition and disposal related (income)/costs1
Unwinding of discount on contingent consideration
Note
14(a)
Year ended
31 December
2020
£m
45
(4)
(1)
2
Year ended
31 December
2019
£m
45
–
6
3
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:83)(cid:82)(cid:86)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)
1Acquisition and disposal related (income)(cid:18)costs in the year ended 31 December 2020 includes a (cid:101)(1) million acceleration of discounting unwind following the settlement of a
loan receivable from TA Associates that related to deferred consideration arising from the sale of the Single Strategy Asset Management business. Other acquisition and
disposal related (income)(cid:18)costs include items such as transaction costs or deferred incentives arising on the acquisition of businesses.
42
54
7(b)(ii): Business transformation costs
(cid:37)usiness transformation costs include four items(cid:29) costs associated with the UK Platform Transformation Programme, build out costs incurred within
Quilter Investors as a result of the sale of the Single Strategy business, Optimisation Programme costs, and restructuring costs incurred as a result of
the sale of Quilter Life Assurance. All items are within the Group’s continuing operations. For the year ended 31 December 2020, these costs totalled
(cid:101)70 million (31 December 2019(cid:29) (cid:101)77 million) in aggregate, the principal components of which are described below(cid:29)
UK Platform Transformation Programme – 31 December 2020: £38 million, 31 December 2019: £57 million
The second ma(cid:77)or migration of client assets completed in November 2020 and the final migration completed successfully in February 2021 with all
Quilter Investment Platform assets now live on the new platform. The total costs of the programme are expected to be approximately (cid:101)200 million,
in line with previous guidance.
Optimisation Programme costs – 31 December 2020: £33 million, 31 December 2019: £18 million
The Optimisation programme has delivered notable efficiencies and improvements in operational performance for the Group through greater
technology utilisation and integration activity. Technology enabled transformation over 2020 included successful deployment of new finance and
procurement modules as part of our general ledger consolidation and modernisation activity effective from January 2021, with (cid:101)33 million of total
costs for the Optimisation programme incurred for the year ended 31 December 2020. The Group also continued to leverage support function
centres of excellence to achieve cost savings and reduce spend across the business by introducing tighter supplier management practices, insourcing
capabilities and rationalising and consolidating technology and other suppliers across the Group.
Quilter Investors’ build out costs – 31 December 2020: £(1) million, 31 December 2019: £(1) million
As part of the Group’s strategy to separate from Old Mutual plc in 2018, the Group incurred build out costs to develop Quilter Investors as a separate
business distinct from the Single Strategy business, which was subsequently sold on 29 June 2018. The build was substantially completed in 2019,
resulting in the release of (cid:101)1 million of the provision established to complete the build in 2019, with a further (cid:101)1 million release in 2020.
Restructuring costs following disposal of Quilter Life Assurance – 31 December 2020: £nil, 31 December 2019: £3 million
As a result of the disposal of QLA on 31 December 2019, the Group recognised (cid:101)3 million as an ad(cid:77)usting item principally in respect of redundancy
costs. The Group expects to incur further restructuring costs during the following 12 months, including the cost of decommissioning IT systems, as
the Transitional Service Agreement with ReAssure (the acquirer) runs off during 2021 and the remaining Quilter business is restructured following
the(cid:98)disposal.
Quilter | Annual report 2020
193
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
7: Alternative performance measures (“APMs”) continued
7(b): Adjusting items continued
7(b)(iii): Managed Separation costs
One-off costs related to the Managed Separation from Old Mutual plc have been excluded from ad(cid:77)usted profit on the basis that they relate
to a(cid:98)fundamental restructuring of the Group and are therefore not representative of the operating activity of the Group. For the year ended
31 December 2020 these costs were (cid:101)0.1 million (31 December 2019(cid:29) (cid:101)(cid:25) million). The costs incurred in 2020 were in respect of rebranding
and further rebranding costs are expected to be incurred in 2021.
7(b)(iv): Finance costs
The nature of much of the Group’s operations means that, for management’s decision making and internal performance management, the effects
of interest costs on external borrowings are removed when calculating ad(cid:77)usted profit. For the period ended 31 December 2020 finance costs were
(cid:101)10 million (31 December 2019(cid:29) (cid:101)10 million). See note 10(e) for further details of the Group’s finance costs.
7(b)(v): Policyholder tax adjustments
For the year ended 31 December 2020 the total policyholder tax ad(cid:77)ustments to ad(cid:77)usted profit is (cid:101)9 million (31 December 2019(cid:29) (cid:101)(74) million) relating
to both continuing and discontinued operations, as shown in note 11(c). Ad(cid:77)ustments to policyholder tax are made to remove distortions arising from
market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from
policyholders (which is included within the Group’s income) to fund the policyholder tax liability can vary in timing to the recognition of the
corresponding tax expense, creating volatility to the Group’s IFRS profit(cid:18)(loss) before tax attributable to equity holders. For a further explanation of
the impact of markets on the policyholder tax charge see note 11(a). Ad(cid:77)ustments are also made to remove policyholder tax distortions from other
non-operating ad(cid:77)usting items.
7(b)(vi): Customer remediation
Lighthouse pension transfer advice provision – 31 December 2020 £5 million, 31 December 2019 £nil
(cid:58)ith regard to the provision for redress payable and related costs established within the fair value of the Lighthouse assets and liabilities acquired
in June 2019 in relation to advice provided to (cid:37)ritish Steel Pension Scheme members, a further (cid:101)(cid:24) million (31 December 2019(cid:29) (cid:101)nil) increase in the
provision has been recognised in the income statement in the year ended 31 December 2020, reflecting the impact of post-acquisition market and
discount rate movements. This has been excluded from ad(cid:77)usted profit on the basis that the costs are not representative of the operating activity
of the Group. Further details of the provision are provided in note 28.
QLA voluntary client remediation provision – 31 December 2020 £nil, 31 December 2019 £10 million
(cid:58)ithin QLA (disposed of on 31 December 2019), a voluntary customer remediation provision was established in 2017 following product
reviews and consistent with recommendations from the Financial Conduct Authority’s ((cid:522)FCA(cid:523)) thematic review and the FCA’s guidance
FG16/8 Fair treatment of long-standing customers in the life assurance sector. During 2019, (cid:101)10 million of the provision was released
(as detailed in note 28).
7(c): IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)
For remuneration purposes, the Group uses IFRS profit before tax ad(cid:77)usted to exclude agreed non-operating, one-off items as shown below.
For further details please refer to the Remuneration Report (page 122) and KPIs (page 41).
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:11)(cid:47)(cid:82)(cid:86)(cid:86)(cid:12)(cid:18)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:514)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Ad(cid:77)usted for the following(cid:29)
Loss(cid:18)(profit) on business disposals
Impact of acquisition and disposal related accounting
Policyholder tax ad(cid:77)ustments
Customer remediation
Quilter Investors’ build out costs
Notes
6(c)
6(b)
7(b)(i)
7(b)(v)
7(b)(vi)
7(b)(ii)
(cid:918)(cid:41)(cid:53)(cid:54)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:11)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:80)(cid:82)(cid:85)(cid:87)(cid:76)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:92)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:98)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:98)(cid:82)(cid:81)(cid:72)(cid:16)(cid:82)(cid:909)(cid:3)(cid:76)(cid:87)(cid:72)(cid:80)(cid:86)(cid:12)
Year ended
31 December
2020
£m
50
(1)
Year ended
31 December
2019
£m
(53)
180
1
42
(9)
5
(1)
87
(103)
54
74
(10)
(1)
141
194
Quilter | Annual report 2020
7: Alternative performance measures (“APMs”) continued
7(d): Reconciliation of IFRS income and expenses to “Total net fee revenue” and “Operating expenses” within adjusted profit
This reconciliation shows how each line of the Group’s consolidated IFRS income statement is allocated to the Group’s APMs(cid:29) Net management fees,
Total net fee revenue and Operating expenses, which are all defined on page 271 and form the Group’s ad(cid:77)usted profit for continuing operations.
The IFRS(cid:98)income statement column in the table below, down to (cid:522)Profit(cid:18)(loss) before tax attributable to equity holders from continuing operations(cid:523),
reconciles to each line of the Group’s consolidated income statement. Allocations are determined by management and aim to show the Group’s
sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability,
unless otherwise stated.
Net mgmt
fees1
£m
Other
revenue1
£m
Total net fee
revenue1
£m
Operating
expenses1
£m
Adjusted
(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)
before tax
£m
Consol.
of funds2
£m
IFRS income
statement
£m
Year ended 31 December 2020
Income
Fee income and other income from service activities
Investment return
Other income
Total income
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs4
Total expenses
Tax expense attributable to policyholder returns
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
from continuing operations
Ad(cid:77)usting items(cid:29)
Impact of acquisition and disposal related accounting
Business transformation costs
Finance costs
Customer remediation
Policyholder tax ad(cid:77)ustments
Adjusting items
680
–
–
680
–
–
(70)
–
(13)
–
(83)
(36)
195
3,340
1
3,536
(1)
(3,328)
(74)
–
(2)
(1)
(3,406)
–
875
3,340
1
4,216
(1)
(3,328)
(144)
–
(15)
(1)
(3,489)
(36)
–
–
15
15
–
–
–
–
(640)
(16)
(656)
–
561
130
691
(641)
–
–
–
–
(9)
(9)
–
–
–
–
–
–
–
–
–
–
(9)
(9)
42
70
10
5
–
127
(514)
Total Group – continuing operations
552
130
682
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
e
p
o
r
t
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
(80)
556
4
480
–
–
(3)
(440)
(37)
–
(480)
–
795
3,89(cid:25)
20
4,711
(1)
(3,328)
(147)
(440)
(692)
(17)
(4,625)
(36)
–
50
875
3,340
16
4,231
(1)
(3,328)
(144)
–
(655)
(17)
(4,145)
(36)
50
42
70
10
5
(9)
118
168
Quilter | Annual report 2020
195
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
7: Alternative performance measures (“APMs”) continued
7(d): Reconciliation of IFRS income and expenses to ‘Total net fee revenue’ and ‘Operating expenses’ within adjusted profit continued
In the Group’s 2019 Annual Report, the reconciliation for year ended 31 December 2019 included the results of the QLA business within ad(cid:77)usted
profit before tax. QLA is now excluded from this reconciliation for comparability with the current period following its disposal on 31 December 2019,
which now presents continuing operations only.
Year ended 31 December 2019 (restated)3
Income
Fee income and other income from service activities
Investment return
Other income
Total income
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs4
Total expenses
Tax expense attributable to policyholder returns
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)
from continuing operations
Ad(cid:77)usting items(cid:29)
Impact of acquisition and disposal related accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax ad(cid:77)ustments
Adjusting items
Ad(cid:77)usted profit before tax after reallocation
Reallocation of QLA costs
Net mgmt
fees1
£m
Other
revenue1
£m
Total net fee
revenue1
£m
Operating
expenses1
£m
Adjusted
profit
(cid:69)efore tax
£m
Consol.
of funds2,3
£m
IFRS income
statement3
£m
689
40
–
729
–
–
(100)
–
(14)
–
(114)
(98)
230
(cid:24),79(cid:24)
1
6,026
(1)
((cid:24),810)
(77)
–
(1)
(4)
919
(cid:24),83(cid:24)
1
6,755
(1)
((cid:24),810)
(177)
–
(15)
(4)
–
–
–
–
–
–
–
–
(690)
(13)
919
(cid:24),83(cid:24)
1
6,755
(1)
((cid:24),810)
(177)
–
(705)
(17)
(82)
731
15
664
–
–
10
(634)
(40)
–
837
(cid:25),(cid:24)(cid:25)(cid:25)
16
7,419
(1)
((cid:24),810)
(167)
(634)
(745)
(17)
(5,893)
(6,007)
(703)
(6,710)
(664)
(7,374)
–
(98)
–
(98)
–
–
(98)
(53)
517
133
650
(703)
(53)
–
–
–
–
62
62
579
–
–
–
–
–
–
–
133
–
–
–
–
–
62
62
712
–
54
77
6
10
–
147
(556)
26
54
77
6
10
62
209
156
26
Total Group – continuing operations
1The APMs (cid:522)Net Management Fees(cid:523), (cid:522)Other revenue(cid:523), (cid:522)Total net fee revenue(cid:523) and (cid:522)Operating expenses(cid:523) are commented on within the Financial Review and defined on page 271.
2Consolidation of funds shows the grossing up impact to the Group’s consolidated income statement as a result of the consolidation of funds requirements, as described within
note (cid:24)(a). This grossing up is excluded from the Group’s ad(cid:77)usted profit.
3See note 4(b) for details of changes to comparative amounts.
4During the year ended 31 December 2020, management reassessed the presentation of lease interest expenses within the ad(cid:77)usted profit analysis in the table above. These
expenses have historically been reported within (cid:522)Other revenue(cid:523) and are now reported within (cid:522)Operating expenses(cid:523) for ad(cid:77)usted profit.
(530)
579
182
133
712
196
Quilter | Annual report 2020
8: Segmental information
8(a): Segmental presentation
The Group’s operating segments comprise Advice and (cid:58)ealth Management and (cid:58)ealth Platforms, which is consistent with the manner in which the
Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement.
Head Office includes certain revenues and central costs that are not allocated to the segments. There have been no changes to the basis of
segmentation for the periods presented within these consolidated financial statements.
Ad(cid:77)usted profit is an Alternative Performance Measure ((cid:522)APM(cid:523)) reported to the Group’s management and (cid:37)oard. Management and the (cid:37)oard use
additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and administration,
revenue and operating margin.
Consistent with internal reporting, assets, liabilities, income and expenses that are not directly attributable to a particular segment are allocated
between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties
at(cid:98)current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued
operations are not ad(cid:77)usted for potential future changes to the level of remaining costs following the disposal of those businesses.
The segmental information in this note reflects the ad(cid:77)usted and IFRS profit measures and the assets and liabilities for each operating segment
as(cid:98)provided to management and the (cid:37)oard. Income is further segmented into the geographic location of the businesses in note 9(a).
Continuing operations:
Advice and Wealth Management
This segment comprises Quilter Investors, Quilter Cheviot and Quilter Financial Planning.
Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form
of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class.
Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to
the individual needs of a(cid:606)uent and high-net worth customers, charities, companies and institutions through a network of branches in London and
the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.
Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Private Client Advisors ((cid:522)QPCA(cid:523)), Quilter Financial
Advisers ((cid:522)QFA(cid:523)) and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through
a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with
property wealth and personal and business protection needs.
Wealth Platforms
This segment comprises Quilter Investment Platform ((cid:522)QIP(cid:523)) and Quilter International.
Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which
serves a largely a(cid:606)uent customer base through advised multi-channel distribution.
Quilter International is a cross-border business, focusing on high net worth and a(cid:606)uent local customers and expatriates in the UK, Asia, the Middle
East, Europe and Latin America.
Head Office
In addition to the two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses,
central core structural borrowings and certain tax balances in the segmental statement of financial position.
Discontinued operations:
The disposal of Quilter Life Assurance ((cid:522)QLA(cid:523)) on 31 December 2019, previously part of the (cid:58)ealth Platforms operating segment, resulted in that
business being classified as a discontinued operation. The results of that business, along with the profit on disposal, have been presented as
discontinued operations. See note (cid:25) for further information.
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
e
p
o
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F
i
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a
n
c
i
a
l
s
t
a
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O
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i
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f
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a
t
i
o
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Quilter | Annual report 2020
197
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
8: Segmental information continued
8(b)(i): Adjusted profit statement – segmental information for the year ended 31 December 2020
The table below presents the Group’s continuing operations split by operating segment, reconciling the segmented IFRS income statement
(to (cid:522)Profit(cid:18)(loss) before tax attributable to equity holders from continuing operations(cid:523)) to ad(cid:77)usted profit before tax.
Income
Fee income and other income from service activities
Investment return
Other income
Segmental income
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs
Segmental expenses
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Tax attributable to policyholder returns
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:98)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:98)(cid:73)(cid:85)(cid:82)(cid:80)(cid:98)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:98)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
Adjusted for non-operating items:
Impact of acquisition and disposal related accounting
Business transformation costs
Finance costs
Policyholder tax ad(cid:77)ustments
Customer remediation
Ad(cid:77)usting items before tax
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Notes
9(a)
9(b)
27
10(a)
10(b)
10(e)
7(b)(i)
7(b)(ii)
7(b)(iv)
7(b)(v)
7(b)(vi)
Operating segments
Advice and
Wealth
Management
£m
Wealth
Platforms
£m
Head
(cid:50)(cid:605)ce
£m
Consolidation
adjustments1
£m
Consolidated
income
statement
£m
456
4
4
464
–
–
(50)
–
(370)
(3)
426
3,33(cid:24)
117
3,878
(1)
(3,328)
(101)
–
(324)
(4)
(423)
(3,758)
41
–
41
44
–
–
–
5
49
90
120
(36)
84
–
39
–
(9)
–
30
–
1
5
6
–
–
–
–
(71)
(10)
(81)
(75)
–
(75)
(2)
31
10
–
–
39
(87)
556
(106)
363
–
–
4
(440)
73
–
795
3,89(cid:25)
20
4,711
(1)
(3,328)
(147)
(440)
(692)
(17)
(363)
(4,625)
–
–
–
–
–
–
–
–
–
–
86
(36)
50
42
70
10
(9)
5
118
168
114
(36)
1Consolidation ad(cid:77)ustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
198
Quilter | Annual report 2020
8: Segmental information continued
8(b)(ii): Adjusted profit statement – segmental information for the year ended 31 December 2019 restated3
Consolidation
adjustments
2,3
£m
(87)
730
(151)
492
–
–
16
(634)
126
–
Consolidated
income
statement3
£m
837
(cid:25),(cid:24)(cid:25)(cid:25)
16
7,419
(1)
((cid:24),810)
(167)
(634)
(745)
(17)
(492)
(7,374)
–
–
–
–
–
–
–
–
–
–
–
45
(98)
(53)
54
77
6
10
62
209
156
26
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
R
e
p
o
r
t
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
O
t
h
e
r
i
n
f
o
r
m
a
t
i
o
n
Income
Fee income and other income from service activities
Investment return
Other income
Segmental income
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs
Notes
9(a)
9(b)
27
10(a)
10(b)
10(e)
Operating segments
Advice and
Wealth
Management
£m
Wealth
Platforms
£m
Head
(cid:50)(cid:605)ce
£m
Reallocation
of QLA costs1
£m
486
10
1
497
–
–
(73)
–
(368)
(4)
438
(cid:24),823
160
6,421
(1)
((cid:24),810)
(110)
–
(409)
(3)
88
(98)
–
3
6
9
–
–
–
–
(68)
(10)
(78)
(69)
–
–
–
–
–
–
–
–
–
(26)
–
(26)
(26)
–
Segmental expenses
(445)
(6,333)
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Tax attributable to policyholder returns
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)
continuing operations
Adjusted for non-operating items:
Impact of acquisition and disposal related accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax ad(cid:77)ustments
Ad(cid:77)usting items before tax
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)1
Reallocation of QLA costs1
7(b)(i)
7(b)(ii)
7(b)(iii)
7(b)(iv)
7(b)(v)
52
–
52
52
(1)
–
–
–
51
103
–
(10)
(69)
(26)
1
58
1
–
62
122
112
–
1
20
5
10
–
36
(33)
–
–
–
–
–
–
–
(26)
26
182
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:18)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
1As disclosed in the Group’s 2019 Annual Report, Reallocation of QLA costs includes (cid:101)2(cid:25) million of costs previously reported as part of the QLA business which was reclassified
from discontinued to continuing operations as these costs did not transfer to ReAssure on disposal at 31 December 2019.
2Consolidation ad(cid:77)ustments comprise the elimination of inter-segment transactions and the consolidation of funds.
3See note 4(b) for details of changes to comparative amounts.
(33)
103
112
–
–
Quilter | Annual report 2020
199
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
8: Segmental information continued
8(c)(i): Statement of financial position – segmental information at 31 December 2020
Assets
Goodwill and intangible assets
Property, plant and equipment
Investments in associated undertakings
Contract costs
Loans and advances
Financial investments
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Inter-segment funding – assets
Total assets
Liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable/(receivable)2
(cid:37)orrowings and lease liabilities
Trade, other payables and other liabilities
Contract liabilities
Derivative liabilities
Inter-segment funding – liabilities
Total liabilities
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Advice & Wealth
Management
£m
Notes
Wealth
Platforms
£m
Head
(cid:50)(cid:605)(cid:70)(cid:72)
£m
Consolidation
Adjustments1
£m
14
15
23
16
17
29(a)
29(c)
22
18
24
27
28
29(b)
29(c)
30
31
32
18
423
13
–
–
33
–
10
–
228
–
310
63
133
129
–
413
186
(cid:24)7,1(cid:25)2
25
10
430
–
690
34
1,080
59,212
–
–
53
36
21
15
268
–
–
–
393
(cid:24)7,407
–
15
70
(12)
105
396
379
–
20
58,380
–
–
1
–
–
–
43
14
2
–
614
20
694
–
–
9
–
(8)
199
34
–
–
97
331
–
–
–
–
–
(cid:25),112
–
–
41
43
307
(117)
6,386
–
(cid:25),(cid:24)13
–
–
–
–
(26)
–
20
(117)
6,390
Total
£m
556
142
1
413
219
(cid:25)3,274
78
24
701
43
1,921
–
67,372
(cid:24)7,407
(cid:25),(cid:24)13
77
106
1
319
672
379
20
–
65,494
1,878
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
1Consolidation ad(cid:77)ustments comprise the elimination of inter-segment transactions and the consolidation of funds.
2Current tax payable(cid:18)(receivable) includes Group relief payable and receivable that net to (cid:101)nil on a consolidated basis but may appear as a receivable within individual segments.
67,372
200
Quilter | Annual report 2020
8: Segmental information continued
8(c)(ii): Statement of financial position – segmental information at 31 December 2019 restated3
Assets
Goodwill and intangible assets
Property, plant and equipment
Investments in associated undertakings
Contract costs
Loans and advances
Financial investments
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Inter-segment funding – assets
Total assets
Liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable/(receivable)2
(cid:37)orrowings
Trade, other payables and other liabilities
Contract liabilities
Derivative liabilities
Inter-segment funding – liabilities
Total liabilities
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
Advice &
Wealth
Management
£m
Wealth
Platforms
restated3
£m
Notes
Consolidation
Adjustments
1,3
£m
Head
(cid:50)(cid:605)ce
£m
Total
restated3
£m
14
15
23
16
17
29(a)
29(c)
22
18
24
27
28
29(b)
29(c)
30
31
32
18
458
30
–
–
31
1
11
–
207
–
383
–
134
111
–
455
180
(cid:24)2,249
22
–
389
–
725
12
1,121
54,277
–
–
28
38
1
26
322
1
–
–
(cid:24)2,4(cid:24)(cid:24)
–
26
50
(7)
108
477
402
–
–
–
2
1
–
6
–
10
13
3
–
838
–
873
–
–
10
–
12
201
37
–
–
12
–
–
–
–
–
4,9(cid:24)7
–
–
6
22
307
592
143
1
455
217
(cid:24)7,207
43
13
605
22
2,2(cid:24)3
(12)
–
5,280
61,551
–
(cid:24),318
–
–
–
–
(35)
–
10
(12)
(cid:24)2,4(cid:24)(cid:24)
(cid:24),318
64
88
6
335
801
403
10
–
416
53,511
272
5,281
59,480
2,071
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
1Consolidation ad(cid:77)ustments comprise the elimination of inter-segment transactions and the consolidation of funds.
2Current tax payable(cid:18)(receivable) includes Group relief payable and receivable that net to (cid:101)nil on a consolidated basis but may appear as a receivable within individual segments.
3See note 4(b) for details of changes to comparative amounts.
61,551
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a
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c
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p
o
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G
o
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e
r
n
a
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c
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R
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p
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F
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a
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c
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a
l
s
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Quilter | Annual report 2020
201
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
9: Details of revenue
This note gives further detail on the items appearing in the revenue section of the consolidated income statement.
9(a): Geographic segmental information
This note analyses the Group’s total income, split by geographic location of our businesses (UK and International) and further analyses the Group’s fee
income and other income from service activities, based on the type of fees earned. The Group also earns an immaterial amount of income through
operations based in the Republic of Ireland and the Channel Islands.
Year ended 31 December 2020
Premium based fees
Fund based fees1
Retrocessions received, intragroup
Fixed fees
Exit fees
Other fee and commission income
Advice and
Wealth
Management
£m
113
343
–
–
–
–
Fee income and other income from service activities
456
Investment return
Other income
Total income
4
4
464
UK
International
UK
Wealth
Platforms
£m
–
168
2
2
–
48
220
2,273
143
2,636
(cid:43)(cid:72)(cid:68)(cid:71)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)
£m
–
–
–
–
–
–
Wealth
Platforms
£m
70
88
6
29
13
–
Consolidation
adjustments
£m
–
(93)
(8)
–
–
14
–
2
5
7
206
1,0(cid:25)2
–
1,268
(87)
555
(132)
336
Total
continuing
operations
£m
183
506
–
31
13
62
795
3,89(cid:25)
20
4,711
UK
International
Discontinued
operations
£m
–
–
–
–
–
–
–
–
–
–
UK
Year ended 31 December 2019 (restated)2
Gross earned premiums
Premiums ceded to reinsurers
Net earned premiums
Premium based fees
Fund based fees1
Retrocessions received, intragroup
Fixed fees
Exit fees
Other fee and commission income
Fee income and other income from service activities
Investment return
Other income
Total income
1Income from fiduciary activities is included within fund based fees.
2See note 4(b) for details of changes to comparative amounts.
Advice and
Wealth
Management
£m
–
–
Wealth
Platforms
£m
–
–
(cid:43)ead (cid:50)(cid:605)ce
£m
–
–
Wealth
Platforms
£m
1
(1)
Consolidation
adjustments2
£m
–
–
Total
continuing
operations2
£m
1
(1)
Discontinued
operations
£m
145
(86)
–
103
383
–
–
–
–
486
10
1
497
–
–
175
2
3
–
39
219
3,82(cid:24)
161
4,205
–
–
–
–
–
–
–
–
3
6
9
–
72
101
2
28
16
–
219
1,998
(1)
2,216
–
–
(95)
(4)
–
–
12
(87)
730
(151)
492
–
175
564
–
31
16
51
837
(cid:25),(cid:24)(cid:25)(cid:25)
16
7,419
59
11
65
10
2
1
75
164
1,38(cid:25)
–
1,609
202
Quilter | Annual report 2020
9: Details of revenue continued
9(b): Investment return
This note analyses the investment return from the Group’s investing activities.
Year ended
31 December
2020
£m
Year ended
31 December
2019
restated2
£m
Interest and similar income
Loans and advances
Investments and securities
Cash and cash equivalents1
Total interest and similar income
Dividend income
Foreign currency gains and losses
Total gains on financial instruments mandatorily recognised at fair value through profit or loss2
Net investment income – continuing operations
Net investment income – discontinued operations
1
90
9
100
99
–
3,(cid:25)97
3,896
–
Total net investment income
1Included within cash and cash equivalents is (cid:101)1 million of interest arising from assets held at amortised cost (2019(cid:29) (cid:101)2 million). The remainder is from assets at F(cid:57)TPL.
2See note 4(b) for details of changes to comparative amounts.
3,896
10: Details of expenses
This note provides further details in respect of the items appearing in the expenses section of the consolidated income statement.
10(a): Fee and commission expenses, and other acquisition costs
This note analyses the fee and commission expenses and other acquisition costs.
–
54
23
77
116
(1)
(cid:25),374
6,566
1,386
7,952
Fee and commission expense1
Acquisition commission costs – investment contracts
Renewal commission – investment contracts
Retrocessions paid
Changes in contract costs
(cid:41)(cid:72)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:41)(cid:72)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:514)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:72)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
1See note 4(b) for details of changes to comparative amounts.
Note
23
Year ended
31 December
2020
£m
3
30
45
25
44
147
–
147
Year ended
31 December
2019
restated¹
£m
1
36
71
19
40
167
45
212
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Quilter | Annual report 2020
203
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
10: Details of expenses continued
10(b): Other operating and administrative expenses
This note provides further details in respect of the items included within other operating and administrative expenses section of the consolidated
income statement.
Staff costs
Depreciation charge on right-of-use assets
Depreciation on other plant and equipment
Impairment of right-of-use assets
Amortisation of purchased software
Amortisation of other acquired intangibles
Administration and other expenses
Other operating and administrative expenses – continuing operations
Other operating and administrative expenses – discontinued operations
Total other operating and administrative expenses
2See note 4(b) for details of changes to comparative amounts.
Notes
10(c)(i)
15
15
15
14(a)
14(a)
Year ended
31 December
2020
£m
361
15
5
3
2
45
261
692
–
692
Year ended
31 December
2019
restated1
£m
399
13
6
–
2
45
280
745
8
753
Administration and other expenses include business transformation costs for the year ended 31 December 2020 of £38 million (2019: £57 million)
in relation to the UK Platform Transformation Programme and (cid:101)33 million (2019(cid:29) (cid:101)18 million) in relation to Optimisation pro(cid:77)ect costs as well as general
operating expenses such as IT related costs, premises and marketing. Discontinued operations includes (cid:101)10 million provision release for the year
ended 31 December 2019 in relation to the voluntary customer remediation provision.
10(c): Staff costs and other employee-related costs
10(c)(i): Staff costs
Salaries
Bonus and incentive remuneration
Social security costs
Retirement obligations – Defined contribution plans
Share-based payments – Equity-settled
Other
Staff costs – continuing operations
Staff costs – discontinued operations
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:909)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
10(c)(ii): Employee numbers
The average number of persons employed by the Group was:
Advice and Wealth Management1
Wealth Platforms
Head Office
Continuing operations
Discontinued operations
Note
26(e)
Year ended
31 December
2020
£m
250
33
26
15
25
12
361
–
361
Year ended
31 December
2019
£m
250
57
29
14
25
24
399
13
412
Year ended
31 December
2020
Number
Year ended
31 December
2019
Number
1,799
2,441
85
4,325
–
1,(cid:25)48
2,47(cid:25)
79
4,203
299
Total average number of employees during the year
1The 2019 monthly average for Advice and (cid:58)ealth Management has been restated (previously reported as 1,(cid:24)1(cid:25)) following the inclusion of all staff attributable to acquisitions
during that year.
4,325
4,502
The monthly average number of persons employed by the Group is based on permanent employees and fixed term contractors.
204
Quilter | Annual report 2020
10: Details of expenses continued
10(d): Auditors’ remuneration
Included in other operating and administrative expenses are fees paid to the Group’s auditors. These can be categorised as follows(cid:29)
Fees payable for audit services
Group and parent Company
Subsidiaries
Additional fees payable to KPMG LLP related to the prior year audit of the Group
Total fees for audit services
Fees for audit-related assurance services
Total Group auditors’ remuneration – continuing operations
Total Group auditors’ remuneration – discontinued operations
Total Group auditors’ remuneration
Year ended
31 December
2020
£m
Year ended
31 December
2019
£m
1.8
2.8
0.7
(cid:24).3
1.(cid:25)
6.9
–
6.9
1.0
2.7
–
3.7
1.1
4.8
0.2
5.0
10(e): Finance costs
This note analyses the interest costs on our borrowings and similar charges, all of which are valued at amortised cost. Finance costs comprise(cid:29)
Term loans and other external debt
Subordinated debt securities (Tier 2 bond)
Interest payable on borrowed funds
Interest expense on lease liabilities
Other
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
Year ended
31 December
2020
£m
1
9
Year ended
31 December
2019
£m
1
9
10
4
3
17
10
3
4
17
Finance costs represent the cost of interest and finance charges on the Group’s borrowings from a number of relationship banks. More details
regarding borrowed funds, including the interest rates payable, are shown in note 30. These costs are excluded from ad(cid:77)usted profit within the
(cid:522)Finance costs(cid:523) ad(cid:77)usting item.
(cid:58)ithin other finance costs above is (cid:101)2 million (2019(cid:29) (cid:101)3 million) relating to the impact of unwinding the discount rate on contingent consideration
payable as a result of various acquisitions. These costs are excluded from ad(cid:77)usted profit within the (cid:522)Impact of acquisition and disposal related
accounting(cid:523) ad(cid:77)usting item as shown in note 7(b)(i).
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Quilter | Annual report 2020
205
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
11: Tax
11(a): Tax charged to the income statement
Current tax
United Kingdom
International
Adjustments to current tax in respect of prior years
Total current tax charge
Deferred tax
Origination and reversal of temporary differences
Effect on deferred tax of changes in tax rates
Adjustments to deferred tax in respect of prior years
Total deferred tax (credit)/charge
Total tax (credited)/charged to income statement – continuing operations
Total tax charged to income statement – discontinued operations
Total tax (credited)/charged to income statement
Attributable to policyholder returns – continuing operations
Attributable to equity holders – continuing operations
Total tax (credited)/charged to income statement – continuing operations
Attributable to policyholder returns – discontinued operations
Attributable to equity holders – discontinued operations
Total tax charged to income statement – discontinued operations
Total tax (credited)/charged to income statement
Year ended
31 December
2020
£m
Year ended
31 December
2019
£m
Note
18
2
(7)
13
(20)
–
4
(16)
(3)
–
(3)
36
(39)
(3)
–
–
–
(3)
33
5
(11)
27
40
2
(3)
39
66
89
155
98
(32)
66
76
13
89
155
6(c)
6(c)
Policyholder tax
Certain products are sub(cid:77)ect to tax on policyholders’ investment returns. This (cid:522)policyholder tax(cid:523) is an element of total tax expense. To make the tax
expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders’ profits are shown separately in the income
statement.
The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years.
The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.
The Group’s income tax credit on continuing operations was (cid:101)(3) million for the year ended 31 December 2020, compared to an expense of (cid:101)(cid:25)(cid:25)
million for the prior year. This income tax (credit)(cid:18)expense can vary significantly period on period as a result of market volatility and the impact this has
on policyholder tax. The recognition of the income received from policyholders (which is included within the Group’s income) to fund the policyholder
tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group’s IFRS profit before tax
attributable to equity holders. An ad(cid:77)ustment is made to ad(cid:77)usted profit to remove these distortions, as explained further in note 7(b)(v).
Market movements during the year ended 31 December 2020 resulted in investment gains of (cid:101)170 million on products sub(cid:77)ect to policyholder tax.
The gain is a component of the total (cid:522)investment return(cid:523) gain of (cid:101)3,89(cid:25) million shown in the income statement. The impact of the (cid:101)3,89(cid:25) million
investment return gain is the primary reason for the (cid:101)3(cid:25) million tax expense attributable to policyholder returns in respect of the continuing
operations for the year ended 31 December 2020 (31 December 2019(cid:29) (cid:101)98 million expense in respect of continuing operations and (cid:101)7(cid:25) million
expense in respect of discontinued operations).
First time recognition of deferred tax asset on accrued interest expense
(cid:58)ithin the (cid:101)(1(cid:25)) million total deferred tax credit and the (cid:101)(39) million tax credit attributable to equity holders (continuing operations) above, the Group
has recognised a (cid:101)(39) million deferred tax credit for the first time in respect of accrued interest expense. At 31 December 2019, acknowledging the
fact that the tax authorities may challenge the Group’s tax treatment, management exercised (cid:77)udgement concluding that the tax treatment of the
accrued interest expense was an uncertain tax position. Following full disclosure to the tax authorities and after assessing recoverability against
forecast future profits the Group reassessed the accounting tax position at 31 December 2020 and recognised a deferred tax asset.
206
Quilter | Annual report 2020
11: Tax continued
11(b): Reconciliation of total income tax expense
The income tax charged(cid:18)credited to profit or loss differs from the amount that would apply if all of the Group’s profits from the different tax
(cid:77)urisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below(cid:29)
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:69)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Tax at UK standard rate of 19(cid:8) (2019(cid:29) 19(cid:8))
Different tax rate or basis on overseas operations
Untaxed and low taxed income
Expenses not deductible for tax
Adjustments to current tax in respect of prior years
Net movements on unrecognised deferred tax assets1
Effect on deferred tax of changes in tax rates
Adjustments to deferred tax in respect of prior years
Income tax attributable to policyholder returns (net of tax relief)
Total tax (credited)/charged to income statement – continuing operations
Total tax charged to income statement – discontinued operations
Total tax (credited)/charged to income statement
1Includes first time recognition of accrued interest expense as explained in note 11(a).
Note
6(c)
Year ended
31 December
2020
£m
86
16
(8)
(1)
2
(7)
(39)
–
4
30
(3)
–
(3)
Year ended
31 December
2019
£m
45
9
(6)
1
3
(11)
(11)
2
(3)
82
66
89
155
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Quilter | Annual report 2020
207
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
11: Tax continued
11(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit
Income tax (credit)/expense on continuing operations1
Reversal of income tax credit on the reallocation of QLA costs
Income tax (credit)/expense on continuing operations before the reallocation of QLA costs
Tax on adjusting items
Impact of acquisition and disposal related accounting
Business transformation costs
Managed Separation costs
Finance costs
Customer remediation
Tax adjusting items
Policyholder tax ad(cid:77)ustments
Other shareholder tax ad(cid:77)ustments2
Tax on adjusting items – continuing operations
Less(cid:29) tax attributable to policyholder returns within ad(cid:77)usted profit – continuing operations3
(cid:55)(cid:68)(cid:91)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Income tax credit on the reallocation of QLA costs
(cid:55)(cid:68)(cid:91)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:514)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:47)(cid:36)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
Income tax expense on discontinued operations1
Reversal of income tax expense on the reallocation of QLA costs
Income tax expense on discontinued operations before the reallocation of QLA costs
Tax on adjusting items
Customer remediation
Tax adjusting items
Policyholder tax ad(cid:77)ustments
Other shareholder tax ad(cid:77)ustments2
Tax on adjusting items – discontinued operations
Less(cid:29) Tax attributable to policyholder returns within ad(cid:77)usted profit – discontinued operations3
(cid:55)(cid:68)(cid:91)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:514)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Income tax expense on the reallocation of QLA costs
(cid:55)(cid:68)(cid:91)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:514)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:52)(cid:47)(cid:36)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)
Notes
Year ended
31 December
2020
£m
(3)
–
Year ended
31 December
2019
£m
66
5
(3)
3
13
–
2
1
9
36
64
(45)
16
–
16
–
–
–
–
–
–
–
–
–
–
–
71
8
14
1
2
–
(62)
24
(13)
(36)
22
(5)
17
89
(5)
84
(2)
(12)
(3)
(17)
(64)
3
5
8
7(b)(v)
6(c)
7(b)(v)
(cid:55)(cid:68)(cid:91)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)
1Includes both tax attributable to policyholders and shareholders, in compliance with IFRS reporting.
2Other shareholder tax ad(cid:77)ustments comprise the reallocation of ad(cid:77)ustments from policyholder tax as explained in note 7(b)(v) and shareholder tax ad(cid:77)ustments for one-off
items in line with the Group’s ad(cid:77)usted profit policy.
3Ad(cid:77)usted profit treats policyholder tax as a pre-tax charge (this includes policyholder tax under IFRS and the policyholder tax ad(cid:77)ustments) and is therefore removed from tax
charge on ad(cid:77)usted profit.
16
25
208
Quilter | Annual report 2020
12: Earnings per share
The Group calculates earnings per share ((cid:522)EPS(cid:523)) on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Ad(cid:77)usted EPS
reflects earnings that are consistent with the Group’s ad(cid:77)usted profit measure before and after the reallocation of QLA costs, and Headline earnings
per share ((cid:522)HEPS(cid:523)) is a requirement of the Johannesburg Stock Exchange. The Group’s EPS (in aggregate, including both continuing and discontinued
operations) on these different bases are summarised below.
(cid:37)asic EPS is calculated by dividing profit after tax attributable to ordinary equity shareholders of the parent by the weighted average number of
Ordinary Shares in issue during the year. The weighted average number of shares excludes Quilter plc shares held within Employee (cid:37)enefit Trusts
((cid:522)E(cid:37)Ts(cid:523)) to satisfy the Group’s obligations under employee share awards, and Quilter plc shares held in consolidated funds ((cid:522)Own shares(cid:523)). Own shares
are deducted for the purpose of calculating both basic and diluted EPS.
Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements,
to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full year.
The Group is also required to calculate HEPS in accordance with the Johannesburg Stock Exchange ((cid:522)JSE(cid:523)) Listing Requirements, determined by
reference to the South African Institute of Chartered Accountants’ circular 1(cid:18)2019 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS,
but it is a commonly used measure of earnings in South Africa.
(cid:37)asic earnings per share
Diluted basic earnings per share
Ad(cid:77)usted basic earnings per share
Ad(cid:77)usted diluted earnings per share
Headline basic earnings per share (net of tax)
Headline diluted earnings per share (net of tax)
Source of guidance
IFRS
IFRS
Group policy
Group policy
JSE Listing Requirements
JSE Listing Requirements
Year ended
31 December
2020
Pence
(cid:24).0
4.9
8.(cid:25)
8.(cid:24)
Year ended
31 December
2019
Pence
8.0
7.8
11.4
11.3
(cid:24).2
(cid:24).1
2.3
2.3
Notes
12(b)
12(b)
12(b)
12(b)
12(c)
12(c)
12(a): Weighted average number of Ordinary Shares
The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted
earnings per share for each profit measure (IFRS, ad(cid:77)usted and headline profit)(cid:29)
(cid:58)eighted average number of Ordinary Shares
Treasury shares including those held in E(cid:37)Ts
Basic weighted average number of Ordinary Shares
Ad(cid:77)ustment for dilutive share awards and options
Diluted weighted average number of Ordinary Shares
12(b): Basic and diluted EPS (IFRS and adjusted profit)
Year ended
31 December
2020
Millions
1,842
(82)
Year ended
31 December
2019
Millions
1,902
(67)
1,760
37
1,797
1,835
28
1,863
Profit after tax
Total ad(cid:77)usting items before tax
Tax on ad(cid:77)usting items
Less(cid:29) Policyholder tax ad(cid:77)ustments
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Reversal of(cid:29)
Reallocation of QLA costs1
Income tax on reallocation of QLA costs
Year ended 31 December 2020
Year ended 31 December 2019
Continuing
operations
£m
89
118
(64)
9
Discontinued
operations
£m
(1)
1
–
–
152
–
–
–
–
–
Notes
7(a)
11(c)
11(c)
11(c)
Total
£m
88
119
(64)
9
152
–
–
Continuing
operations
£m
(21)
209
13
(62)
Discontinued
operations
£m
167
(101)
17
(12)
139
26
(5)
71
(26)
5
Total
£m
146
108
30
(74)
210
–
–
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210
(cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:68)(cid:91)
1Reallocation of QLA costs included (cid:101)2(cid:25) million of costs previously reported as part of the QLA business which were reclassified from discontinued to continuing operations in
2019 as these costs did not transfer to ReAssure (the acquirer) on disposal at 31 December 2019.
160
152
152
50
–
Quilter | Annual report 2020
209
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
12: Earnings per share continued
12(b): Basic and diluted EPS (IFRS and adjusted profit) continued
(cid:37)asic EPS
Diluted EPS
Ad(cid:77)usted basic EPS
Ad(cid:77)usted diluted EPS
Ad(cid:77)usted basic EPS after reallocation1
Post-tax profit measure used
IFRS profit
IFRS profit
Ad(cid:77)usted profit
Ad(cid:77)usted profit
Ad(cid:77)usted profit after
reallocation
Ad(cid:77)usted profit after
reallocation
Year ended 31 December 2020
Year ended 31 December 2019
Continuing
operations
Pence
(cid:24).1
(cid:24).0
8.(cid:25)
8.(cid:24)
Discontinued
operations
Pence
(0.1)
(0.1)
–
–
Total
Pence
(cid:24).0
4.9
8.(cid:25)
8.(cid:24)
Continuing
operations
Pence
(1.1)
(1.1)
8.7
8.(cid:25)
Discontinued
operations
Pence
9.1
8.9
2.7
2.7
Total
Pence
8.0
7.8
11.4
11.3
N(cid:18)A
N(cid:18)A
N(cid:18)A
7.(cid:24)
3.9
11.4
Ad(cid:77)usted diluted EPS after reallocation1
1Reallocation of QLA costs included (cid:101)2(cid:25) million of costs previously reported as part of the QLA business which were reclassified from discontinued to continuing operations in
2019 as these costs did not transfer to ReAssure (the acquirer) on disposal at 31 December 2019.
N(cid:18)A
N(cid:18)A
N(cid:18)A
3.8
7.(cid:24)
11.3
12(c): Headline earnings per share
(cid:51)(cid:85)(cid:82)(cid:564)(cid:87)(cid:3)(cid:68)(cid:87)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:85)(cid:71)(cid:76)(cid:81)(cid:68)(cid:85)(cid:92)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)
Ad(cid:77)usted for(cid:29)
Loss(cid:18)(profit) on business disposals
Impairment loss on right-of-use assets
Headline earnings
Headline basic EPS (pence)
Headline diluted EPS (pence)
13: Dividends
2018 Final dividend paid – 3.3p per Ordinary Share
2019 Interim dividend paid – 1.7p per Ordinary Share
2019 Final dividend paid – 3.(cid:24)p per Ordinary Share
2020 Interim dividend paid – 1.0p per Ordinary Share
Dividends paid to Ordinary Shareholders
Notes
Gross
6(b)
15
1
3
Year ended
31 December
2020
£m
Net of tax
88
1
2
91
5.2
5.1
Gross
(103)
–
Year ended
31 December
2019
£m
Net of tax
146
(103)
–
43
2.3
2.3
Payment
date
20 May 2019
20 September 2019
18 May 2020
21 September 2020
Year ended
31 December
2020
£m
–
–
64
17
Year ended
31 December
2019
£m
61
31
–
–
81
92
Subsequent to year ended 31 December 2020, the Directors proposed a final dividend for 2020 of 3.(cid:25) pence per Ordinary Share amounting to
(cid:101)(cid:25)1 million in total. Sub(cid:77)ect to approval by shareholders at the AGM, the dividend will be paid on 17 May 2021. In compliance with the rules issued by
the Prudential Regulation Authority ((cid:522)PRA(cid:523)) in relation to the implementation of the Solvency II regime and other regulatory requirements to which the
Group is sub(cid:77)ect, the dividend is required to remain cancellable at any point prior to it becoming due and payable on 17 May 2021 and to be cancelled
if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that would be the case
if the dividend was paid. The Directors have no intention of exercising this cancellation right, other than where required to do so by the PRA or for
regulatory capital purposes. Final and interim dividends paid to Ordinary Shareholders are calculated using the number of shares in issue at the
record date less own shares held in Employee (cid:37)enefit Trusts.
210
Quilter | Annual report 2020
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14: Goodwill and intangible assets
14(a): Analysis of goodwill and intangible assets
The table below shows the movements in cost and amortisation of goodwill and intangible assets.
Gross amount
1 January 2019
Acquisitions through business combinations
Additions
Disposals
Other movements1
31 December 2019
Acquisitions through business combinations2
Additions
31 December 2020
Accumulated amortisation and impairment losses
1 January 2019
Amortisation charge for the year
Disposals
Other movements1
31 December 2019
Amortisation charge for the year
31 December 2020
Carrying amount
31 December 2019
Software
development
costs
£m
Other
intangible
assets
£m
Goodwill
£m
314
68
–
(30)
(2)
350
6
–
356
–
–
–
–
–
–
–
100
–
5
(4)
–
101
–
4
105
(95)
(2)
4
–
(93)
(2)
(95)
380
49
–
(4)
3
428
1
–
429
(149)
(45)
4
(4)
(194)
(45)
(239)
Total
£m
794
117
5
(38)
1
879
7
4
890
(244)
(47)
8
(4)
(287)
(47)
(334)
350
8
234
592
31 December 2020
1During 2019, there was a gross up of fully amortised intangible assets in the Quilter Financial Planning and Quilter Cheviot businesses arising from previous business
combinations.
2During 2020, there have been fair value ad(cid:77)ustments of (cid:101)7 million made to the net assets acquired in Lighthouse, with corresponding movements in goodwill of (cid:101)7 million, other
intangible assets of (cid:101)1 million and associated deferred tax liabilities of (cid:101)(1) million. Refer to note (cid:25)(a) for further details. Other fair value ad(cid:77)ustments of (cid:101)(1) million have been
made to goodwill in relation to acquisitions within the Quilter Private Client Adviser business.
356
556
190
10
14(b): Analysis of other intangible assets
Net carrying value
Distribution channels – Quilter Financial Planning
Customer relationships
Quilter Cheviot
Quilter Financial Planning
Other
(cid:37)rand – Quilter Cheviot
Total other intangible assets
At 31 December
2020
£m
At 31 December
2019
£m
Average
estimated
useful life
Average
period
remaining
15
114
54
7
–
190
22
8 years
3 years
141
61
9
1
234
10 years
8 years
8 years
n(cid:18)a
4 years
6 years
4 years
n(cid:18)a
Quilter | Annual report 2020
211
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
14: Goodwill and intangible assets continued
14(c): Allocation of goodwill to cash generating units (“CGUs”) and impairment testing
The Group considers that there are two groups of CGUs for goodwill impairment testing purposes. Goodwill is allocated to these groups of CGUs
as follows(cid:29)
Goodwill (net carrying amount)
Advice and (cid:58)ealth Management
(cid:58)ealth Platforms
Total goodwill
At 31 December
2020
£m
At 31 December
2019
£m
225
131
356
219
131
350
Impairment review
In accordance with the requirements of IAS 3(cid:25) Impairment of Assets, goodwill in both the Advice and (cid:58)ealth Management and (cid:58)ealth Platforms CGUs
is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU to which the goodwill
relates to the recoverable value of that CGU, being the higher of that CGU’s value-in-use or fair value less costs to sell. If applicable, an impairment
charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls,
the absence of Net Client Cash Flows ((cid:522)NCCF(cid:523)), significant falls in profits and an increase in the discount rate.
The significant volatility in global financial markets resulting from the CO(cid:57)ID-19 pandemic and the effect this has on the Group’s AuMA and revenue,
provided an indicator of impairment at 30 June 2020 and consequently the goodwill balance was assessed, concluding that, whilst there was a
reduction in the surplus of the recoverable amount over the carrying value since 31 December 2019, no impairment was required.
At 31 December 2020, the annual impairment assessment was performed, using the latest cash flow forecasts from the Group’s three-year business
plan, approved by the (cid:37)oard. The Group’s business plan takes into consideration the partial recovery in equity markets experienced in H2 2020, which
has resulted in an increase in the Group’s AuMA and revenue. As a result, the surplus of the recoverable amount of the CGUs over the carrying
amount has increased since the previous impairment test was carried out at 30 June 2020.
The following table details the separate percentage change required in each key assumption before the carrying value would exceed the recoverable
amount, assuming all other variables remain the same. There has been an increase in the percentage changes required since 30 June 2020, reflecting
the impact of the partial recovery in equity markets. The table continues to demonstrate that further adverse movements to the key assumptions
used in the CGU value-in-use calculation would be required before impairment is indicated.
Reduction in forecast cash flows
Increase in discount rate required
Advice and
Wealth Management
4(cid:25)(cid:8)
21(cid:8)
(from 9(cid:8) to 30(cid:8))
Wealth
Platforms
(cid:25)9(cid:8)
27(cid:8)
(from 9(cid:8) to 3(cid:25)(cid:8))
Forecast cash flows are impacted by movements in underlying assumptions, including equity market levels, revenue margins and NCCF. The Group
considers that forecast cash flows are most sensitive to movements in equity markets because they have a direct impact on the level of the Group’s
fee income, as demonstrated by the recent volatility resulting from CO(cid:57)ID-19. The most significant impact is seen within the Advice and (cid:58)ealth
Management segment, where AuMA is more correlated to equity market levels and is the key driver for future cash flows.
The principal sensitivity within equity market level assumptions relates to the estimated growth in equity market indices included in the three-year
revenue forecasts. Management forecast equity market growth for each business using estimated asset specific growth rates that are supported
by internal research, historical performance, (cid:37)ank of England forecasts and other external estimates.
Value-in-use methodology
The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future cash flows arising
from the in-force business, together with the expected cash flows from future new business derived from the business plans. Future cash flow
elements allow for the cost of capital needed to support the business.
The net tangible assets and future cash flows arising from the in-force business are derived from Solvency II ((cid:522)SII(cid:523)) calculations. The value of in-force
((cid:522)(cid:57)IF(cid:523)) is calculated as the prospective value of future expected cash flows on all in-force policies at the valuation date on a policy-by-policy basis
allowing for surrender or transfer payments, death claims, income withdrawals, maintenance expenses, fund-based fees, mortality charge and other
policy charges. The underlying assumptions are based on the best estimate view for the future, which is largely based on recent business experience
and any emerging trends. The unit fund growth rates (gross of investment charges) and the risk discount rates are set using the prescribed SII
term-dependent risk-free interest rates. The SII calculations are ad(cid:77)usted for a risk margin using the prescribed SII rules.
The value-in-use calculations for asset management operations are determined as the sum of net tangible assets and the expected cash flows from
existing and expected future new business.
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Quilter | Annual report 2020
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14: Goodwill and intangible assets continued
14(c): Allocation of goodwill to cash generating units (“CGUs”) and impairment testing continued
The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit
forecasts, which incorporate the impact of CO(cid:57)ID-19 and anticipated equity market growth on the Group’s future cash flows. These cash flows change
at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the
cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecasts, the growth rate used to determine the
terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 0.(cid:25)(cid:8) (2019(cid:29) 1.7(cid:8)). Market share and market
growth information are also used to inform the expected volumes of future new business.
IAS 3(cid:25) does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation unless an associated
restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings
(and the related implementation costs), primarily in relation to the Optimisation programme, have been removed from the future cash flows.
The Group uses a single cost of capital of 9.0(cid:8) (2019(cid:29) 10.0(cid:8)) to discount future expected business plan cash flows across its two groups of CGUs
because they are perceived to present a similar level of risk and are integrated. Capital is provided to the Group predominantly by shareholders with
a small amount of debt. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return
required by bond and property lease holders). (cid:58)hen assessing the systematic risk (i.e. beta value) within the calculation of the cost of equity, a
triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and
the external views of investors.
15: Property, plant and equipment
Gross amount
1 January 2019
Implementation of IFRS 1(cid:25)
Acquisitions through business combinations
Additions1
31 December 2019
Additions1
Disposals
31 December 2020
Accumulated amortisation and impairment losses
1 January 2019
Implementation of IFRS 1(cid:25)
Acquisitions through business combinations
Depreciation charge for the year
31 December 2019
Depreciation charge for the year
Impairment loss
Disposals
31 December 2020
Carrying amount
31 December 2019
Right-of-use
assets
£m
Leasehold
improvements
£m
Plant and
equipment
£m
–
143
1
60
204
6
(44)
166
–
(67)
–
(13)
(80)
(15)
(3)
33
(65)
124
13
(3)
1
–
11
–
(3)
8
(8)
2
–
(1)
(7)
(1)
–
3
(5)
4
3
79
–
1
8
88
28
(4)
112
(67)
–
(1)
(5)
(73)
(4)
–
3
(74)
15
38
Total
£m
92
140
3
68
303
34
(51)
286
(75)
(65)
(1)
(19)
(160)
(20)
(3)
39
(144)
143
142
31 December 2020
1The ma(cid:77)ority of additions in both the current and prior year relate to the lease for Senator House, the Group’s new London property.
101
The carrying value of right-of-use assets at 31 December 2020 relate to (cid:101)101 million of property leases (31 December 2019(cid:29) (cid:101)123 million). 2019 also
included (cid:101)1 million of motor vehicle leases (31 December 2020(cid:29) (cid:101)nil).
Quilter | Annual report 2020
213
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
16: Loans and advances
This note analyses the loans and advances the Group has made. The carrying amounts of loans and advances were as follows(cid:29)
Loans to policyholders
Loans to brokers, advisers and other loans to clients
Other loans
Total net loans and advances
To be recovered within 12 months
To be recovered after 12 months
Total net loans and advances
31 December
2020
£m
186
33
–
31 December
2019
£m
180
31
6
219
195
24
219
217
190
27
217
Policyholder loans are amounts taken from an individual policyholder’s unit-linked accounts and loaned to the same policyholder. Policyholder
loans are non-interest bearing and are considered to be risk free from a shareholder perspective as the policyholder retains all associated risks.
Policyholder loans are considered to be recoverable within 12 months as they have no repayment schedule. Policyholder loans are measured
at fair value.
Loans to advisers are made on individual commercial terms. The loan agreement with the adviser details the dates on which the repayments of the
loan are to be made. (cid:58)here an adviser is due commission payments from Quilter, these commission payments are offset against the loan repayments
due from the adviser. In certain circumstances, the loan agreement period may be extended where agreed by both Quilter and the adviser. Should
the adviser terminate their terms of business agreement with Quilter, the loan balance becomes immediately repayable in full. Loans to advisers are
measured at amortised cost. The carrying amount of loans to advisers approximates to their fair value which is measured as the principal amounts
receivable under the loan agreements.
Other loans in 2019 represent a loan to TA Associates in respect of the deferred consideration receivable arising from the sale of the Single Strategy
Asset Management business. The loan was repaid in June 2020.
17: Financial investments
The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf
of third parties (policyholder funds).
Government and government-guaranteed securities
Other debt securities, preference shares and debentures
Equity securities
Pooled investments
Short-term funds and securities treated as investments
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
Recoverable within 12 months
Recoverable after 12 months
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)
1See note 4(b) for details of changes to comparative amounts.
31 December
2020
£m
632
1,952
14,163
46,518
9
31 December
2019
restated¹
£m
558
1,897
8,560
46,177
15
63,274
57,207
63,274
–
63,274
57,206
1
57,207
The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the
liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand.
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Quilter | Annual report 2020
18: Derivative financial instruments – assets and liabilities
The Group has limited involvement with derivative instruments and does not use them for speculation purposes. Derivative instruments have been
used to manage well-defined foreign exchange risks arising out of the normal course of business. The Group enters into forward foreign exchange
contracts to reduce currency risk on accounts receivable and future revenues. The Group does not anticipate any material adverse effect on its
financial position resulting from its involvement in these types of contracts, nor does it anticipate non-performance by counterparties. The Group
only deals with highly rated counterparties.
The ma(cid:77)ority of derivatives included within the statement of financial position relate to instruments included as a consequence of the consolidation
of investment funds. These are detailed within the segmented statement of financial position (note 8(c)).
19: Categories of financial instruments
The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets
and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the
non-financial assets and liabilities category.
For information about the methods and assumptions used in determining fair value, please refer to note 20. The Group’s exposure to various risks
associated with financial instruments is discussed in note 37.
31 December 2020
Measurement basis
Assets
Investments in associated undertakings1
Loans and advances
Financial investments
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Total assets that include financial instruments
Total other non-financial assets
Total assets
Liabilities
Investment contract liabilities
Third-party interests in consolidation of funds
(cid:37)orrowings and lease liabilities
Trade, other payables and other liabilities
Derivative liabilities
Total liabilities that include financial instruments
Total other non-financial liabilities
Fair value
Mandatorily
at FVTPL
£m
Designated at
FVTPL
£m
Amortised
cost
£m
Non-financial
assets and
liabilities
£m
–
186
63,248
–
43
1,064
64,541
–
64,541
–
6,513
–
–
20
6,533
–
–
–
1
–
–
–
1
–
1
57,407
–
–
–
–
57,407
–
57,407
–
33
25
444
–
857
1,359
–
1,359
–
–
319
590
–
909
–
909
1
–
–
257
–
–
258
1,213
1,471
–
–
–
82
–
82
563
645
Total
£m
1
219
63,274
701
43
1,921
66,159
1,213
67,372
57,407
6,513
319
672
20
64,931
563
65,494
Total liabilities
1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.
6,533
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Quilter | Annual report 2020
215
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
19: Categories of financial instruments continued
31 December 2019 (restated)3
Measurement basis
Assets
Investments in associated undertakings1
Loans and advances
Financial investments
Trade, other receivables and other assets2
Derivative assets
Cash and cash equivalents
Total assets that include financial instruments
Total other non-financial assets
Total assets
Liabilities
Investment contract liabilities2
Third-party interests in consolidation of funds
(cid:37)orrowings and lease liabilities
Trade, other payables and other liabilities
Derivative liabilities
Total liabilities that include financial instruments
Total other non-financial liabilities
Fair value
Mandatorily
at FVTPL3
£m
Designated at
FVTPL2
£m
Amortised
cost
£m
Non-financial
assets and
liabilities
£m
–
180
57,205
–
22
1,159
58,566
–
58,566
–
5,318
–
–
10
5,328
–
–
–
2
–
–
–
2
–
2
52,455
–
–
–
–
52,455
–
–
37
–
342
–
1,094
1,473
–
1,473
–
–
335
695
–
1,030
–
1
–
–
263
–
–
264
1,246
1,510
–
–
–
106
–
106
561
Total
£m
1
217
57,207
605
22
2,253
60,305
1,246
61,551
52,455
5,318
335
801
10
58,919
561
Total liabilities
1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.
2Following a review of the Group’s presentation of financial liabilities held at F(cid:57)TPL, comparative amounts have been restated from those previously reported. The review
identified amounts presented within mandatorily at F(cid:57)TPL that are now presented as designated at F(cid:57)TPL in the table above. These liabilities were previously shown as
mandatorily at fair value through profit or loss ((cid:522)F(cid:57)TPL(cid:523)) as they form part of the Group’s unit-linked business model. These liabilities are now classified as designated at F(cid:57)TPL
as they are managed on a fair value basis (in that their value is directly linked to the market value of the matching portfolio of unit-linked assets) therefore avoiding an accounting
mismatch. There is no change to the underlying calculation of the fair value of these liabilities.
3See note 4(b) for details of changes to comparative amounts.
52,455
59,480
5,328
1,030
667
20: Fair value methodology
This section explains the (cid:77)udgements and estimates made in determining the fair values of financial instruments that are recognised and measured
at fair value in the financial statements. Classifying financial instruments into the three levels of fair value hierarchy (see note 20(b)), prescribed under
IFRS, provides an indication about the reliability of inputs used in determining fair value.
20(a): Determination of fair value
The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices
for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs(cid:29)
– for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices
representing exit values in an active market(cid:30)
– for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined
by reference to similar instruments for which market observable prices exist(cid:30)
– for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly
priced. At the reporting date all suspended assets are assessed for impairment(cid:30) and
– where the assets are private company shares or within consolidated investment funds, the valuation is based on the latest available set of audited
financial statements where available, or if more recent, a statement of valuation provided by the private company’s management.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. (cid:58)here assets are valued by the
Group, the general principles applied to those instruments measured at fair value are outlined below(cid:29)
Loans and advances
Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to policyholders
of investment-linked contracts are measured at fair value. All other loans are stated at their amortised cost.
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20: Fair value methodology continued
20(a): Determination of fair value continued
Financial investments
Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and
debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated
as investments and certain other securities.
Pooled investments represent the Group’s holdings of shares(cid:18)units in open-ended investment companies, unit trusts, mutual funds and similar
investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that
are regularly updated.
Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices,
these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an earnings before
interest, tax, depreciation and amortisation multiple or any other relevant technique.
Derivatives
The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. The fair value of the Group’s
over-the-counter forward foreign exchange contracts is determined by the underlying foreign currency exchange rates.
Investment contract liabilities
The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group.
Third-party interest in consolidated funds
Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.
Borrowings and lease liabilities
(cid:37)orrowings and lease liabilities are stated at amortised cost.
20(b): Fair value hierarchy
Fair values are determined according to the following hierarchy(cid:29)
Description of hierarchy
(cid:55)(cid:92)(cid:83)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:79)(cid:68)(cid:86)(cid:86)(cid:76)(cid:564)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)
Level 1 – quoted market prices(cid:29) financial assets and liabilities with quoted prices
for identical instruments in active markets.
Level 2 – valuation techniques using observable inputs(cid:29) financial assets and
liabilities with quoted prices for similar instruments in active markets or quoted
prices for identical or similar instruments in inactive markets and financial assets
and liabilities valued using models where all significant inputs are observable.
Listed equity securities, government securities and other listed debt securities and
similar instruments that are actively traded, actively traded pooled investments,
certain quoted derivative assets and liabilities, policyholder loans (where they form
part of a policyholder’s unit-linked policy) and investment contract liabilities directly
linked to other Level 1 financial assets.
Unlisted equity and debt securities where the valuation is based on models involving
no significant unobservable data.
Over-the-counter ((cid:522)OTC(cid:523)) derivatives, certain privately placed debt instruments and
third-party interests in consolidated funds which meet the definition of Level 2
financial instruments.
Level 3 – valuation techniques using significant unobservable inputs(cid:29) financial
assets and liabilities valued using valuation techniques where one or more
significant inputs are unobservable.
Unlisted equity and securities with significant unobservable inputs, securities where
the market is not considered sufficiently active, including certain inactive pooled
investments.
The (cid:77)udgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading
activity, the availability of prices and the si(cid:93)e of bid(cid:18)offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence
of fair value or determining the ad(cid:77)ustments to transaction prices that are necessary to measure the fair value of the asset or liability requires
additional work during the valuation process.
The ma(cid:77)ority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain
financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and,
for them, the derivation of fair value is more (cid:77)udgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable
inputs if a significant proportion of that asset or liability’s carrying amount is driven by unobservable inputs.
In this context, ‘unobservable’ means that there is little or no current market data available for which to determine the price at which an arm’s length
transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair
value. Furthermore, in some cases the ma(cid:77)ority of the fair value derived from a valuation technique with significant unobservable data may be
attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to
uncertainty about the overall fair value of the asset or liability being measured.
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Quilter | Annual report 2020
217
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
20: Fair value methodology continued
20(b): Fair value hierarchy continued
(cid:58)hen allocating investments within consolidated investment funds to the fair value hierarchy, management have adopted a simplified approach
whereby investments (outside of those identified as Level 3) in listed equities and securities are allocated to fair value Level 1, and investments
in unlisted equity and debt securities are allocated to Level 2, to align to the classifications set out in the table above.
20(c): Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that
financial instrument. A transfer between Level 2 and Level 3 occurs when the ma(cid:77)ority of the significant inputs used to determine fair value of the
instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.
There were transfers of financial investments of (cid:101)9 million from Level 1 to Level 2 during the year (31 December 2019(cid:29) (cid:101)139 million). There were
transfers of financial investments of (cid:101)3 million from Level 2 to Level 1 during the year (31 December 2019(cid:29) (cid:101)7(cid:25) million). These movements are matched
exactly by transfers of investment contract liabilities. See note 20(e) for the reconciliation of Level 3 financial instruments.
20(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy
The ma(cid:77)ority of the Group’s financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there
have been no significant changes during the year.
The linked assets are held to cover the liabilities for linked investment contracts (net of reinsurance). The difference between linked assets and linked
liabilities is principally due to short-term timing differences between policyholder premiums being received and invested in advance of policies being
issued, and tax liabilities within funds which are reflected within the Group’s tax liabilities.
Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and
liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.
The table below presents a summary of the Group’s financial assets and liabilities that are measured at fair value in the consolidated statement
of financial position according to their IFRS 9 classification (see note 19 for full details).
Financial assets measured at fair value
Level 1
Level 2
Level 3
Total
Financial liabilities measured at fair value
Level 1
Level 2
Level 3
Total
1See note 4(b) for details of changes to comparative amounts.
31 December 2020
31 December 2019
restated¹
£m
%
£m
%
56,927
5,793
1,822
88.2(cid:8)
9.0(cid:8)
2.8(cid:8)
48,009
8,842
1,717
82.0(cid:8)
1(cid:24).1(cid:8)
2.9(cid:8)
64,542
100.0%
58,568
100.0%
55,135
6,985
1,820
8(cid:25).3(cid:8)
10.9(cid:8)
2.8(cid:8)
50,315
5,751
1,717
87.0(cid:8)
10.0(cid:8)
3.0(cid:8)
63,940
100.0%
57,783
100.0%
218
Quilter | Annual report 2020
20: Fair value methodology continued
20(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy continued
The tables below further analyse the Group’s financial assets and liabilities measured at fair value by the fair value hierarchy described in note 20(b)(cid:29)
31 December 2020
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)
Loans and advances2
Financial investments
Cash and cash equivalents
Derivative assets
Designated (fair value through profit or loss)
Financial investments
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
56,926
186
55,676
1,064
–
1
1
5,793
–
5,750
–
43
–
–
1,822
–
1,822
–
–
–
–
64,541
186
63,248
1,064
43
1
1
Total assets measured at fair value
56,927
5,793
1,822
64,542
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)
Third-party interests in consolidated funds
Derivative liabilities
Designated (fair value through profit or loss)
Investment contract liabilities
–
–
–
6,533
6,513
20
–
–
–
6,533
6,513
20
55,135
55,135
452
452
1,820
1,820
57,407
57,407
Total liabilities measured at fair value
55,135
6,985
1,820
63,940
31 December 2019 (restated)¹
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)
Loans and advances2
Financial investments
Cash and cash equivalents
Derivative assets
Designated (fair value through profit or loss)
Financial investments
Level 1
£m
Level 2
£m
48,007
180
46,668
1,159
–
2
2
8,842
–
8,820
–
22
–
–
Level 3
£m
1,717
–
1,717
–
–
–
–
Total
£m
58,566
180
57,205
1,159
22
2
2
Total assets measured at fair value
48,009
8,842
1,717
58,568
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)
Third-party interests in consolidated funds
Derivative liabilities
Designated (fair value through profit or loss)
Investment contract liabilities3
–
–
–
50,315
50,315
5,328
5,318
10
423
423
–
–
–
5,328
5,318
10
1,717
1,717
52,455
52,455
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Total liabilities measured at fair value
1See note 4(b) for details of changes to comparative amounts.
2Loans and advances mandatorily at fair value through profit or loss, included within fair value Level 1, solely relate to policyholder loans. See note 1(cid:25) for further details.
3Following a review of the Group’s presentation of financial liabilities held at F(cid:57)TPL, comparative amounts have been restated from those previously reported. The review
identified amounts presented within mandatorily at F(cid:57)TPL that are now presented as designated at F(cid:57)TPL in the table above.
50,315
5,751
1,717
57,783
Quilter | Annual report 2020
219
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
20: Fair value methodology continued
20(e): Level 3 fair value hierarchy disclosure
The ma(cid:77)ority of the assets classified as Level 3 are held within linked policyholder funds. (cid:58)here this is the case, all of the investment risk associated
with these assets is borne by policyholders and the value of these assets is exactly matched by a corresponding liability due to policyholders.
The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.
During the year ended 31 December 2020, Level 3 assets also include a shareholder investment in suspended funds to the value of (cid:101)2 million
(31 December 2019(cid:29) (cid:101)nil)(cid:30) this is not matched by a corresponding liability and therefore any changes in market value are recognised in the Group’s
consolidated income statement.
The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end(cid:29)
At beginning of the year1
Fair value losses charged to income statement
Purchases
Sales
Transfers in
Transfers out
Foreign exchange and other
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)
Unrealised fair value losses charged to income statement relating to assets held at the year end
31 December
2020
£m
1,717
(121)
16
(8)
930
(714)
2
1,822
(110)
31 December
2019
£m
1,154
(20)
314
(24)
369
(71)
(5)
1,717
(20)
1The opening balance for 2019 includes a (cid:101)3 million shareholder investment in an unlisted equity, the Charles Derby Group(cid:30) this was not matched by a corresponding liability
and therefore any changes in market value were recognised in the Group’s income statement. Following the acquisition of the Charles Derby Group in 2019, the Group’s
investment is no longer held as a Level 3 financial investment, but instead as an investment in subsidiary which is eliminated on consolidation.
Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received in
respect of holdings in property funds.
Transfers into Level 3 assets in the current year total (cid:101)930 million (31 December 2019(cid:29) (cid:101)3(cid:25)9 million). This is due to a combination of stale priced assets
that were previously shown within Level 2 and for which price updates have not been received for more than six months, and a significant increase in
suspended funds previously shown within Level 1, predominantly due to the CO(cid:57)ID-19 pandemic resulting in a number of property fund suspensions.
Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year of
(cid:101)714 million (31 December 2019(cid:29) (cid:101)71 million) result from a transfer to Level 2 assets relating to assets that are now being actively repriced (that were
previously stale) and where fund suspensions have been lifted following the market recovery during the second half of the year. During 2020 a
suspended fund with a value of (cid:101)8(cid:24) million has been wound up and cash returned to policyholders, resulting in the cash being placed in a cash
fund within Level 1 assets.
The table below analyses the type of Level 3 financial assets held(cid:29)
Pooled investments
Unlisted and stale price pooled investments
Suspended funds
Private equity investments
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)
31 December
2020
£m
522
87
435
1,300
31 December
2019
£m
361
133
228
1,356
1,822
1,717
All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked
policyholder funds.
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20: Fair value methodology continued
20(e): Level 3 fair value hierarchy disclosure continued
The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end(cid:29)
At beginning of the year
Fair value losses charged to income statement
Purchases
Sales
Transfers in
Transfers out
Foreign exchange and other
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:47)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:22)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Unrealised fair value losses charged to income statement relating to liabilities held at the year end
31 December
2020
£m
1,717
(120)
16
(8)
927
(714)
2
1,820
(110)
31 December
2019
£m
1,151
(20)
314
(24)
369
(71)
(2)
1,717
(20)
20(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Details of the valuation techniques applied to the different categories of financial instruments can be found in note 20(a) above, including the valuation
techniques applied when significant unobservable assumptions are used to value Level 3 assets.
The ma(cid:77)ority of the Group’s Level 3 assets are held within private equity investments, where the valuation of these assets is performed on an
asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. Private equity
investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available,
from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment. For this reason,
no reasonable alternative assumptions are applicable and management therefore performs a sensitivity test of an aggregate 10(cid:8) change in the value
of the financial asset or liability (31 December 2019(cid:29) 10(cid:8)), representing a reasonable possible alternative (cid:77)udgement in the context of the current
macro-economic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of (cid:101)182
million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2019(cid:29) (cid:101)172 million). As described in note 20(e),
changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities
due to policyholders and therefore have no impact on the Group’s net asset value or profit or loss, except to the extent that it has an impact on
management fees earned.
20(g): Fair value hierarchy for assets and liabilities not measured at fair value
Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their
respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Their classification within the
fair value hierarchy would be as follows(cid:29)
Trade, other receivables, and other assets
Trade, other payables, and other liabilities
Level 3
Level 3
Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash
equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.
Fixed term deposits, which are included within Financial investments, are held at amortised cost and therefore not carried at fair value. The fixed term
deposits that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.
Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans which
are categorised as F(cid:57)TPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy.
(cid:37)orrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. (cid:37)orrowed funds relate to subordinated liabilities
and would be classified as Level 2 in the fair value hierarchy.
Lease liabilities valued under IFRS 1(cid:25) are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair
value hierarchy.
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221
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
21: Structured entities
21(a): Group’s involvement in structured entities
Some investment vehicles are classified as structured entities because they have a narrow and well-defined purpose. In structured entities, voting
rights are not the predominant factor in deciding who controls the entity but rather it is the Group’s exposure to the variability of returns from
these(cid:98)entities.
The Group invests in collective investment vehicles, including open-ended investment companies ((cid:522)OEICs(cid:523)) and unit trusts, in order to match
unit-linked investment contract liabilities. This means that all of the investment risk associated with these assets is borne by policyholders and that the
value of these assets is closely matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value
of these assets except to the extent that it has an impact on management fees earned.
Shareholder funds are also invested in collective investment vehicles, principally in respect of money market funds as an alternative to bank deposits.
These structured entities are not consolidated where the Group determines that it does not have control.
The Group’s holdings in collective investment vehicles are sub(cid:77)ect to the terms and conditions of the respective investment vehicles’ offering
documentation and are susceptible to market price risk arising from uncertainties about future values of those investment vehicles. All of the
investment vehicles in the investment portfolios are managed by portfolio managers who are compensated by the respective investment vehicles for
their services. Such compensation generally consists of an asset-based fee and a performance-based incentive fee, and is reflected in the valuation of
the investment vehicles.
21(b): Interests in unconsolidated structured entities
The Group invests in unconsolidated structured entities as part of its normal investment and trading activities. The Group’s total interest in
unconsolidated structured entities is classified as financial investments mandatorily at fair value through profit or loss. The table below provides a
summary of the carrying value of the Group’s interests in unconsolidated structured entities(cid:29)
Financial investments
Cash and cash equivalents
Total Group interest in unconsolidated structured entities
1See note 4(b) for details of changes to comparative amounts.
31 December
2020
£m
43,737
1,064
31 December
2019
restated1
£m
41,004
1,159
44,801
42,163
The Group’s maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group’s investments. Once the
Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group’s holdings in the above
unconsolidated structured entities are mostly less than (cid:24)0(cid:8) and as such the net asset value of these structured entities is likely to be significantly
higher than their carrying value.
21(c): Consolidation considerations for structured entities managed by the Group
The Group acts as fund manager to a number of investment funds. Determining whether the Group controls such an investment fund usually focuses
on the assessment of decision-making rights as fund manager, the investor’s rights to remove the fund manager and the aggregate economic
interests of the Group in the fund in the form of interest held and exposure to variable returns.
In most instances the Group’s decision-making authority, in its capacity as fund manager, with regard to these funds is regarded to be well-defined.
Discretion is exercised when decisions regarding the relevant activities of these funds are being made. For funds managed by the Group where the
investors have the right to remove the Group as fund manager without cause, the fees earned by the Group are considered to be market related.
These agreements include only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills
negotiated on an arm’s length basis. The Group has concluded that it acts as agent on behalf of the investors in all instances.
The Group is considered to be acting as principal where the Group is the fund manager and is able to make the investment decisions on behalf of the
unit holders and earn a variable fee, and there are no kick out rights that would remove the Group as fund manager.
There have been no changes in facts or circumstances which have changed the Group’s conclusion on the consolidation of funds. The Group has not
provided any non-contractual support to any consolidated or unconsolidated structured entities.
21(d): Other interests in unconsolidated structured entities
There are no investments at the current or prior reporting date managed by the Group in which it has no holding.
222
Quilter | Annual report 2020
22: Trade, other receivables and other assets
This note analyses total trade, other receivables and other assets.
Outstanding settlements
Other receivables
Accrued interest
Accrued income
Fee income receivable
Other accruals and prepayments
Contract assets
Management fees
Total trade, other receivables and other assets
To be settled within 12 months
To be settled after 12 months
Total trade, other receivables and other assets
1See note 4(b) for details of changes to comparative amounts.
31 December
2020
£m
277
120
4
31
192
49
12
16
701
555
146
701
31 December
2019
restated¹
£m
245
47
2
34
212
30
19
16
605
444
161
605
Other receivables mainly relate to trade debtors, tax debtors and other debtors.
There have been no non-performing receivables or material impairments in the financial year that require disclosure. Information about the Group’s
expected credit losses on trade receivables is included in note 37(b). None of the receivables reflected above have been sub(cid:77)ect to the renegotiation
of terms.
23: Deferred acquisition costs and contract costs
Deferred acquisition costs (on insurance contracts) and contract costs (on investment contracts and asset management contracts) relate to costs that
the Group incurs to obtain new business. These acquisition costs are capitalised in the statement of financial position and are amortised in profit or
loss over the life of the contracts. The table below analyses the movements in these balances relating to insurance, investment and asset
management contracts.
1 January 2019
New business
Amortisation
Continuing operations movement
Foreign exchange
Discontinued operations movement
Disposal of subsidiaries
31 December 2019
New business
Amortisation
Continuing operations movement
Foreign exchange
31 December 2020
Deferred acquisition costs
Insurance
contracts
£m
11
–
–
–
–
(3)
(8)
–
–
–
–
–
–
Investment
contracts
£m
547
36
(75)
Contract costs
Asset
management
£m
4
–
(1)
(39)
(3)
(14)
(39)
452
30
(73)
(43)
2
411
(1)
–
–
–
3
–
(1)
(1)
–
2
Total
£m
562
36
(76)
(40)
(3)
(17)
(47)
455
30
(74)
(44)
2
413
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223
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
24: Cash and cash equivalents
24(a): Analysis of cash and cash equivalents
Cash at bank
Money market funds
Cash and cash equivalents in consolidated funds
31 December
2020
£m
550
1,064
307
31 December
2019
restated¹
£m
787
1,159
307
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)
1,921
2,253
1See note 4(b) for details of changes to comparative amounts.
Except for cash and cash equivalents sub(cid:77)ect to consolidation of funds of (cid:101)307 million (2019(cid:29) (cid:101)307 million), management do not consider that there
are any material amounts of cash and cash equivalents which are not available for use in the Group’s day-to-day operations.
24(b): Analysis of net cash flows from operating activities:
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Profit before tax from continuing operations
(Loss)(cid:18)profit before tax from discontinued operations
Adjustments for
Depreciation and impairment of property, plant and equipment
Movement on deferred acquisition and contract costs
Movement on contract liabilities and fee income receivable
Amortisation and impairment of intangibles
Fair value and other movements in financial assets
Fair value movements in investment contract liabilities
Other change in investment contract liabilities
Loss(cid:18)(profit) on sale of subsidiaries
Other movements
Net changes in working capital
Increase in derivatives
(Increase)(cid:18)decrease in loans and advances
Increase(cid:18)(decrease) in provisions
Movement in other assets(cid:18)liabilities2
Taxation paid
31 December
2020
£m
Notes
31 December
2019
restated¹
£m
6(c)
15
23
32
14
27
6(b)
16
28
86
(1)
85
23
44
(7)
47
(3,319)
2,632
2,187
1
40
1,648
(11)
(5)
1
(245)
(260)
(28)
45
256
301
19
57
(13)
48
(7,650)
6,518
(1,209)
(103)
65
(2,268)
(10)
5
(28)
(35)
(68)
(37)
(cid:49)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:18)(cid:11)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:12)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
1See note 4(b) for details of changes to comparative amounts.
2(cid:58)orking capital changes in respect of other assets and liabilities primarily relate to consolidated funds.
1,445
(2,072)
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Quilter | Annual report 2020
24: Cash and cash equivalents continued
24(c): Cash flows from financing activities is further analysed below:
31 December 2020
Opening balance at 1 January 2020
Cash flows from financing activities
Liability related(cid:29)
Finance costs on external borrowings
Equity related(cid:29)
Dividends paid to ordinary equity holders of the Company
Repurchase of own shares
Payment of lease liabilities
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Other changes
External debt interest accrual
Changes in lease liabilities
Other changes in liabilities
Liability related
Equity related
31 December 2020
31 December 2019
Opening balance at 1 January 2019
Cash flows from financing activities
Liability related(cid:29)
Finance costs on external borrowings
Equity related(cid:29)
Dividends paid to ordinary equity holders of the Company
Payment of lease liabilities
(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:565)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Other changes
External debt interest accrual
Changes in lease liabilities
Other changes in liabilities
Liability related
Equity related
31 December 2019
1Full details of changes in equity are shown in the consolidated statement of changes in equity.
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t
F
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a
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c
i
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l
s
t
a
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e
m
e
n
t
s
O
t
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i
n
f
o
r
m
a
t
i
o
n
Liabilities
(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)1
Borrowings
and lease
liabilities
£m
Note 30
335
Deposits
from reinsurers
£m
Changes in
(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
£m
Total
£m
Note 31
16
2,071
2,422
(9)
–
–
(16)
(25)
9
(1)
1
9
–
319
(1)
–
–
–
(1)
–
–
(15)
(15)
–
–
–
(81)
(198)
–
(279)
–
–
–
–
86
(10)
(81)
(198)
(16)
(305)
9
(1)
(14)
(6)
86
1,878
2,197
Liabilities
Equity1
Borrowings
and lease
liabilities
£m
Note 30
197
Deposits
from reinsurers
£m
Note 31
16
Changes in
equity
£m
Total
£m
2,005
2,218
(9)
–
(16)
(25)
4
64
6
74
89
335
(1)
–
–
(1)
–
–
1
1
–
16
–
(92)
–
(92)
–
–
–
–
158
2,071
(10)
(92)
(16)
(118)
4
64
7
75
247
2,422
Quilter | Annual report 2020
225
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
25: Share capital, capital redemption reserve and merger reserve
25(a): Share capital
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable
number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from
the proceeds, net of tax. The parent Company’s equity capital currently comprises 1,783,9(cid:25)9,0(cid:24)1 Ordinary Shares of 7p each with an aggregated
nominal value of (cid:101)124,877,834 (31 December 2019(cid:29) 1,902,2(cid:24)1,098 Ordinary Shares of 7p each with an aggregated nominal value of (cid:101)133,1(cid:24)7,(cid:24)77).
This note gives details of the Company’s Ordinary Share capital and shows the movements during the year(cid:29)
At 1 January 2019
At 31 December 2019
Shares cancelled through share buyback programme
At 31 December 2020
Number of shares
1,902,251,098
1,902,251,098
(118,282,047)
1,783,969,051
Nominal value
£m
133
Share premium
£m
58
133
(8)
125
58
–
58
On 11 March 2020 the Company announced a share buyback programme to purchase shares up to a maximum value of (cid:101)37(cid:24) million, in order to
reduce the share capital of the Company. The programme commenced on 11 March 2020 and will continue into 2021. During the year ended 31
December 2020, the Company acquired 118.3 million shares for a total consideration of (cid:101)1(cid:24)3 million and incurred additional costs of (cid:101)4 million. The
shares, which have a nominal value of (cid:101)8 million, have subsequently been cancelled, giving rise to a capital redemption reserve of the same value as
required by the Companies Act 200(cid:25). In December 2020, the committed remainder of (cid:101)22 million was accrued as a liability against retained earnings.
25(b): Merger reserve
On 31 January 2018, the Group acquired the Skandia UK Limited group of entities from its then parent company Old Mutual plc. This comprised of
seven Old Mutual plc group entities with a net asset value of (cid:101)(cid:24)91 million. The transfer was effected by the issue of one share and with the balance
giving rise to a merger reserve of (cid:101)(cid:24)91 million in the consolidated statement of financial position, being the difference between the nominal value of
the share issued by the parent company for the acquisition of the shares of the subsidiaries and the subsidiaries’ net asset value. No debt was taken
on as a result of this transaction. The most significant asset within these entities was a (cid:101)(cid:24)(cid:25)(cid:25) million receivable which corresponded to an equivalent
payable within the Group’s consolidated statement of financial position. The net effect of this transaction for the Group was to replace a payable due
to Old Mutual plc with equity.
Following the acquisition the Company allotted 31(cid:24),731,88(cid:25) bonus Ordinary Shares of (cid:101)0.01 each to the existing shareholders of the Company
(with any fractional entitlements arising to be aggregated and allotted to Old Mutual plc), with a total nominal value of (cid:101)3 million. This had the effect
of reducing the merger reserve by (cid:101)3 million to (cid:101)(cid:24)88 million at 31 December 2018.
This transaction attracted merger relief under section (cid:25)12 of the Companies Act 200(cid:25).
During the year ended 31 December 2019, there was a partial repayment of the receivable and a subsequent dividend paid by Skandia UK Limited
up to its parent Quilter plc. The resulting decrease in Skandia UK Limited’s net asset value gave rise to a (cid:101)439 million impairment of Quilter plc’s
investment in Skandia UK Limited and an associated release of the merger reserve reducing it to (cid:101)149 million.
26: Share-based payments
During the year ended 31 December 2020, the Group participated in a number of share-based payment arrangements. This note describes the
nature of the plans and how the share options and awards are valued.
26(a): Description of share-based payment arrangements
The Group operates the following share-based payment schemes with awards over Quilter plc shares(cid:29) the Quilter plc Performance Share Plan,
the Quilter plc Share Reward Plan, the Quilter plc Share Incentive Plan, and the Quilter plc Sharesave Plan.
The Old Mutual (cid:58)ealth Phantom Share Reward Plan originally with awards over notional Old Mutual plc shares was transferred to awards over
Quilter plc shares on 2(cid:24) June 2018 and continues to the original vesting dates.
226
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26: Share-based payments continued
26(a): Description of share-based payment arrangements continued
Description of award
Vesting conditions
Scheme
Restricted
shares
Conditional
shares
Options
Other
Dividend
entitlement1
Contractual
life
(years)
Typical
service
(years)
Quilter plc Performance Share Plan
Quilter plc Performance Share Plan
Quilter plc Share Reward Plan
Quilter plc Share Incentive Plan
Quilter plc Sharesave Plan3
Old Mutual (cid:58)ealth Phantom
Share(cid:98)Reward Plan4
Charles Derby Group
Performance(cid:98)Share Plan
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Up to 10
Not less
than 3
Typically 3
Not less
than 3
3½ – 5½
Typically 3
Up to 10
3
3
3
2
3 (cid:9) (cid:24)
3
5
Performance
(measure)
AP EPS CAGR2
and Relative Total
Shareholder Return
Conduct, Risk (cid:9)
Compliance
Underpins
–
–
–
–
AP EPS CAGR
1Participants are entitled to actual dividends for the Share Incentive Plan. For all other schemes, participants are entitled to dividend equivalents.
2Ad(cid:77)usted Profit compound annual growth rate ((cid:522)CAGR(cid:523)).
3The Quilter plc Sharesave Plan is linked to a savings plan.
4Awards granted under the Phantom Share Reward Plan prior to the demerger of Quilter plc were made over notional Ordinary Shares in Old Mutual plc that were settled in
cash on the vesting date. Upon the demerger and listing of Quilter plc, all unvested notional share awards were converted to conditional awards over Ordinary Shares in Quilter
plc, which will be settled in Quilter plc shares on the normal vesting dates.
26(b): Reconciliation of movements in options
The movement in options outstanding under the Performance Share Plans and Sharesave Plan arrangements during the year is detailed below(cid:29)
Options over Shares
(London Stock Exchange)
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Cancelled during the year
Outstanding at end of the year
Exercisable at end of the year
Year ended
31 December 2020
Weighted average
exercise
price
(cid:101)0.(cid:25)(cid:24)
(cid:101)0.00
(cid:101)0.8(cid:24)
(cid:101)0.(cid:24)1
(cid:101)1.2(cid:24)
(cid:101)1.2(cid:24)
Number of
options
24,707,734
3,016,429
(976,874)
(620,349)
(287,816)
(941,029)
Number of
options
2,468,964
23,632,437
(624,694)
(175,789)
(39,120)
(554,064)
24,898,095
£0.54
24,707,734
–
–
–
Year ended
31 December 2019
Weighted average
exercise
price
(cid:101)0.00
(cid:101)0.73
(cid:101)0.30
(cid:101)0.00
(cid:101)1.2(cid:24)
(cid:101)1.2(cid:24)
£0.65
–
The weighted average fair value of options at the measurement date for options granted during the year ended 31 December 2020 is (cid:101)0.9(cid:24), and for
the year ended 31 December 2019 was (cid:101)0.73.
The options outstanding at 31 December 2020 have exercise prices of (cid:101)nil for both the Quilter plc Performance Share Plan and Charles Derby Group
Performance Share Plan, and (cid:101)1.2(cid:24) for the Quilter plc Sharesave Plan, with a weighted average remaining contractual life of 1.8 years. At 31 December
2019 the exercise price was (cid:101)nil for both the Quilter plc Performance Share Plan and Charles Derby Group Performance Share Plan, and (cid:101)1.2(cid:24) for the
Quilter plc Sharesave Plan, with a weighted average remaining contractual life of 2.7 years.
26(c): Measurements and assumptions
In determining the fair value of equity-settled share-based awards and the related charge to the income statement, the Group makes assumptions
about future events and market conditions. Specifically, management makes estimates of the likely number of shares that will vest and the fair value
of each award granted which is valued and ‘locked in’ at the grant date.
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted.
The(cid:98)estimate of fair value of share options granted is measured using either a (cid:37)lack-Scholes option pricing model or a Monte Carlo simulation.
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Quilter | Annual report 2020
227
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
26: Share-based payments continued
26(c): Measurements and assumptions continued
The inputs used in the measurement of fair values at the grant date for awards granted during 2020 were as follows(cid:29)
Scheme
Quilter plc Performance Share Plan
– Share Options (Nil cost options)
Quilter plc Performance Share Plan
– Conditional Shares
Quilter plc Share Reward Plan
– Conditional Shares
Weighted
average
share
price
£
1.17
1.17
1.17
Weighted
average
expected
volatility
3(cid:24).1(cid:8)
3(cid:24).1(cid:8)
3(cid:25).4(cid:8)
Weighted
average
expected
life
(years)
3.00
3.02
2.00
Weighted
average risk
free interest
rate
Weighted
average
expected
dividend yield
Expected
forfeitures
per annum
0.1(cid:8)
0.1(cid:8)
0.1(cid:8)
0.0(cid:8)
0.0(cid:8)
0.0(cid:8)
4(cid:8)
4(cid:8)
4(cid:8)
The expected volatility used was based on the historical volatility of the share price over the period for which trading history is available. The risk-free
interest rate was based on the yields available on UK Government bonds as at the date of grant. The bonds chosen were those with a similar
remaining term to the expected life of the share awards.
26(d): Share grants
The following summarises the fair value of Restricted Shares and Conditional Shares granted by the Group during the year(cid:29)
Instruments granted during the year
Quilter plc Performance Share Plan – Conditional Shares
Quilter plc Share Reward Plan – Conditional Shares
Year ended 31 December 2020
Year ended 31 December 2019
Number granted
4,911,597
13,471,153
Weighted average
fair value
(cid:101)1.17
(cid:101)1.17
Number granted
4,048,663
10,314,569
Weighted average
fair value
(cid:101)1.39
(cid:101)1.39
26(e): Financial impact
The share-based payment reserve of (cid:101)42 million (2019(cid:29) (cid:101)4(cid:24) million) represents the cumulative expense of the Group for the unsettled portion
of equity awarded schemes.
The total expense recognised in the year arising from equity compensation plans was as follows(cid:29)
Expense arising from equity-settled share and share option plans – continuing operations
Expense arising from equity-settled share and share option plans – discontinued operations
Total expense arising from share and share option plans
Year ended
31 December
2020
£m
25
–
Year ended
31 December
2019
£m
25
1
25
26
228
Quilter | Annual report 2020
27: Investment contract liabilities
The following table provides a summary of the Group’s investment contract liabilities(cid:29)
Carrying amount at 1 January
From continuing operations
Fair value movements
Investment income
Movements arising from investment return
From discontinued operations
Fair value movements
Investment income
Movements arising from investment return
Contributions received
Maturities
(cid:58)ithdrawals and surrenders
Claims and benefits
Other movements
Change in liability
Currency translation loss(cid:18)(gain)
Disposal of subsidiaries
Investment contract liabilities
31 December 2020
£m
Gross
52,455
Re-
insurance
–
Net
52,455
Gross
56,450
31 December 2019
£m
Re-
insurance
(1,671)
Net
54,779
2,632
696
3,328
–
–
–
4,871
(97)
(3,226)
(59)
2
4,819
133
–
57,407
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,632
696
3,328
–
–
–
4,871
(97)
(3,226)
(59)
2
4,819
133
–
5,091
719
5,810
1,427
142
1,569
5,718
(166)
(7,419)
(205)
2
5,309
(121)
(9,183)
–
–
–
(205)
–
(205)
1,148
–
–
–
(1)
942
–
729
5,091
719
5,810
1,222
142
1,364
6,866
(166)
(7,419)
(205)
1
6,251
(121)
(8,454)
57,407
52,455
–
52,455
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.
The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected
investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This
investment mix is unique to individual policyholders.
The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference between
the carrying amount and the maturity amount at maturity date.
The reinsurers’ share of policyholder liabilities relating to investment contract liabilities reduced to (cid:101)nil in 2019 due to the disposal of QLA.
For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on
a retrospective basis, no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in
assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the
relevant blocks of business (the (cid:522)recoverability test(cid:523)). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked
contracts, the assumptions are on a best estimate basis.
Following the sale of QLA in 2019 (see note (cid:25)(b)) the Group no longer has any pure insurance contracts. (cid:58)ithin the Group’s International business,
insurance contracts are unbundled. The insurance component does not give rise to any future liabilities and the deposit component is presented in
investment contract liabilities. As a result, the Group no longer has any insurance liabilities or reinsurance assets. In the year ended 31 December
2020 unbundled insurance premiums of (cid:101)1 million (31 December 2019(cid:29) (cid:101)1 million) are offset by (cid:101)(1) million (31 December 2019(cid:29) (cid:101)(1) million) of
premiums ceded to reinsurers.
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Quilter | Annual report 2020
229
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
28: Provisions
31 December 2020
(cid:37)alance at beginning of the year
Additions from business combinations
Charge to income statement
Utilised during the year
Unused amounts reversed
Reclassification within statement of financial position1
Balance at 31 December 2020
31 December 2019
(cid:37)alance at beginning of the year
Ad(cid:77)ustment on initial application of IFRS 1(cid:25)
Additions from business combinations
Charge to income statement2
Utilised during the year
Unused amounts reversed
Disposals
Reclassification within statement of financial position
(cid:37)alance at 31 December 2019
Compensation
provisions
£m
31
12
10
(5)
(6)
–
42
Compensation
provisions
£m
54
–
14
9
(19)
(13)
(11)
(3)
31
Sale of QLA
£m
6
–
–
(3)
–
–
3
Sale of QLA
£m
–
–
–
6
–
–
–
–
6
Sale of Single
Strategy
business
£m
10
–
–
(1)
(2)
–
7
Sale of Single
Strategy
business
£m
20
–
–
1
(11)
–
–
–
Clawback
and other
provisions
£m
17
–
1
(4)
(3)
14
25
Clawback and
other
provisions
£m
20
(5)
1
7
(1)
(4)
(1)
–
10
17
Total
£m
64
12
11
(13)
(11)
14
77
Total
£m
94
(5)
15
23
(31)
(17)
(12)
(3)
64
1Clawback provision was disclosed on a net basis in 2019. In 2020 the balance has been reclassified, with the liability due to product providers on indemnity commission
disclosed within provisions and the recoverable amount from brokers disclosed within receivables.
2Part of the charge to income statement in 2019 is included within the discontinued operations income statement.
Compensation provisions
Compensation provisions total (cid:101)42 million (31 December 2019(cid:29) (cid:101)31 million), and are comprised of the following(cid:29)
Lighthouse pension transfer advice provision of £28 million (31 December 2019: £12 million)
A provision for pension transfer advice was established within the fair value of the Lighthouse assets and liabilities acquired. As at 31 December
2019,(cid:98)the provision related to approximately 30 complaints received on advice provided by Lighthouse in respect of pension transfers for (cid:37)ritish Steel
Pension Scheme members, prior to the Group’s acquisition of Lighthouse in June 2019. All the complaints received related to transfers before
that(cid:98)date.
During 2020, the FCA reported the results of their thematic review into the general market of pension transfers, which included (cid:37)ritish Steel pension
transfers. The FCA review determined that the percentage of unsuitable files for (cid:37)ritish Steel transfers was higher than those for other pension
scheme transfers in their sample. The FCA review included a sample of (cid:37)ritish Steel pension transfer advice provided by Lighthouse. Additionally,
approximately 4(cid:24) further complaints have been received from (cid:37)ritish Steel Pension Scheme members subsequent to the publication of the Group’s
2019 Annual Report. As such, the Group has extended the provision to include consideration of the full population of 2(cid:25)(cid:24) (cid:37)ritish Steel transfers on
which Lighthouse advisers provided advice and the relevant customers proceeded to make a transfer, in order to determine a more reliable
approximation of the estimated redress payable.
In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person to review the (cid:37)ritish Steel pension transfers.
A skilled person has been appointed, and they have performed provisional redress calculations on a significant portion of the (cid:37)ritish Steel complaints
received by Lighthouse where the advice given was not suitable. The redress calculated on the complaints has been extrapolated to the entire
population of (cid:37)ritish Steel transfers, by subdividing the population into cohorts with similar characteristics, including dividing into transfers pre and
post June 2017 when the Trustees of the (cid:37)ritish Steel Pension Scheme changed the basis on which transfer values were calculated. The timing of any
benefits withdrawn by the member after the transfer also has an impact upon the redress calculated. The estimated redress per client as a
proportion of the transfer value of the pensions was determined for each cohort and extrapolated to the overall population of cases where advice
was provided, and that advice was then acted upon. The methodology employed to assess the calculated redress payable uses assumptions and
estimation techniques which are consistent with principles under the FCA’s FG17(cid:18)9 (cid:522)Guidance for firms on how to calculate redress for unsuitable defined
benefit pension transfers(cid:523).
230
Quilter | Annual report 2020
28: Provisions continued
Compensation provisions continued
A total provision of (cid:101)28 million (31 December 2019(cid:29) (cid:101)12 million) has been calculated for the potential redress of all (cid:37)ritish Steel cases, including
anticipated costs associated with the redress activity. This is comprised of two parts(cid:29)
(a) Client redress provision of (cid:101)2(cid:24) million (31 December 2019(cid:29) (cid:101)9 million). As noted above, this provision was increased during 2020 following the
publication of the FCA thematic review and additional client complaints received.
(b) Anticipated costs associated with redress activity of (cid:101)3 million (31 December 2019(cid:29) (cid:101)3 million). This provision is recognised in respect of the
anticipated costs of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice provided
of a similar nature in relation to cases that management believe may have similar characteristics. (cid:101)1 million of the legal and professional fees provision
has been utilised during the year, and the provision was increased by a further (cid:101)1 million during the year.
The recognition of the total provision before utilisation of (cid:101)29 million has been further apportioned between the fair value of net assets of Lighthouse
at acquisition and the expenses of the Group(cid:29)
(a) (cid:101)24 million (31 December 2019(cid:29) (cid:101)12 million) is recognised within the fair value of net assets acquired and impacts the goodwill balance recognised
upon acquisition.
(b) The increase in the provision subsequent to acquisition of (cid:101)(cid:24) million has been recognised within expenses of the Group.
The table below shows the change in this provision and how the amounts have been recognised(cid:29)
Client redress provision
Anticipated costs
Total Lighthouse pension transfer advice complaints provision
Recognised within fair value of acquired net assets
Recognised within expenses
31 December
2020
£m
25
3
28
24
5
Notes
6(a)
7(b)(vi)
Utilised
during the
year
£m
–
(1)
(1)
Balance
before
utilisation
£m
25
4
29
24
5
Increase in
2020
£m
16
1
31 December
2019
£m
9
3
17
12
5
12
12
–
Additionally, the recognition of the fair value of acquired assets has been increased by management’s estimate of the fair value of the insurance
recoverable of (cid:101)3 million and the deferred tax asset receivable of (cid:101)2 million (both described in note (cid:25)(a)) which, taken together with the (cid:101)12 million
increase in client redress provision described above, results in a net decrease of (cid:101)7 million to the fair value of the acquired net assets, which has been
recognised as an increase in the goodwill balance in the year ending 31 December 2020.
Management has not changed the (cid:101)3 million insurance recoverable that has been included in the fair value of the acquired net assets of Lighthouse.
Discussion with insurers is ongoing and management will review the recoverable amount as and when they receive further certainty. The insurance
asset at 31 December 2020 is disclosed within (cid:522)Trade, other receivables and other assets(cid:523).
The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, which are impacted by market movements and
other parameters affecting the defined contribution scheme asset, and therefore exposed to volatility from this, and may vary from the amounts
currently provided. The skilled person review is expected to conclude in the second half of 2021, after which settlements to customers will be made.
The key assumptions which have an impact upon the redress payable calculation are the discount rate, changes in market levels and proportion of
cases where redress is estimated to be payable. For the purpose of the redress calculation, changes in the discount rate impact the valuation of the
defined benefit ((cid:522)D(cid:37)(cid:523)) scheme at the reporting date, and market level changes impact the valuation of the personal pension scheme for each client.
The following table presents the potential change to the provision balance at 31 December 2020 as a result of movements in the key assumptions(cid:29)
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Change in discount rate to value the D(cid:37) pension liability of 0.2(cid:24)(cid:8)
Change in market levels of (cid:24)(cid:8)
Change in number of cases upheld of 10(cid:8)
31 December
2020
£m
Increase
(4)
(2)
1
Decrease
4
2
(1)
A further assumption which has an impact upon the provision is the timing of benefits taken. The uncertainty regarding the timing of benefits taken
by each member for the cases not yet determined by the skilled person has a potentially material future impact upon the provision. The range of
outcomes for the provision, including anticipated costs, varies from (cid:101)2(cid:24) million to (cid:101)3(cid:25) million at each extremity of possible timing of benefits taken.
Quilter | Annual report 2020
231
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
28: Provisions continued
Compensation provisions continued
Compensation provisions (other) of £14 million (31 December 2019: £19 million)
Other compensation provisions of (cid:101)14 million are all held within the Group’s continuing operations and include amounts relating to the cost of
correcting deficiencies in policy administration systems, including restatements, any associated litigation costs and the related costs to compensate
previous or existing policyholders and customers. This provision represents management’s best estimate of expected outcomes based upon
previous experience, and a review of the details of each case. Due to the nature of the provision, the timing of the expected cash outflows is uncertain.
The best estimate of timing of outflows is that the ma(cid:77)ority of the balance is expected to be settled within 12 months. Estimates are reviewed annually
and ad(cid:77)usted as appropriate for new circumstances. Management estimate a reasonably possible change of (cid:14)(cid:18)- (cid:101)4 million, based upon a review of the
cases and the range of potential outcomes.
Provisions arising on the disposal of Quilter Life Assurance
The QLA business was sold on 31 December 2019 (see note (cid:25)(c)), resulting in a number of provisions totalling (cid:101)(cid:25) million being established in respect
of the costs of disposing the business and the related costs of business separation.
The costs of business separation arise from the process to separate QLA’s infrastructure, which is complex and covers a wide range of areas including
people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the acquirer.
These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource
costs to achieve the separation.
The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. (cid:58)ork has taken place during 2020 and
will continue into 2021. Calculation of the provision is based on management’s best estimate of the work required, the time it is expected to take, the
number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these (cid:77)udgements
and estimates, management have made use of their past experience of previous IT migrations following business disposals. Management estimate
a reasonably possible change of (cid:14)(cid:18)- (cid:101)1 million, based upon the time it takes to complete the work, which is expected to conclude in 2021.
During the year (cid:101)3 million of the provision has been utilised.
Sale of Single Strategy Asset Management business provision
In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business to enable the remaining
Quilter Investors business to function as a standalone operation going forward. The provision includes those costs directly related to replacing and
restoring the operational capability that previously underpinned and supported both parts of the asset management business. Key parts of this
capability had either been disposed of or disrupted as a consequence of the sale. The provision established for restructuring was (cid:101)19 million, of which
(cid:101)(cid:24) million was utilised during 2018 and a further (cid:101)11 million utilised in 2019. During 2020, further utilisation of (cid:101)1 million has been incurred, and (cid:101)2
million has been reversed, and therefore the provision at year end 31 December 2020 is (cid:101)nil.
Additional provisions totalling (cid:101)(cid:25) million were also made in the year ended 31 December 2018 as a consequence of the sale of the Single Strategy
Asset Management business. These were in relation to various sale related future commitments, the outcome of which was uncertain at the time
of the sale and the most significant of which is in relation to the guarantee of revenues for the seller in future years arising from funds invested by
customers of Quilter. A further (cid:101)1 million was added to the provision during 2019, bringing the closing balance to (cid:101)7 million at 31 December 2019.
The balance remains at (cid:101)7 million at 31 December 2020.
The provision considers sensitivities including potential scenarios which would result in a reduction in Group assets under management held in
Merian (Single Strategy Asset Management business) funds, leading to a reduction in the management fees paid to Merian. The scenarios are based
upon assumptions determined considering historical outflows over the past three years, expectation of outflows in the next two years and the latest
information received from Merian. Per the conditions of the sale agreement, the maximum remaining potential exposure is (cid:101)17 million, based on
business periods between 2020 and 2022. The expected range of payments based upon the latest information received from Merian and
management’s reasonable expectations of AUM invested within Merian funds during the assessment periods is between (cid:101)(cid:24) million to (cid:101)12 million.
Of the total (cid:101)7 million provision outstanding, (cid:101)2 million is expected to be settled in the first half of 2021 related to the 2020 measurement year,
and the remaining (cid:101)(cid:24) million (2019(cid:29) (cid:101)3 million) is estimated to be payable after one year, with expected final settlement due in the first half of 2023.
Clawback and other provisions
Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and
indemnity commission provisions. (cid:58)here material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability.
The timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions
against the Group, are uncertain and could result in ad(cid:77)ustments to the amounts recorded.
232
Quilter | Annual report 2020
28: Provisions continued
Clawback and other provisions continued
Included within the balance in 2020 is (cid:101)18 million of clawback provisions in respect of potential refunds due to product providers on indemnity
commission, within the Quilter Financial Planning business. This provision, which is estimated and charged as a reduction of revenue on the income
statement at the point of sale of each policy, is based upon assumptions determined from historical experience of the proportion of policyholders
cancelling their policies, which requires Quilter to refund a portion of commission previously received. Reductions to the provision result from the
payment of cash to product providers as refunds or the recognition of revenue where a portion of the provision is assessed as no longer payable. The
provision has been assessed at the reporting date and ad(cid:77)usted for the latest cancellation information available. At 31 December 2020, an associated
balance of (cid:101)13 million recoverable from brokers is included within (cid:522)Trade, other receivables and other assets(cid:523). At 31 December 2019 the associated
asset of (cid:101)14 million was offset within the provision balance.
Management estimate a reasonably possible change of (cid:14)(cid:18)- (cid:101)(cid:25) million, based upon the potential range of outcomes for the proportion of cancelled
policies within the clawback provision, and a detailed review of the other provisions.
Of the total (cid:101)2(cid:24) million provision outstanding, (cid:101)13 million is estimated to be payable within one year (2019(cid:29) (cid:101)17 million).
29: Tax assets and liabilities
Deferred income taxes are calculated on all temporary differences at the tax rate applicable to the (cid:77)urisdiction in which the timing differences arise
and are all non-current.
Deferred tax summary
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
31 December
2020
£m
78
106
31 December
2019
£m
43
88
28
45
On the 3 March 2021 the Chancellor of the Exchequer announced in the (cid:37)udget a future increase in the Corporation Tax rate from 19(cid:8) to 2(cid:24)(cid:8),
effective from 1 April 2023. The change in rate has not yet been substantially enacted but had it been at 31 December 2020 the impact on the
deferred tax assets and liabilities would be a decrease in the net deferred tax liabilities of (cid:101)(cid:24) million.
29(a): Deferred tax assets
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable, being where,
on the basis of all available evidence, it is considered more likely than not that there will be suitable taxable profits against which the reversal of the
deferred tax asset can be deducted.
The movement on recognised deferred tax assets is as follows(cid:29)
31 December 2020
Tax losses carried forward
Accelerated depreciation
Accrued interest expense and other temporary differences
Share-based payments
Deferred expenses
Provisions
Netted against liabilities
Deferred tax assets at 31 December 2020
At beginning
of the year
£m
19
19
3
8
7
–
(13)
43
Income
statement
(charge)/
credit
£m
(4)
–
38
1
(1)
1
–
35
(Charged)/
credited
(cid:87)(cid:82)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
£m
–
–
–
–
–
–
–
–
(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)
/disposal of
subsidiaries
£m
–
–
–
–
–
–
–
–
At end of
the year
£m
15
19
41
9
6
1
(13)
78
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Quilter | Annual report 2020
233
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
29: Tax assets and liabilities continued
29(a): Deferred tax assets continued
31 December 2019
Tax losses carried forward
Accelerated depreciation
Other temporary differences
Share-based payments
Contract liabilities
Deferred expenses
Netted against liabilities
Deferred tax assets at 31 December 2019
At beginning
of the year
£m
19
13
4
4
2
35
(39)
38
Income
statement
(charge)/
credit
£m
(1)
6
(3)
4
(1)
(15)
12
2
(Charged)/
credited
to equity
£m
–
–
2
–
–
–
–
2
Acquisition/
disposal of
subsidiaries
£m
1
–
–
–
(1)
(13)
14
At end of the
year
£m
19
19
3
8
–
7
(13)
1
43
The credit to the income statement of (cid:101)(38) million in 2020 in respect of Accrued interest expense and other temporary differences includes a credit
of (cid:101)(39) million relating to first time recognition of a deferred tax asset on accrued interest expenses, as explained in note 11(a).
The recognition of deferred tax assets is sub(cid:77)ect to the estimation of future taxable profits, which is based on the annual business planning process
and in particular on estimated levels of assets under management, which are sub(cid:77)ect to a large number of factors including global stock market
movements and related movements in foreign exchange rates, together with estimates of net client cash flow, expenses and other charges.
The business plan, ad(cid:77)usted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised.
In general the Group assesses recoverability based on estimated taxable profits over a three year planning hori(cid:93)on. (cid:58)here credible longer-term profit
forecasts are available (e.g. for the life insurance companies) the specific entity may assess recoverability over a longer period, sub(cid:77)ect to a higher level
of sensitivity testing.
Deferred tax assets have been recognised to the extent they are supported by the Group’s business plans. The sensitivity of these assets is such that
any decrease in profitability over the assessment period would result in a write down in the deferred tax assets.
Unrecognised deferred tax assets
The amounts for which no deferred tax asset has been recognised comprises(cid:29)
Expiring in less than a year
Expiring between one and five years
Expiring after five years
Unrelieved tax losses
Accelerated depreciation
Other timing differences
Total unrecognised deferred tax assets
31 December 2020
£m
31 December 2019
£m
Gross amount
–
–
780
780
–
5
785
Tax
–
–
146
146
–
1
147
Gross amount
–
–
472
472
28
7
507
Tax
–
–
80
80
5
2
87
Movements in unrecognised deferred tax assets
The value of unrecognised deferred tax assets has increased by (cid:101)(cid:25)0 million during the year. This is primarily as a result of the increase in losses related
to the Group’s Managed Separation from previous parent (Old Mutual plc) under the terms of the Separation Agreement.
234
Quilter | Annual report 2020
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29: Tax assets and liabilities continued
29(b): Deferred tax liabilities
The movement on deferred tax liabilities is as follows(cid:29)
31 December 2020
Other acquired intangibles
Other temporary differences
Investment gains
Netted against assets
Deferred tax liabilities at 31 December 2020
31 December 2019
Deferred acquisition costs
Other acquired intangibles
Other temporary differences
Investment gains
Netted against assets
Deferred tax liabilities at 31 December 2019
At
beginning
of the year
£m
39
–
62
(13)
88
At
beginning
of the year
£m
11
40
1
46
(39)
59
Income
statement
(credit)/
charge
£m
(4)
4
19
–
19
Income
statement
(credit)/
charge1
£m
(3)
(8)
(1)
92
12
92
(cid:36)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:18)
disposal of
subsidiaries
£m
1
(2)
–
–
(1)
Acquisition/
disposal of
subsidiaries
£m
(8)
7
–
(76)
14
(63)
At end of
the year
£m
36
2
81
(13)
106
At end of
the year
£m
–
39
–
62
(13)
88
1In the year ended 31 December 2019, of the (cid:101)92 million income statement credit, (cid:101)41 million relates to continuing operations and (cid:101)(cid:24)1 million relates to discontinued
operations.
29(c): Current tax receivables and payables
Current tax receivables and current tax payables at 31 December 2020 were (cid:101)24 million (2019(cid:29) (cid:101)13 million) and (cid:101)1 million (2019(cid:29) (cid:101)(cid:25) million), respectively.
30: Borrowings and lease liabilities
The following table analyses the Group’s borrowings and lease liabilities(cid:29)
Subordinated debt(cid:29) fixed rate loan at 4.478(cid:8)
Lease liabilities
Total borrowings and lease liabilities
Notes
30(a)
30(b)
31 December
2020
£m
199
120
31 December
2019
£m
198
137
319
335
30(a): Borrowings
(cid:37)orrowed funds are repayable on demand and categorised in terms of IFRS 9 Financial Instruments as (cid:522)Financial liabilities at amortised cost(cid:523). The
carrying value of the Group’s borrowings is considered to be materially in line with the fair value. All amounts outstanding at 31 December 2020 are
payable to a number of relationship banks.
On 28 February 2018, the Group issued a (cid:101)200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call
option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478(cid:8) (the (cid:522)Tier 2 (cid:37)ond(cid:523)). The bond was remarketed and sold to
the secondary market in full on 13 April 2018. It is now listed and regulated under the terms of the London Stock Exchange. The bond matures in 2028
with the option to redeem in 2023.
In addition, the Group entered into a (cid:101)12(cid:24) million revolving credit facility which remains undrawn and is being held for contingent funding purposes.
30(b): Lease liabilities
The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the
Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.
Termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of
managing the assets used in the Group’s operations. The ma(cid:77)ority of termination options held are exercisable only by the Group and not by the
respective lessor.
Quilter | Annual report 2020
235
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
30: Borrowings and lease liabilities continued
30(b): Lease liabilities continued
As at 31 December 2020, future undiscounted cash outflows of (cid:101)22 million (2019(cid:29) (cid:101)2(cid:25) million) have been included in the lease liability which will occur
beyond termination option dates on three of the Group’s principal property leases, as it is reasonably certain that these leases will not be terminated.
The lease term is reassessed if an option is exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment
of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is
within the control of the lessee.
During the year, certain lease terms were reassessed to reflect the expectation that termination options will now be exercised. The financial effect of
this reassessment was a decrease in recognised lease liabilities and right-of-use assets of (cid:101)7 million (2019(cid:29) (cid:101)nil). These are the only significant property
leases where the term is modelled up to a termination option date.
Lease liabilities represent the obligation to pay lease rentals as required by IFRS 1(cid:25) and are categorised as financial liabilities at amortised cost.
Opening balance
Implementation of IFRS 1(cid:25)
Acquisitions through business combinations
Additions1
Disposals and ad(cid:77)ustments to lease liabilities
Interest charge for the year
Payment for interest portion of lease liability
Payment for principal portion of lease liability
Closing balance
To be settled within 12 months
To be settled after 12 months
Total lease liabilities
Maturity analysis2
(cid:58)ithin one year
One to five years
More than five years
Total lease liabilities – undiscounted
1The ma(cid:77)ority of additions during 2019 relate to the lease for Senator House, the Group’s new London property.
2The maturity analysis of lease liabilities is on an undiscounted basis.
31 December
2020
£m
137
–
–
6
(11)
4
(2)
(14)
31 December
2019
£m
–
89
1
60
–
3
(3)
(13)
120
9
111
120
11
57
75
143
137
13
124
137
15
50
99
164
236
Quilter | Annual report 2020
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f
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31: Trade, other payables and other liabilities
Claims outstanding
Amounts owed to intermediaries
Amounts payable on direct insurance business
Deposits received from reinsurers
Accounts payable on reinsurance business
Outstanding settlements
Accruals and deferred income
Trade creditors
Deferred consideration
Other liabilities1
Total trade, other payables and other liabilities
To be settled within 12 months1
To be settled after 12 months
Total trade, other payables and other liabilities
1See note 4(b) for details of changes to comparative amounts.
31 December
2020
£m
131
8
31 December
2019
restated¹
£m
182
11
139
–
–
255
111
41
16
110
672
666
6
672
193
16
1
270
160
41
39
81
801
797
4
801
32: Contract liabilities
Contract liabilities relate to non-refundable front-end fee income, comprising fees received at inception or receivable over an initial period for services
not yet provided, and is deferred through the creation of a contract liability on the statement of financial position and released to income as the
services are provided. Equal service provision is assumed over the lifetime of the contract and, as such, the contract liability is amortised on a linear
basis over the expected life of the contract, ad(cid:77)usted for expected persistency. The contract liability principally comprises fee income already received
in cash. The table below analyses the movements in contract liabilities.
1 January 2019 (as originally stated)
Fee income receivable reclassification1
1 January 2019 restated1
Fees and commission income deferred
Amortisation
Foreign exchange
Continuing operations movements
Discontinued operations movements
Disposal of subsidiaries
31 December 2019 restated(cid:123)
Fees and commission income deferred
Amortisation
Foreign exchange
Continuing operations movements
31 December 2020
The Group expects to recognise the above contract liability balances as revenue in the following years(cid:29)
(cid:58)ithin one year
One to five years
More than five years
Total contract liabilities
1See note 4(b) for details regarding the restatement of the Group’s fee income receivable.
Insurance and
Investments
£m
225
230
Asset
Management
£m
1
–
455
44
(62)
(3)
(21)
(8)
(23)
403
35
(62)
3
(24)
379
1
–
(1)
–
(1)
–
–
–
–
–
–
–
–
Total
£m
226
230
456
44
(63)
(3)
(22)
(8)
(23)
403
35
(62)
3
(24)
379
31 December
2020
£m
31 December
2019
restated¹
£m
61
184
134
379
60
192
151
403
Quilter | Annual report 2020
237
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
33: Post-employment benefits
The Group operates a number of defined contribution and defined benefit pension schemes in the UK, the Channel Islands and Ireland.
Defined contribution pension schemes
The Group’s defined contribution schemes require contributions to be made to funds held in trust, separate from the assets of the Group.
Participants receive either a monthly pension supplement to their salaries or contributions to personal pension plans. For the defined contribution
schemes, the Group pays contributions to separately administered pension schemes. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised in current service cost in the consolidated income statement as staff costs and other
employee-related costs when they are due.
Defined benefit schemes
The Group operates two defined benefit schemes(cid:29) The Quilter Cheviot Limited Retirement (cid:37)enefits Scheme and the Quilter Cheviot Channel Islands
Retirement (cid:37)enefits Scheme which are both closed to new members. The assets of these schemes are held in separate trustee administered funds.
Pension costs and contributions relating to defined benefit schemes are assessed in accordance with the advice of qualified actuaries. Actuarial
advice confirms that the current level of contributions payable to each pension scheme, together with existing assets, are adequate to secure
members’ benefits over the remaining service lives of participating employees. The Group’s policy is to fund at least the amounts sufficient to
meet minimum funding requirements under applicable employee benefit and tax regulations. The schemes are reviewed at least on a triennial
basis or in accordance with local practice and regulations. In the intervening years the actuary reviews the continuing appropriateness of the
assumptions applied.
In 2019, the Trustees of the Quilter Cheviot Limited Retirement (cid:37)enefits scheme purchased a bulk annuity from Aviva to de-risk the defined benefit
pension scheme obligation. This investment strategy was intended to equally match the assets and liabilities of the scheme. This covers all remaining
insured scheme benefits following previous bulk annuity transactions in 2013, 2014 and 201(cid:24). The Group in(cid:77)ected a capital contribution of (cid:101)7 million
to effect this transaction.
Further details explaining the considerations behind the Group’s decision to fund the buy-in are included in the 2019 Annual Report.
IAS 19 Employee Benefits disclosures
This note gives full IAS 19 Employee Benefits disclosures for the above schemes.
33(a): Liability for defined benefit obligations
The IAS 19 value of the assets and the scheme obligations are as follows(cid:29)
(cid:38)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
Total IAS 19 retirement benefit obligation opening balance
Interest cost on benefit obligation
Effect of changes in actuarial assumptions
Actuarial losses
(cid:37)enefits paid
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:918)(cid:36)(cid:54)(cid:3)(cid:20)(cid:28)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:3)(cid:82)(cid:69)(cid:79)(cid:76)(cid:74)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)
Change in plan assets
Total IAS 19 fair value of scheme assets opening balance
Actual return on plan assets
Company contributions
(cid:37)enefits paid
Total IAS 19 fair value of scheme assets closing balance
(cid:49)(cid:72)(cid:87)(cid:3)(cid:918)(cid:36)(cid:54)(cid:3)(cid:20)(cid:28)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)
Funded status of plan
Unrecognised assets
(cid:49)(cid:72)(cid:87)(cid:3)(cid:918)(cid:36)(cid:54)(cid:3)(cid:20)(cid:28)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)
238
Quilter | Annual report 2020
31 December
2020
£m
31 December
2019
£m
(38)
(1)
–
(4)
2
(41)
39
5
–
(2)
42
1
(1)
–
(44)
(1)
(2)
(6)
15
(38)
56
(8)
6
(15)
39
1
(1)
–
33: Post-employment benefits continued
33(a): Liability for defined benefit obligations continued
Contributions for the year to the defined benefit schemes totalled (cid:101)nil (2019(cid:29) (cid:101)(cid:25) million), and (cid:101)1 million was accrued at 31 December 2020
(2019(cid:29) (cid:101)1 million). The Group expects to contribute (cid:101)1 million in the next financial year, based upon the current funded status and the expected
return assumption for the next financial year.
Changes in the asset ceiling
Opening unrecognised asset due to asset ceiling
Changes in asset ceiling
Closing unrecognised asset due to the asset ceiling
31 December
2020
£m
31 December
2019
£m
1
–
1
12
(11)
1
33(b): Income/expense recognised in the income statement
The total pension charge to staff costs for all of the Group’s defined benefit schemes for the year ended 2020 was (cid:101)nil (2019(cid:29) (cid:101)nil).
Actuarial gains and losses and the effect of the limit to the pension asset under IAS 19 Employee Benefits paragraph (cid:24)8 have been reported in other
comprehensive income.
The cumulative amount of actuarial losses recognised in other comprehensive income is (cid:101)33 million (2019(cid:29) (cid:101)33 million).
Assumptions
The expected long-term rate of return on assets represents the Group’s best estimate of the long-term return on the scheme assets and is generally
estimated by computing a weighted average return of the underlying long-term expected returns on the different asset classes, based on the target
asset allocations. The expected long-term return on assets is a long-term assumption that is generally expected to remain the same from one year
to the next unless there is a significant change in the target asset allocation, the fees and expenses paid by the plan or market conditions.
The Group, in consultation with its independent investment consultants and actuaries, determined the asset allocation targets based on its
assessment of business and financial conditions, demographic and actuarial data, funding characteristics and related risk factors. Other relevant
factors, including industry practices, long-term historical and prospective capital market returns, were also considered.
The scheme return ob(cid:77)ectives provide long-term measures for monitoring the investment performance against growth in the pension obligations.
The overall allocation is expected to help protect the plan’s funded status while generating sufficiently stable real returns (net of inflation) to help cover
current and future benefit payments.
(cid:37)oth the equity and fixed income portions of the asset allocation use a combination of active and passive investment strategies and different
investment styles. The fixed income asset allocation consists of longer duration fixed income securities in order to help reduce plan exposure to
interest rate variation and to better correlate assets with obligations. The longer duration fixed income allocation is expected to help stabilise plan
contributions over the long run.
The weighted average duration of the defined benefit obligation is 20 years, based upon actual cash flows.
The following table presents the principal actuarial assumptions at the end of the reporting year(cid:29)
Discount rate
Rate of increase in defined benefit funds
Inflation
The mortality assumptions used give the following life expectancy at (cid:25)(cid:24)(cid:29)
2020
%
1.4
3.(cid:24)
2.9
2019
%
2.1
3.(cid:24)
2.8
31 December 2020
31 December 2019
Life expectancy at 65 for male
member currently
Life expectancy at 65 for female
member currently
Mortality table
S2PA Light
S2PA Light
Aged 65
23.40
23.40
Aged 45
25.50
2(cid:24).40
Aged 65
24.50
24.40
Aged 45
26.70
2(cid:25).70
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and rate of mortality.
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Quilter | Annual report 2020
239
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
33: Post-employment benefits continued
33(b): Income/expense recognised in the income statement continued
The sensitivities regarding the principal assumptions used to measure the defined benefit obligations are described below. Reasonably possible
changes at the reporting date to one of the principal actuarial assumptions, holding other assumptions constant, would have affected the defined
benefit obligation as follows(cid:29)
Discount rate (0.1(cid:8) movement)
Inflation rate (0.1(cid:8) movement)
Rate of mortality (increase by 1 year)
31 December
2020
£m
Decrease
0.7
(0.3)
–
Increase
(0.7)
0.3
1.7
31 December
2019
£m
Decrease
0.7
(0.3)
–
Increase
(0.7)
0.3
1.(cid:25)
33(c): Scheme assets allocation
Scheme assets are stated at their fair values. Total scheme assets are comprised as follows(cid:29)
Equity securities
Debt securities
Cash and other assets
Total IAS 19 fair value of scheme assets
31 December
2020
%
7
93
–
31 December
2019
%
4
94
2
31 December
2020
£m
3
39
–
31 December
2019
£m
2
36
1
100
100
42
39
Equity instruments, debt instruments and investment fund assets have a quoted market price. All other assets, including the value of the bulk annuity
policy, do not have a quoted market price. The bulk annuity policy, where assets are matched to the value of liabilities, is included at values provided
by the insurer in accordance with relevant guidelines.
34: Master netting or similar agreements
The Group offsets financial assets and liabilities in the statement of financial position when it has a legal, enforceable right to do so and intends
to settle on a net basis simultaneously. Currently, the only such offsetting within the Group relates to the pooling of bank accounts and, in some
circumstances a bank account may be overdrawn and therefore offset.
The following tables present information on the potential effect of netting offset arrangements after taking into consideration these types of
agreements.
Gross
amounts
£m
(cid:36)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:909)(cid:86)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)
the statement of
(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)
£m
Net amounts
reported in
the statement
(cid:82)(cid:73)(cid:3)(cid:564)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
position
£m
1,999
78
(78)
(78)
1,921
–
Gross
amounts
£m
Amounts offset in
the statement of
financial position
£m
Net amounts
reported in
the statement
of financial
position
£m
2,331
78
(78)
(78)
2,253
–
31 December 2020
Financial assets
Cash and cash equivalents
Financial liabilities
Trade, other payables and other liabilities
31 December 2019 (restated)¹
Financial assets
Cash and cash equivalents
Financial liabilities
Trade, other payables and other liabilities
1See note 4(b) for details of changes to comparative amounts.
240
Quilter | Annual report 2020
35: Contingent liabilities
The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. The Group recognises a
provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the
obligation and a reliable estimate of the amount can be made (see note 28). Possible obligations and known liabilities where no reliable estimate can
be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
Contingent liabilities – acquisitions and disposals
The Group routinely monitors and assesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to past
acquisitions and disposals. In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person, under section
1(cid:25)(cid:25)(3)(a) of the Financial Services and Markets Act 2000 ((cid:522)FSMA(cid:523)) in relation to Lighthouse Defined (cid:37)enefit ((cid:522)D(cid:37)(cid:523)) pension transfer advice. The review
covers Lighthouse Advisory Services Limited only, and no other companies within the Group. The review covers the period from 1 April 201(cid:24) to 27
January 2020, which is the date that Lighthouse converted to the Quilter Financial Planning advice process for their Defined (cid:37)enefit transfer activity.
The review will cover (cid:37)ritish Steel D(cid:37) pension transfer advice activity undertaken by Lighthouse, and a representative sample of other Lighthouse D(cid:37)
pension transfer advice activity. The skilled person will also calculate redress, following the FCA’s FG17(cid:18)9 “Guidance for firms on how to calculate redress
for unsuitable defined benefit pension transfers” guidance. The skilled person will also review the redress methodology applied by Lighthouse to any
complaints already upheld. The skilled person’s final report is expected to be submitted to the FCA in the third quarter of 2021.
For the (cid:37)ritish Steel cases, management currently consider that the likelihood of redress is probable on the ma(cid:77)ority of the cases, but this is sub(cid:77)ect to
confirmation through the ongoing skilled person review process. An estimate of the amount of redress payable has been made and is included within
Provisions in note 28. For the non-(cid:37)ritish Steel cases, it is possible that further costs of redress may be incurred following the outcome of the skilled
person review. At present, there is no indication of redress payable in relation to non-(cid:37)ritish Steel cases. Any further redress costs related to
non-(cid:37)ritish Steel cases, and any differences between the provision and final payment to be made for (cid:37)ritish Steel cases, will be recognised as an
expense or credit in the Income Statement, following the finalisation of the acquisition balance sheet of Lighthouse in June 2020.
Tax
The Revenue authorities in the principal (cid:77)urisdictions in which the Group operates routinely review historical transactions undertaken and tax law
interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the (cid:77)urisdictions in
which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction and
the relevant legislation.
There are occasions where the Group’s interpretation of tax law may be challenged by the Revenue authorities. The financial statements include
provisions that reflect the Group’s assessment of liabilities which might reasonably be expected to materialise as part of their review. The (cid:37)oard is
satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised. This may
include amounts relating to first time recognition of a deferred tax asset on accrued interest expenses, as explained in notes 11(a) and 29(a).
Complaints and disputes
The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to time
receive complaints and claims, and enters into commercial disputes with service providers, in the normal course of business. The costs, including legal
costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37.
36: Commitments
The Group has contractual commitments in respect of funding arrangements which will be payable in future periods. These commitments are not
recognised in the Group’s statement of financial position.
37: Capital and financial risk management
37(a): Capital management
The Group manages its capital with a focus on capital efficiency and effective risk management. The capital management ob(cid:77)ectives are to maintain
the Group’s ability to continue as a going concern while supporting the optimisation of return relative to the risks. The Group ensures that it can meet
its expected capital and financing needs at all times having regard to the Group’s business plans, forecasts, strategic initiatives and regulatory
requirements in all businesses in the Group. Capital forecasts have been reviewed regularly during 2020 in response to the emerging impacts of the
CO(cid:57)ID-19 pandemic which has evolved over the year and, where appropriate, management actions have been taken in response to these forecasts.
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The Group’s overall capital risk appetite is set with reference to the requirements of the relevant stakeholders and seeks to(cid:29)
– maintain sufficient, but not excessive, financial strength to support stakeholder requirements(cid:30)
– optimise debt to equity structure to enhance shareholder returns(cid:30) and
– retain financial flexibility by maintaining liquidity including unutilised committed credit lines.
Quilter | Annual report 2020
241
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
37: Capital and financial risk management continued
37(a): Capital management continued
The primary sources of capital used by the Group are equity shareholders’ funds of (cid:101)1,878 million (31 December 2019(cid:29) (cid:101)2,071 million) and
subordinated debt which was issued at (cid:101)200 million in February 2018. Alternative resources are utilised where appropriate. Risk appetite has been
defined for the level of capital, liquidity and debt within the Group. The risk appetite includes long-term targets, early warning thresholds and risk
appetite limits. The dividend policy sets out the target dividend level in relation to profits.
The regulatory capital for the Group is assessed under Solvency II requirements.
37(a)(i): Regulatory capital (unaudited)
The Group is sub(cid:77)ect to Solvency II group supervision by the PRA. The Central (cid:37)ank of Ireland is Quilter’s lead supervisor within the European Union
and exercises a limited form of Solvency II group supervision over the Group. The Group is required to measure and monitor its capital resources
under the Solvency II regulatory regime.
The Group’s insurance undertakings are included in the Group solvency calculation on a Solvency II basis. Other regulated entities are included in the
Group solvency calculation according to the relevant sectoral rules. The Group’s Solvency II surplus is the amount by which the Group’s capital on a
Solvency II basis (own funds) exceeds the Solvency II capital requirement (solvency capital requirement or (cid:522)SCR(cid:523)).
The Group’s Solvency II surplus is (cid:101)1,021 million at 31 December 2020 (2019(cid:29) (cid:101)1,1(cid:25)8 million), representing a Solvency II ratio of 217(cid:8) (2019(cid:29) 221(cid:8))
calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2020 allows for the impact of the
recommended final dividend payment of (cid:101)(cid:25)1 million (2019(cid:29) (cid:101)(cid:25)4 million). The disclosure does not include the impact of Tranche 3 of the share buyback
which had not been approved by the Group’s regulators at the reporting date.
The Solvency II results for the year ended 31 December 2020 (unaudited estimate) and 31 December 2019 were as follows(cid:29)
Own funds
Solvency capital requirement (SCR)
Solvency II surplus
Solvency II coverage ratio
1(cid:37)ased on preliminary estimates. Filing of annual regulatory reporting forms due by 20 May 2021.
2As represented within the Quilter plc Group Solvency and Financial Condition Report for the year ended 31 December 2019.
31 December
20201
£m
1,897
876
1,021
31 December
20192
£m
2,132
964
1,168
217%
221%
The Group’s own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own
funds by tier is presented in the table below.
Group own funds
Tier 11
Tier 22
Total Group Solvency II own funds
1All Tier 1 capital is unrestricted for tiering purposes.
2Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at (cid:101)200 million in February 2018.
31 December
2020
£m
1,688
209
31 December
2019
£m
1,925
207
1,897
2,132
The Group’s insurance subsidiaries based in the UK and Ireland are also sub(cid:77)ect to Solvency II at entity level. Other regulated entities in the Group are
sub(cid:77)ect to the locally applicable entity-level capital requirements in the (cid:77)urisdictions in which they operate. In addition, the Group’s asset management
and advice businesses are sub(cid:77)ect to group supervision by the FCA under the CRD I(cid:57) regime.
The solvency and capital requirements for the Group and its regulated subsidiaries are reported and monitored through monthly Capital
Management Forum meetings. Throughout 2020, the Group has complied with the regulatory capital requirements that apply at a consolidated level
and Quilter’s insurance undertakings and investment firms have complied with the regulatory capital requirements that apply at entity level.
242
Quilter | Annual report 2020
37: Capital and financial risk management continued
37(a): Capital management continued
37(a)(ii): Loan covenants
Under the terms of the revolving credit facility agreement, the Group is required to comply with the following financial covenant(cid:29) the ratio of total net
borrowings to consolidated equity shareholders’ funds shall not exceed 0.(cid:24).
Total external borrowings of the Company
Less(cid:29) cash and cash equivalents of the Company
Total net external borrowings of the Company
Total shareholders’ equity of the Group
Tier 2 bond
Total Group equity (including Tier 2 bond)
(cid:53)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:69)(cid:82)(cid:85)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)
The Group has complied with the covenant since the facility was created in February 2018.
Note
30
30
31 December
2020
£m
199
(314)
31 December
2019
£m
198
(559)
(115)
1,878
199
2,077
(361)
2,071
198
2,269
-0.055
-0.159
37(a)(iii): Own Risk and Solvency Assessment (“ORSA”) and Internal Capital Adequacy Assessment Process (“ICAAP”)
The Group ORSA process is an ongoing cycle of risk and capital management processes which provides an overall assessment of the current and
future risk profile of the Group and demonstrates the relationship between business strategy, risk appetite, risk profile and solvency needs. These
assessments support strategic planning and risk-based decision making.
The underlying ORSA processes cover the Group and consider how risks and solvency needs may evolve over the planning period. The ORSA includes
stress and scenario tests, which are performed to assess the financial and operational resilience of the Group.
The Group ORSA report is produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital
management processes in respect of the Group. The ORSA report is submitted to the PRA as part of the normal supervisory process and may be
supplemented by ad hoc assessments where there is a material change in the risk profile of the Group outside the usual reporting cycle.
In addition to the Group ORSA process, entity level ORSA processes are performed for each of the solo insurance entities within the Group.
The Group ICAAP process is similar to the ORSA process although the ICAAP process is performed for a subset of the Group consisting of the
investment and advisory firms within the Group (the (cid:522)ICAAP Group(cid:523)). The Group ICAAP report is also produced annually and summarises the analysis,
insights and conclusions from the underlying risk and capital management processes in respect of the ICAAP Group. The ICAAP report is submitted to
the FCA as part of the normal supervisory process and may be supplemented by ad-hoc assessments where there is a material change in the risk
profile of the ICAAP Group outside the usual reporting cycle.
The conclusions of ORSA and ICAAP processes are reviewed by management and the (cid:37)oard throughout the year.
37(b): Credit risk
Overall exposure to credit risk
Credit risk is the risk of adverse movements in credit spreads (relative to the reference yield curve), credit ratings or default rates leading to a
deterioration in the level or volatility of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. This includes
counterparty default risk, counterparty concentration risk and spread risk.
The Group has established a Credit Risk Framework that includes a Credit Risk Policy, Credit Risk Standard and Credit Risk Appetite Statement.
This framework applies to all activities where the shareholder is exposed to credit risk, either directly or indirectly, ensuring appropriate identification,
measurement, management, monitoring and reporting of the Group’s credit risk exposures.
The credit risk arising from all exposures is mitigated through ensuring the Group only enters into relationships with appropriately robust
counterparties, adhering to the Group Credit Risk Policy. For each asset, consideration is given as to(cid:29)
– the credit rating of the counterparty, which is used to derive the probability of default(cid:30)
– the loss given default(cid:30)
– the potential recovery which may be made in the event of default(cid:30)
– the extent of any collateral that the firm has in respect of the exposures(cid:30) and
– any second order risks that may arise where the firm has collateral against the credit risk exposure.
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Quilter | Annual report 2020
243
Notes to the consolidated financial statements
For the year ended 31 December 2020 continued
37: Capital and financial risk management continued
37(b): Credit risk continued
The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, to ensure there is appropriate
diversification of counterparties and to ensure that exposures are within approved limits. At 31 December 2020, the Group’s material credit
exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers
and reinsurers) and individuals (primarily through fund management trade settlement activities).
There is no direct exposure to European sovereign debt (outside of the UK) within the shareholder investments. The Group has no significant
concentrations of credit risk exposure.
Other credit risks
The Group is exposed to financial adviser counterparty risk through a number of loans that it makes to its advisers and the payment of upfront
commission on the sale of certain types of business. The risk of default by financial advisers is managed through monthly monitoring of loan and
commission debt balances.
The Group is also exposed to the risk of default by fund management groups in respect of settlements and rebates of fund management charges
on collective investments held for the benefit of policyholders. This risk is managed through the due diligence process which is completed before
entering into any relationship with a fund group. Amounts due to and from fund groups are monitored for prompt settlement and appropriate action
is taken where settlement is not timely.
Legal contracts are maintained where the Group enters into credit transactions with a counterparty.
Impact of credit risk on fair value
Due to the limited exposure that the Group has to credit risk, credit risk does not have a material impact on the fair value movement of financial
instruments for the year under review. The fair value movements on these instruments are mainly due to changes in market conditions.
Maximum exposure to credit risk
The Group’s maximum exposure to credit risk does not differ from the carrying value disclosed in the relevant notes to the financial statements.
Loans and advances sub(cid:77)ect to 12 month expected credit losses ((cid:522)12 month ECL(cid:523)) are (cid:101)31 million (2019(cid:29) (cid:101)37 million) and other receivables sub(cid:77)ect
to lifetime expected credit losses ((cid:522)lifetime ECL(cid:523)) are (cid:101)(cid:24)2(cid:24) million (2019 restated – see note 4(b)(i)(cid:29) (cid:101)4(cid:24)8 million). These balances are not rated(cid:30) they
represent the pool of counterparties that do not require a rating. These counterparties individually generate no material credit exposure and this pool
is highly diversified, monitored and sub(cid:77)ect to limits.
Exposure arising from financial instruments not recognised on the statement of financial position is measured as the maximum amount that the
Group would have to pay, which may be significantly greater than the amount that would be recognised as a liability. The Group does not have any
significant exposure arising from items not recognised on the statement of financial position.
The table below represents the Group’s exposure to credit risk from cash and cash equivalents.
31 December 2020
Cash at amortised cost, sub(cid:77)ect to 12 month ECL
Money market funds at F(cid:57)TPL
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)
31 December 2019 (restated)2
Cash at amortised cost, sub(cid:77)ect to 12 month ECL
Money market funds at F(cid:57)TPL
(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)
1Cash included in the consolidation of funds is not rated (see note 24(a)).
2See note 4(b) for details of changes to comparative amounts.
(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:89)(cid:68)(cid:79)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:81)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)
£m
AAA
–
1,062
1,062
AAA
–
1,156
1,156
AA
81
–
81
A
464
–
464
BBB
1
–
1
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