Ann: Investor presentation - IOOF FY 2018 results, page-107

when thinking about the cost to income ratio for ifl which currently sits at 53%, how low could this go? I noticed CGF cti has dropped from 50% down to 33% over the last decade in their presentation.
obviously very different businesses but just trying to think about where ifl might be heading.

@Just_a_guy

I’d say that the main difference between IFL and CGF, from a cost structure point of view, is that 47% of IFL’s Net Operating Revenue comes from Financial Advice, which is a more people-intensive business (relative to Platforms and Investment Management, and also to the Life Annuity business) and therefore has a higher CTI ratio (55.0% [*]).

Increasing automation will conceivably force Financial Advice Operating Costs lower, over time, but intuitively the CTI for this business should remain materially higher than the corresponding ratio for Platforms (42.6% [*]) and Investment Management (18.4% [*]).

Also, the CTI ratio for the Trustee Services business is materially higher (60.1% [*]), because of the corresponding Net Operating Revenue representing only a tiny percentage of the underlying Funds Under Supervision (0.10%); this is a structurally low-margin business, and likely to remain such.

[*]: All these CTI ratio are calculated at the Operating Segment level, before factoring in Corporate Expenses; therefore, their weighted average (46.9%) is lower than the overall Group CTI ratio (53.1%).

At a first glance, the CTI ratio for the Platforms business (whose NOR represents 36% of the Group’s Net Operating Revenue) is the one that could probably be compressed further, and get closer to the 33% area that CGF are able to achieve. At a group level, that would correspond to approximately an extra 500bp of improvement in the overall CTI ratio (i.e. from the current 53% down to roughly 48%).

So, as a first ballpark estimate, that is the sort of improvement that I think it is reasonable to expect over the next few years (also depending on the rate of net inflows and on the ongoing fee compression).

Any further thoughts on the topic are welcome.