IGM Financial Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 8 speakers on the call.

Operator

Welcome to the IGM Financial Second Quarter 2023 Analyst Call and Web Cast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Star then 1 on your telephone keypad. Call.

Operator

I would now like to turn the conference over to Kyle Margins, Treasurer and Head of Investor Relations. Please go ahead.

Speaker 1

Call. Thank you, Sherry, and good morning and thank you everyone for joining our call this morning. Joining me on the call today, we have James O'Sullivan, Call, President and CEO of IGM Financial Damon Murchison, President and CEO of IG Wealth Management Group, President and CEO of Mackenzie Investments and Keith Potter, Executive Vice President and CFO of IGM Financial. Call. Before we get started, I would like to draw your attention to our cautions concerning forward looking statements on Slide 3 of the presentation.

Speaker 1

Call. Slides 45 summarize non IFRS financial measures and other financial measures used in our material. Call. And on Slide 6, we provide a list of our documents that are available on our website related to IGM Financial's 2nd quarter results. Call.

Speaker 1

I'll now turn it over to James.

Speaker 2

Good. Well, thank you, Kyle, and good morning, everyone. I'll start on Slide 8 and cover some of the highlights for the Q2. Adjusted EPS of $0.86 another strong result, I think, in the current environment. Reported EPS of $0.58 That includes a restructuring charge we took during the quarter, stood at $261,000,000,000 at the end of June, and our reported net outflows were $821,000,000 during the quarter.

Speaker 2

Call. While not included in this calculation, we do think it is important to note the strong growth in our other businesses. That's $14,000,000,000 in Canadian dollar terms. I think these are very important examples of Call and Northleaf Capital Markets. Along with IG Wealth and Mackenzie Investments, each of these businesses are leaders Call.

Speaker 2

At the Investor Day in December, we will share more about the opportunities ahead for each of these businesses. Turning to Slide 9, financial markets during the 2nd quarter were mixed, with most equity markets posting positive returns, Erasing gains realized in the Q1 and the Chinese currency depreciated approximately 7% Call relative to the Canadian dollar. During July, equity markets were positive across major markets, during the Q2. As the combined effects of recent market volatility, the impact of higher interest rates and high inflation Continued to weigh on investor sentiment and savings levels. Canadians are reviewing their financial picture in light of elevated interest rates, Paying down floating rate and other high cost debt is being prioritized by many Canadians across wealth segments.

Speaker 2

Call, savings are also being consumed to support consumption during this period of high inflation. Call. We expect these factors to continue as headwinds for the overall industry net sales during the second half of the year. Call. However, our businesses will continue to compete well and will be positioned very well when sentiment improves And industry net sales accelerate.

Speaker 2

Slide 11 presents IGM's consolidated average AUM and A and earnings results. Q2 2023 adjusted EPS of $0.86 was down $0.01 relative to the same quarter last year. Call. As I mentioned, reported EPS of $0.58 includes a restructuring charge and 2 adjustments Call relating to our investment in Great West Lifeco. Slide 12 highlights earnings across our core operating companies and strategic investments.

Speaker 2

I'd remind that our earnings pickup from China AMC and Lifeco include the impact Call and Webcast. The transactions that closed earlier this year, increasing our ownership position in China AMC to 27.8% Ending AU M and A is up 8% over the past 12 months. The growth in our proportionate share of our strategic Investments, AUM and A, includes both the investments we've made in recent quarters as well as strong underlying asset growth at each of these companies. I'd note that China AMC's AUM grew by approximately 4% over the past year in local currency. Call.

Speaker 2

However, this increase was offset by the depreciation of the currency relative to the Canadian dollar over the same time period. Slide 14 breaks down IGM's net flows by company, along with Northleaf's fundraising activity during the 2nd quarter. Call. Before turning the call over, I'm going to end my remarks by touching on the June 29 announcement, Call, where we shared via press release the high level details of an important exercise that our management team has been very focused on over the past 12 months. First, I'd remind that IGM Financial has been on a journey since 2017 On an ambitious digital transformation that elevated our employee, advisor and client experiences, we have tactically managed expenses year after year.

Speaker 2

This initiative is different. Call, we conducted a comprehensive strategic review of our businesses and carefully considered how we were matching our efforts Call against business priorities. This strategic exercise uncovered meaningful opportunities call to stop doing some things, change how we were doing some other things, and start doing some things that we had not done previously. Roughly half of the savings from this exercise will result in a structural reduction Call. The other half of the cost savings will be reinvested in IG Wealth and Mackenzie to drive revenue growth.

Speaker 2

Call. As a result of this work, our businesses are better positioned for the future. Finally, we have been active Call Purchasing a strategic stake in Rockefeller Capital Management, the leading independent wealth management firm of choice for advisors Capital Allocation. And we look forward to sharing all of this in detail with you at our Investor Day on December 5. Call.

Speaker 2

I'll turn it over to Damon.

Speaker 3

Thanks, James, and good morning, everyone. Turning to Slide 17 and Wealth Management's Q1 highlights, including IG Wealth, Rockwell Capital Management and WealthSimple. With respect to IG Wealth, we ended the quarter with AUA of $116,800,000 an increase of 0.8% during the quarter. Gross inflows of $2,800,000 represented another solid quarter. Net outflows were $424,000,000 during the Q2.

Speaker 3

Call. During the month of July, we experienced net inflows of $196,000,000 and net sales into our investment solutions of $66,000,000 which represented a strong month. 5G's growth outflows as a percentage of average AUA over last 12 months remained well below the industry And ended the quarter at 10.1%, while industry redemption rate was 15.5%. IG Wealth continues to see strong new client acquisition in high net worth and massive loan client segments with inflows from newly acquired clients over $500,000 totaling $406,000,000 in Q2. 5G's investment performance continues to be strong with 62% of our assets ranked 4 or 5 stars by Morningstar and 89% ranked 3 stars or higher.

Speaker 3

The continued strength of our Products Week makes it that much easier for advisors to work with their clients to dollar average cost back into these volatile markets. Call. On later slides, we'll also provide an update on our 2 strategic investments that are focused on Wealth Management, Rockefeller Capital Management and WealthSimple. Posted strong results in Q2. Turn to Slide 18, you can see IG Wealth's Q2 flows.

Speaker 3

To put into context our quarterly flows, I'll make a few points. Firstly, much of the redemptions that we saw were partial in nature. Proceeds from these redemptions were used by clients to pay down debt and fund their lifestyle given the high inflationary environment. This is a core component to financial planning. When interest rates are high and economic uncertainty remains, it can be prudent to adjust leverage, pay down debt and reinforce financial flexibility.

Speaker 3

Secondly, this is not just IG. This is a reality across our industry. What sets IG apart We're happy to report that July net inflows and net sales were $196,000,000 $66,000,000 respectively, with net sales exhibiting improvement relative to last year. We continue to work closely with our clients to advise on all financial decisions and position them well for the current environment. Turn to Slide 19.

Speaker 3

In client cash, GICs and HISA positions continue to represent an opportunity as advisors execute our client financial plans, including dollar average costing back into the market. Our trailing 12 month net flows rate of 0.8% supports our continued belief that we are winning market share through new client acquisition and greater share of wallet. Turn to Slide 20. We demonstrate our success in new client acquisition, Webcast for $1,000,000 represented approximately 25 percent of newly acquired clients during the quarter, a significant increase of 15% during Q2 2018. This remains a testament to our client value proposition, our ability to execute our high net worth strategy, especially during the current operating environment.

Speaker 3

Turning to Slide 21. This represents the productivity of our advisors. Both our newer advisors and more experienced advisor practices are continuing to deliver strong productivity numbers as measured here by growth inflows per advisor. We've undertaken several initiatives in the past 5 years to drive productivity gains I will provide a few updates on Rockefeller's progress during the quarter year to date. Client assets grew by approximately 6.6% during the quarter And as at June 30, we're up approximately 14.4% year to date, driven by both organic and inorganic growth.

Speaker 3

Year to date organic growth drove $2,800,000,000 in client assets. The Vida team growth remains on track with Rockefeller adding 12 new teams year to date. Turn to Slide 23. WealthSimple continues to put up solid results that reinforce its growth trajectory as an important player in the Canadian Wealth Management arena. WealthSimple AUA in Q2 advanced 10% and is up 38% year over year.

Speaker 3

Client served increased to just under $2,200,000 representing year over year growth of 10%. Call. With that, I'll turn the call over to Luke Gould.

Speaker 4

Thanks, Damon. Good morning, everyone. So turning to Page 25, a few comments on the quarter. Call. First, our ending AUM remained relatively unchanged versus last quarter as overall investment returns for our clients was just over 1% in the quarter.

Speaker 4

As reviewed by James and Damon, in spite of double digit investment returns to clients during the last 12 months ended June 30, 2023, investor confidence has not yet returned industry flows. In point 2, Mackenzie had investment fund net redemptions of $616,000,000 during the quarter, in line with industry trends, and we experienced, including SMA net sales, Overall net redemptions of $313,000,000 Similar to Q1, last 12 month trailing gross sales redemption rates and net sales were relatively stable and we saw slight improvements relative to Q2 2022. Importantly, we experienced improvement in our share of industry gross sales in the period as we saw improved gross sales of long term funds in the context of declines for industry peers. Point 3, you can see that Mackenzie launched 4 new funds during Q2. The Primerica True U.

Speaker 4

S. Dollar U. S. Core Fund and the Shariah Global Equity Fund demonstrate the growing value and depth of our relationship with Primera and their advisors. The Shariah Global Equity Fund is among the 1st Shariah compliant products in the market and we're pleased to make this available to this community.

Speaker 4

The launch of our U. S. Dollar global dividend fund expands our true USD product offering within one of our most popular mandates. And on last quarter's call, we reviewed the Mackenzie Corporate Knights Global Most Sustainable Companies Mutual Funded ETF, or as we call it, CKG 100. This mandate tracks the 100 most sustainable companies in the world based upon Corporate Knights methodology.

Speaker 4

We remain incredibly proud of this partnership with Corporate Knights and the potential that this product offers. Call. It is a core global equity holding. It tracks the MSCI All Cap World Index very well. It has a strong track record over 18 years and is a very clear investment thesis that responsibly run businesses are consistent with shareholder value creation.

Speaker 4

In point 4 and as commented on by James, China MC Long Term Fund Year over Year AUM Growth Continues TO Impressed With 5% Growth Exceeding Industry AUM Growth Rates and Gaining Market Share. I'll view China MC in a few slides and we'll highlight the significant net sales once again that James commented on as well as the strong industry environment in China. And lastly, Northleaf delivered $700,000,000 in new commitments, another strong quarter. Turning to slide 26, you can see trended Mackenzie net flows. On the left in the middle, you can see we had slight improvement in overall gross and net sales in the quarter and a noticeable improvement at the top in the month of June.

Speaker 4

As emphasized earlier, we're not yet seeing evidence of an improved industry environment at this point in Q3, but we're focused on market share and we're focused on the broad roster of compelling solutions that are relevant for the current environment. I'd also remind there's CAD 2,000,000,000,000 of cash on the sidelines and we have many products that enhance yield while preserving capital and we're actively emphasizing Turn to Page 27. In the bottom left, you can see that our net sales rate and the overall industry has continued to indicate stabilization. In the table in the middle, I'd first highlight the 4th row down institutional investment fund net sales of 94,000,000 This reflects our private label fund family relationship with Primerica and we continue to build relationships and earn the support of Primerica's advisors. We saw our share of gross sales improve again with Barrick in the quarter and we're pleased with the track record that we delivered on our private label fund shelf as it reached its 1 year anniversary during the Q2.

Speaker 4

I'd also highlight the institutional SMA line with net sales of $273,000,000 Which reflects a win of a sub advisory mandate to SEI in the United States by our global quant equity team. I'd highlight that this Boston based boutique of ours celebrated its 5th anniversary with us in May and is currently managing just under $10,000,000,000 So it's at a very good scale. This team's emerging market mandates just hit their 5 year return milestone and the performance has been just exceptional, Ranking among the top in the world within the investment database and we're excited as we market the team's broad quant capabilities. Looking at the bottom right is our share of assets in 4 and 5 star funds and you can see the percent of assets with 4 and 5 star ratings has increased to 45% during the quarter. Turning to Page 28, we have our retail mutual fund AUM, Investment Performance and Net Sales by Boutique.

Speaker 4

I'll call it Greenchip, our sustainable focused boutique, which once again posted very strong net sales. Call. As we often say, we're portfolio managers. We believe in diversification. We have compelling performance across many of our boutiques and product categories.

Speaker 4

Turn to Page 28 or sorry, 29. I'm going to talk a little bit about China. I'd highlight on the left, The Chinese mutual fund industry total AUM increased 4% in the quarter with total net flows of 1,200,000,000,000 or 2 30,000,000,000, the strongest quarterly flows in over a year. The industry you can see at KRW 735,000,000,000 or $140,000,000,000 in net sales of long term funds in the quarter. Growth has been very robust throughout the last 3 years and we expect this to continue as China continues to emphasize growth in their retirement system and make improvements to the environment for mutual fund sales.

Speaker 4

On the right, China MC's position remains very strong as the 2nd largest fund manager in terms of long term mutual funds. China MC was the leader in industry long term mutual fund net sales in the quarter with $61,000,000,000 or $12,000,000,000 in net sales. This drove an increase in market share from 4.6% to 4.8% in the quarter. I'd also highlight that the last 12 month trailing net sales rate for the industry is 5% and it was 14% for China MC. If you annualize the quarterly net sales rate, it gives you a number of 18% for the industry and 24% for China MC.

Speaker 4

So very healthy growth being put on. On Page 30, you can see that China MC's AUM increased by 2% overall to KRW 1,800,000,000,000 during the quarter. I do want to highlight some regulatory developments that occurred in the Chinese mutual fund industry during July. On July 8, the CSRC, the Chinese securities regulator initiated mutual fund fee reforms intended to continue to encourage the high quality development of the mutual fund industry. They provided specific guidance that their intention was that active equity and balanced products would have management fees no higher than 1.2%, down from industry standard rates of 1.5%.

Speaker 4

Following this guidance, China MC and substantially all the industry enacted these new fee rates for equity and balance call. These fee adjustments affected about 20% of long term fund assets and 8% of total AUM. The result is a reduction in run rate revenue of about 6% and a reduction in run rate earnings of 10%. As our CFO, Keith Potter, will walk through, we're reducing the indicative value of our 28% stake in China Sea by about 17% to reflect the impact of these fee changes, as well as the 7% decline in the value of the yuan relative to the Canadian dollar during the period. Noteworthy, as I mentioned earlier, China MC has a net sales rate well in excess of 10% of assets.

Speaker 4

Should this continue, it would offset the 6% decline in revenue from the fee reductions You can see Norfleet's AUM now stands at $25,000,000,000 up 4.6% year to date, strengthened by $700,000,000 new commitments during Q2. Fundraising continues to be diversified across private equity, private credit and infrastructure offerings and it's averaged about $1,000,000,000 a quarter since our partnership began 2.5 years ago. Call. We're very pleased with this ongoing success at Northleaf. I'll now turn the call over to Keith Potter.

Speaker 1

Great. Thank you, Luke, and good morning, everyone. On Slide 33, you can see our AU M and A. The chart on the left shows ending assets were up 0.3% during the quarter, driven by investment returns. Call.

Speaker 1

As of June 30, our investment return rate on a last 12 month trailing basis was over 10%. So we've seen solid market performance, but still a cautious environment for investors. Slide 34 shows quarterly EBIT in 1,000,000 of dollars on the left and webcast. Thank you, Steve. Good morning, everyone.

Speaker 1

I have a few comments for the left chart on adjusted EBIT. First, net wealth and asset management fee revenues call up in Q2 relative to Q1, primarily from higher wealth management revenues at IG Wealth. And second, we had a small decrease in expenses from Q1. And on the right, you can see the adjusted EBIT margin is up versus last quarter and in line with Q2 2022. Turning to Slide 35, we have our call, which is driven mostly by interest income earned on cash.

Speaker 1

2nd, we had a decrease in proportionate share of associated earnings year over year. On point 3, operations and support business development expenses combined decreased 0.4% year over year. This is due to some savings on the compensation front as well as deferral of certain brand spend in the second half of this year, which is typically more seasonal in Q2. The savings from restructuring, we've reduced our full year expense growth guidance to 2% from 3% relative to 2022. Another notable point is that interest expense is up relative to last year, reflecting $300,000,000 in debenture issuance Call in May to finance Rockefeller.

Speaker 1

The short term financing facility related to the close of IPC

Speaker 5

conference call has been allocated to discontinued operations.

Speaker 1

Last, there are 2 main adjustments to Cordi net earnings. First, and the second related to the restructuring charts that James referenced. Turning to Slide 36, you can see a summary of IG Wealth's AUA Call, primarily driven by a mix shift in client fee rate bands in Q2. Spread in client cash was relatively stable this period and we did not see this type of upward pressure quarter from a mix shift as we acquire high net worth clients. The rate will also be impacted by a mix shift in client cash balances, spread of cash balances, as well as other products where full advisory fee rates aren't charged such as Money Market Fund.

Speaker 1

The asset based compensation rate is stable in the quarter. Upward pressure for maturing DSC was just offset by general decrease in rate. On slide 37, call. You can see IG's overall earnings of $112,800,000 is up 6.7% relative to Q2 2022, were relatively flat year over year. Moving to slide 38, you can see Mackenzie's AUM by client and product type $100,000 were down 2.4 percent in Q2 2022, primarily due to lower average AUM and the impact it had on revenue.

Speaker 1

This is partially offset by higher net investment income. We also contain expense growth with operations to support business development expenses relatively flat year over year. Conference. Slide 40 has Chinese New Year results. On the left, total AUM was RMB1.8 trillion, call up 3.6% from last year and 1.7% quarter over quarter.

Speaker 1

Investment fund AUM up 5% in the quarter and it's entirely driven by positive net sales, which more than offset negative market returns. With respect to earnings on the right, there are 2 main items that created a bit of headwind this quarter. Call. The first is currency. So from 0.48 percent, CNY depreciated 7% relative to cat and using a daily average, Currency had a 3% negative impact on earnings or about $1,000,000 2nd, there was a fair value loss in the quarter call relative to fair value gains and other income last quarter last year.

Speaker 1

So adjusting for these two items, earnings would have been up more in line with AUM quarter over quarter JMC continues to maintain and grow share in a growth industry and as mentioned had net sales of C14 $1,000,000,000 in Q2 on a total basis. However, there are 2 items that created headwinds in the quarter and that we expect to create headwinds in Q3. The first is the full impact on the recent currency move, which will be felt and will create about $1,000,000 tray as we move forward to Q3. And second, Luc commented, Chinese New Year reduced fees on active equity funds. Our best estimate Call for the short term impact, it will be about approximately 10% reduction in IGM's proportion share of run rate earnings or about $3,000,000 per quarter based on Q2 AUM and changes that have come into effect at the beginning of July.

Speaker 1

Turning to Slide 41, continuing with TriMC. Call. We have updated the indicative value to $1,900,000,000 which is above our original cost and carrying value and this does reflect a sizable move in currency Call and our best estimate of the current earnings impact from management fee changes. We would attribute about 40% of the change currency and 60% due to the fee change. And we continue to provide perspective on indicative value going forward Call as we see significant inflection points observed changes in the business markets and industry valuations for leading businesses with high organic growth potential Call.

Speaker 1

I will point out that one of the key goals of the fee reform and Luke commented on this is call to

Speaker 5

build the quality of the investment

Speaker 1

fund industry and instill investor confidence and participation, and we believe this will have a positive impact on the industry. 2nd point on the slide, it's great with Lifeco earnings of $14,500,000 reflect analyst estimates for this quarter And a true up from Alice's estimates last quarter. And as a reminder, this will continue to be the case for Q3. 3rd Northleaf earnings of $2,500,000 are down from Q1. That's primarily due to incentive fee income that was earned in Q1, which is seasonal.

Speaker 1

Call. As we look to the next quarter, we do expect earnings closer to this level or slightly lower as revenue catches up to some recent investments in the business. Earnings of negative $1,900,000 are in line with our expectations and supportive of the growth trajectory that we shared in April. The core private wealth and family office business Damon spoke to was right on plan, but there's a bit of headwinds in the strategic advisory business discussion with lower deal flow, which is an industry wide challenge. As for Q3 outlook, we would expect the business to make progress toward breakeven.

Speaker 1

I'd also note that RCM is reviewing an equity compensation program that we will pick up earnings in the coming quarter. The plan is still being worked on. We don't have Exact impact at this point in time, but do not expect it to be large and we'll update you once the program is finalized. And finally, on Slide 42, we've reflected the acquisition of Rockefeller and change in China AMC's indicative value. We've also allocated long term debt raise of $300,000,000 to IGA Mackenzie with the same methodology in the past.

Speaker 1

And as at July 31, Call is now 7.8 times. And with that, I'll open up the line for questions.

Operator

Thank you. Call. Call. The first question comes from Nick Priebe with CIBC Capital Markets. Please go ahead.

Speaker 6

Okay, thanks. I wanted to start with a question regarding the new cap on fee rates in China. Can you help us understand the regulatory environment in that jurisdiction? It sounds like fee rates were previously capped at 1.5 and that was lowered to 1.2. Call.

Speaker 6

Would you anticipate potential for a further reduction over time? Like what's the messaging there with respect to the rationale for the change and your read on the general stability of that new fee rate cap?

Speaker 4

Yes. Great question, Nick. It's Luke. First, the 1.5% was industry standard. It wasn't a ceiling.

Speaker 4

The CSRC has instituted a ceiling on equity and balanced products, active equity and balanced. And I'd say what you could expect Is that the regulars in the industry itself are going to do everything they can to really encourage continued high quality growth in the industry. And so that was the nature of what happened in July is that the regulator actually thought it was in the best interest in the industry to limit The management fees that could be charged in these categories to encourage Chinese participants to invest in mutual fund industry. So I think as far as the future, I think you can expect over time that there may be gradually reductions in fees, But you can expect us to be very well managed and in the context of very strong growth. And that's the other part of this equation is this is an industry that's still in infancy And people are focused on high quality growth for this industry over time and really encouraging Chinese to invest in the mutual fund industry.

Speaker 6

Understood. Okay, that's helpful. And as you pointed out, it appears that net flows in That industry improved quite notably in the Q2. What catalyzed that improvement? And what's your read on what's happening on the ground there from an investor sentiment and asset gathering perspective?

Speaker 4

Right now, it's funny that people are moving across different asset classes. One notable asset class has obviously been real estate. And at the same time, as you can see, folks are really encouraging investment in financial assets and investments in mutual fund in particular. So when you look at the product categories that sold well, It's very diverse during the quarter, a lot into science and technology and thematic equities, a lot into income. But it is on that theme of encouraging savings and long term savings within the mutual fund industry as opposed to in deposit offerings and in other asset classes.

Operator

Call. The next question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.

Speaker 5

Call. Hi, good morning. I just wanted to follow-up, I guess, on the China regulatory side. There was Call. Can you contrast how the setup is relative to Canada in the context of like do investors pay their advisors?

Speaker 5

Is there kind of similar trailer fee type program? I'm just trying to get a sense as to how much do fees actually include sales in China or is it really if you have performance then maybe it isn't so much the the performance they focus

Speaker 4

on? Yes, really good question, Jeff. It's Luca speaking. So first on the structure, you can think of China in its good context to assess 1.5%, 1.2%, you can think of those fees being inclusive of trailing commissions to the distribution, Much like the bundled fee arrangements that we've traditionally had in Canada. So that's an all in.

Speaker 4

There are often sales commissions as well. And that's something that the regulators is focused on is making sure that the structure of fees is appropriate in the circumstances. But this is a bundled environment and there is a trailing commission that comes out of the fees that we've put earlier.

Speaker 5

Okay. And then just my second question is recognizing it's hard to quantify, but relative to prior cycles, Talk. How much do you think high interest rates are a headwind to generating the same positive net flows in long term funds given investors maybe to what I think Damon was talking about, paying down That's helping with the day to day expenses as well as having non investment fund alternatives like KESUS and GIC that offer

Speaker 2

I mean, I thought for some time that there's at least 3 need to see peak inflation behind them. I think we can check that box. The second I think is investors need to see peak policy rates behind them. And I think we can either check that box or we're awfully darn close to checking that box. Call.

Speaker 2

I think the third thing though that I'm watching and that I think needs to happen to have that better investing environment generally is reduced bond market volatility. And when you look at various measures, the bond market has not settled down, it remains volatile. That's something that I think needs to happen as well. But even when those three things happen, Jeff, I do think we need to bear in mind that Canadians are in a different position here. Between higher interest rates and higher inflation, they're just not able to save as much.

Speaker 2

And in some cases, they need to draw down on their investments, either to pay down high cost debt or to support lifestyles. So that very much kind of speaks to our outlook, which is we continue to believe that this Industry softness, if you will, will continue through the end of the year. But within that context, We expect each of IG and Mackenzie to compete very well and we expect IGM Financial to continue to deliver strong results. And I must say one of the real positive surprises for me on the quarter was just how strong Hi, G and Mackenzie did in the context of this operating environment. So I think the team is proving that they can adapt to this environment.

Speaker 2

They're proving to be nimble and they're generating the earnings that we've promised our shareholders. Damon, what's your perspective? Yes. So Jeff, this is I mean, this

Speaker 3

is a very real thing. When you do the numbers on the industry, you can see that money is clearly leaving And there's less money in the system because quite frankly, it makes sense financially for Canadians to pay down some of their debt. We know what challenges we have as a nation as it relates to debt. And for us, this is what we're all about in terms of financial planning. This is how we build loyalty with our clients.

Speaker 3

This is how we create long term relationships that are generally intergenerational relationships with our clients. So for us, we as James said, it puts us in a position to be much stronger As an organization, not only getting into this operating environment, but coming out of this operating environment. You can see a strong July from us We're working hard to put cash to work, but it's going to be slower, quite frankly. And when we talk to our clients, they're indicating That they're concerned about debt, they're concerned about interest rates.

Speaker 4

And Jeff, it's Luke. I'm going to violate the 3 person answer, really. We usually Do too. But on the I would highlight to part of your question. Inflation has come down, but it's still running at 3%.

Speaker 4

When you look at the $2,000,000,000,000 that's sitting in deposits, a lot of it's paying 0. Some are as fortunate and they are getting close to the overnight rate of 5%. But there's a lot of ways that firms like IG Wealth and Mackenzie and the industry can really offer better yields than Canadians are getting on those deposits. So we think there is a really a real rich opportunity for us on our private credit offering, which has had very good performance, very good credit performance And is floating rate. The gross yield is 12%.

Speaker 4

There's a lot of really competitive yields for those who are seeking yield with preservation of capital, and we're going to keep on promoting those offerings.

Speaker 5

Right. If I can maybe sneak in one last question. It's just on that part of either IG Wealth customer base or just in general what you're seeing is for the subset that are looking at funding day to day expenses or paying down debt, Call. Is there a certain ballpark income level threshold or financial asset threshold that you're finding where you're seeing this happen? And on the debt, are you is it the non mortgage debt that they're really focused on paying down or is it also to the mortgage debt that you're seeing financial assets getting funneled Call?

Speaker 1

Yes. On the first part

Speaker 3

of that question, I think the key is as you move up to the high net worth segment. You generally deal with Canadians that have more debt because they understand leverage and a lot of that is leverage towards their home. So What we're seeing is that people are trying to pay down non deductible debt. So that Obviously means that they're focused on their mortgage. They're focused on any personal debt that they have.

Speaker 3

They're focused on their home lines of credit That were built up over the last 8 to 10 years. So that's what we're seeing and it's not going to abate until you really have interest rate Start to roll over and inflation start to roll over because people need to live their lives.

Speaker 5

Call. Okay. Thank you.

Operator

The next question comes from Tom MacKinnon with BMO Capital. Call. Please go ahead.

Speaker 7

Yes, thanks very much. Two questions. 1, if you could just go over the reductions that you think Are going to be for China AMC earnings going forward? Was it $1,000,000 for something, $3,000,000 for something else and is that off the current Q1 China AMC earnings? And then I have a follow-up.

Speaker 7

Thanks.

Speaker 1

Yes, Tom. So the with the currency impact, as we look where currency is You can think about that being about $1,000,000 impact to earnings as we head into Q3. And then with The fee changes that China Sea, it will have put an impact of proportion share of our earnings of about $3,000,000 so combined $4,000,000 And that's looking at AUM at the end of June. So that's the expectation as we move into Q3 there.

Speaker 7

Okay. So we've got somewhere like $4,000,000 off $25,000,000 right? So that's

Speaker 1

Yes. $30,000,000 call it $30,000,000 a portion share of earnings this quarter. So that'd be more the number To think through and obviously there's growth in this industry and net sales and whatnot that will that we expect to also support earnings as we move forward in the next quarter. And they are coming off of a higher asset base, as you can see at the end of the quarter.

Speaker 7

Okay. Why are we doing it off 31, Slide 41 shows that you've got 24.9 percent in China AMC earnings?

Speaker 1

So Tom, just jumping to Page Slide 40. The reported share of earnings at 27.7. So there's some currency in there as well as there were some losses in this quarter. So when you normalize for that, you're closer to $30,000,000

Speaker 7

Okay. That's great. Thanks. The follow ups with respect to Other financial planning revenue seem to be up pretty nicely year over year. Was there and quarter over quarter, is there sort of an increase in mortgage activity here?

Speaker 7

Does that Do you expect that trend to continue? What are the key drivers in other financial planning revenue being up 15% in Quarter year over year.

Speaker 1

Yes, it's Keith here. I'll start and then I'll hand over to Damon just more generally. But I think across a couple of fronts. 1, the mortgage business had a better quarter, dollars 8,000,000 this quarter versus last quarter. I'd say that is basically The core driver of the change.

Speaker 1

The mortgage business can be volatile with mark to market

Speaker 3

Banking business for the quarter. Yes, Tom, in terms of mortgages, we're still in early days with the Anesto relationship, But it's gone very, very well. They would tell you that we're probably the only shop on the street that's up year over year in that business. We have a Significant number of our advisors who have bought into the relationship and have referred over clients and we continue to work on the experience And we expect to continue to grow this business at accelerated pace.

Speaker 7

And when did you venture into the Nesto relationship?

Speaker 3

So we signed the relationship late last year and we went online in February of this year.

Speaker 7

Okay, great. Thanks.

Operator

The next question comes from Jaeme Gloyn with National Bank Financial. Call. Please go ahead.

Speaker 3

Yes, thanks. I just wanted to dig into some of the, I guess strategic investments and the performance there. So first on Rockefeller, looks like really solid year to date client asset growth. Call. Just wanted to get your perspectives on how this compares to your expectations going into that acquisition?

Speaker 3

Call. And if it is trending better than expected and your view is that should we expect that Accretion estimates to maybe move a little bit forward than you have already guided.

Speaker 2

Sure. Good morning, it's Jaeme. It's James. I'd say early days clearly, but we're very pleased with Rock and Fire's performance. Call.

Speaker 2

And I think at this stage of their evolution, there's 2 KPIs that we're keeping an eye on and I know their leadership team is laser like focused on and those are recruiting and organic growth. And I think you You can see from this quarter that assets are growing very well. Greg Fleming would describe the recruiting market in the United States is very robust and they're participating very actively in it. First Republic was A primary competitor of theirs in the recruiting market, clearly is no longer. And I think it's fair to say that, that Rockefeller has become what I would describe as the independent firm of choice in the United States.

Speaker 2

And so I think the trends that you see in Q1, we would expect to continue. Call. From the very beginning, we've said there's 3 things about that business that are special. The iconic brand, The best in class executive management team and the business model that is very much designed, built around and supportive of organic growth for advisors. So, a good start.

Speaker 2

We expect it to continue. Keith?

Speaker 1

Yes, Jaeme, just on we did provide a perspective and a call forecast on a range of adjusted EBITDA growth that we'd expect and I'd say that they're on track and within that range. We also, Call in April commented that we'd expect sometime in 2025 that our proportionate share of earnings Would be at a level that would replace lost IBC earnings as well as the after debt financing costs for the transaction and I'd say call still on track for that as well. But overall, tracking within the range of what we put forward in April.

Speaker 3

Call. Okay, thanks. And then the second question is just on the WealthSimple growth in AUA there, obviously pretty Call. As well and just curious whether if you have any color on the underlying drivers of that growth. Is it primarily cash investments or are you seeing Call.

Speaker 3

Maybe some other characteristics in that growth compared to your compared to the IG Wealth or IG Mackenzie?

Speaker 2

Sure. It's James. I'll start. And I have the pleasure of serving on that board and we'll be meeting this afternoon to Go through the quarter and those numbers in some detail. What I would share with you is that I think one of the Principal accomplishments of Mike Ketchen and team over the past 12 to 18 months is the extent to which they've been able to truly diversify their revenue sources.

Speaker 2

If you go back 18 months ago, there would have been some concentrations. But if you look now at the revenue sources across Investing, trade, cash, savings, crypto, it is a remarkably well balanced and well diversified revenue base. Call. On top of that, I would just add the business under Mike's leadership has made really quite significant progress financially. They have had a very, very Productive year.

Speaker 2

And that's one of the reasons frankly we so look forward to having Mike and WellSimple presenting at our Investor Day on December 5 alongside Rockefeller, Northleaf and China AMC. So more ahead on that, but a year of great progress really.

Speaker 5

Star and 1.

Operator

The next question comes from Graham Ryding with TD Securities. Please go ahead.

Speaker 3

Call. Hi, good morning. Maybe I could just start with the restructuring initiative. Part of the plan there is obviously to surface some synergies, sorry, some efficiencies from a Cost base are streamlined, but you talked about reinvesting some of those savings back into the business. Can you talk about sort of, I guess at a high level what you're thinking at IG Wealth and what you're thinking at Mackenzie in terms of where you want to reinvest and I'm sure with an eye to sort of supporting growth.

Speaker 2

Yes. No, very much so. It's James. I'll start and I'll just Kind of reemphasize that we went into this exercise and these exercises are never easy. The proposition was a simple one.

Speaker 2

For each dollar we save, half will go to the shareholder, half will go back into the business to make your businesses stronger. And the organization responded and I'm Proud of how the organization responded. Each of Damon and Luke are in the process of building lists of priorities For those that half of the savings that will be reinvested. And we do expect to For this to be something that we'll peel back to a level of detail at Investor Day on December 5. Having said that, I do think as we sit here today, each Damon and Luke can provide some early color on how they're thinking of deploying incremental dollars.

Speaker 2

Damon?

Speaker 3

Yes. Thanks, Graham. It's Damon here. So in terms of IG, there's 2 things that we're we have a laser like focus on. Number 1, the quality of the advice That we're providing, particularly to the high end of the market.

Speaker 3

And then the second thing is the experience in which we provide that advice. And that's around our advisor and on our client experience. I'm going to give you 2 examples. So number 1, we've started a private company advisory business. And this is a business where it's focused on small and medium sized enterprises, sized between 10 And $100,000,000 where we'll do 2 things.

Speaker 3

Number 1, we'll help them with financing, both debt and equity. Point for us and for and in the industry. So it's something that we're excited about that the advisers are very excited about. The second thing was Just to work on our end of the Nestle partnership and make sure that they provide a best in class digital experience For those that want mortgage financing and then just on our end that it plugs into all of our systems and it's a seamless experience for our advisors And for our clients. And that's reaping early rewards already.

Speaker 3

So we look forward to talking about this and other ideas that we have at Investor Day In December?

Speaker 4

Yes, it's Luke here. I've got to say, really reinvestment will be on 3 themes. 1 is investment excellence, The second is expanding distribution reach and the third is making sure that we've got a broad innovative and compelling suite of products and services. The one that we have announced and spoken about is really improving our investment management operations at our mill office in particular. So it's at a standard of Global Leading Investment Managers and that our people can come in every day and do their best work and feel so engaged and satisfied as they do it.

Speaker 4

But those are the three themes for me. And as you started with some of these savings, they actually make our company more efficient, while also improving client outcomes and they're going to go straight to the bottom line as Keith said.

Speaker 3

Okay, great. My next question is just with the China AMC, The sort of fair value you provided or the adjustment on that front, how often are you do you intend to sort of review that valuation and provide a view of any potential changes?

Speaker 1

Yes, it's Keith here. I think that we're looking for significant inflection points and we certainly had one quarter. So you can think about currency, just the general performance of the business, markets in general as well as Where our global asset manager is trading. So I think you can expect us to take a look at all those elements over the quarters to come and we'll provide an update on that basis, but certainly looking for meaningful inflection points.

Speaker 3

Okay, understood. My last question just on Rockefeller. When you announced the deal, you did provide a view of adjusted EBITDA and Margins, is that something that you will plan on in case I missed it? I didn't I don't think I saw anything. Is that something you plan to provide going forward?

Speaker 3

Or are you just going to give us a view of the sort of associated earnings that are flowing back to you?

Speaker 1

Yes, it's Keith here. I think going forward, the most Call. Appropriate and measure to as we track forward into the future would be our proportionate share of earnings. It's inclusive of all Compensation Equity Programs and whatnot. So that will be the core, but would expect to provide an update on how we're tracking to that adjusted EBITDA growth that we presented in April, but more likely on an annual basis.

Speaker 3

Okay, understood. That's it for me. Thank you.

Operator

Call. This concludes the question and answer session. I would like to turn the conference back over to Kyle Martins for any closing remarks.

Speaker 1

Thank you, Sherry, and thank you everyone for joining us this morning. Appreciate the attention and all of the questions. And Shuri, with that, we can close-up today's call.

Operator

Call. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr

Key Takeaways

  • Adjusted EPS was $0.86 (reported $0.58 including a restructuring charge), AUM ended at $261 billion with net outflows of $821 million, offset by $14 billion of growth in other businesses.
  • Executives highlighted continued headwinds from high interest rates and inflation as Canadians prioritize debt repayment and draw on savings, but expect to capture market share when investor sentiment improves.
  • A comprehensive strategic review will deliver cost savings—half for structural expense reductions and half reinvested into IG Wealth and Mackenzie—and IGM took a strategic stake in Rockefeller Capital Management.
  • IG Wealth’s AUA rose 0.8% to $116.8 billion, with Q2 redemption rates below the industry average and strong high-net-worth client acquisition driving July net inflows.
  • Mackenzie faced $616 million of net fund redemptions but improved its share of industry gross sales, launched four new funds—including a Shariah-compliant global equity fund—and China AMC reported robust net sales despite a fee cap reducing run-rate earnings by about 10%.
AI Generated. May Contain Errors.
Earnings Conference Call
IGM Financial Q2 2023
00:00 / 00:00