Q4 2019 Earnings Call
All participants please standby your meeting is ready to begin please be advised said this conference call is being recorded.
Good afternoon, and welcome to the GM financial fourth quarter 2019 earnings results call for Friday February 14th 2020, your host for today will be Mr. Keith Potter. Please go ahead Mr. Potter.
Thank you Melanie good afternoon.
<unk> Treasurer, and head of Investor Relations and welcome everyone to jump in actual 2019 fourth quarter earnings call. Joining me on the call today, our jumped Carney President COO about your wealth management, President and COO by Jim financial.
Very mcinerney, President and CEO Mackenzie investments.
Cool Executive Vice President CFO, Jim Financial forget started I'd like to draw your attention to the cautions concerning forward looking statements on slide three.
Slide four summarizes not at first measures used in the material.
On slide five we provide a list of documents that are available to the public on our website.
To the fourth quarter results about financial.
I'll turn over to jump cars to cover.
Full year 2019, and fourth quarter results starting on slide seven.
We finished the year with record high.
And 66.8 billion and <unk> hundred 90.2 billion driven by the best financial markets improvement since 2009.
We had investment fund redemptions at 142.
Hi, James adjusted earnings per share were $3.19 during 2019, which was down slightly from our record high in 2018.
I'm pleased with the progress we've made in our business transformation in 2019 that is further improving the clients and advisor experience.
We achieved these enhancements for managing non commission expense girls to 3.3%, which was better than our guidance of 4%.
We are maintaining our 2020 expense growth guidance of 3%.
Turning to slide eight for Q4 highlights total a web and.
Both increased 3% during the quarter.
Last month find that redemptions were 141 million.
Hi, James Q4, 2019, adjusted earnings per share increased 12% year over year to 84 cents a record high Q4 results.
Hi, Jim was recently named two C.D. piece.
As a leader in the disclosure in management of carbon emissions. We are the only Canadian company. On this list. We are also been names to corporate nights top 100 global sustainability leaders list.
We see sustainability and climate related topics of growing importance to all our stakeholders and we'll continue pursuing opportunities to make a positive impact.
Slide nine highlights the performance at major equity and fixed income indices. Most equity markets were up during the first quarter of 2019 capping off a strong year during which our clients earn investment returns up 13%.
Generate quite returns were a positive 1.1% and so far February has been an even stronger mine for client return.
Turning to slide 10, I start by reminding that the industry experience just over 15 billion of net redemptions during Q4 2018 with severe equity market declines.
This large Oklahoma has rolled off the 12 month trailing net sales rate driving the industry net sales rate up sharply.
Industry advice channel experience long term mutual fund net redemptions of point 8 billion. During Q4 up 7.4 billion from Q4 2018.
Strong equity market performance and improved industry flows should support a better RSV season that we saw last year.
Turning to slide 11 on our results for the fourth quarter record high average AOL Dot 164.5 billion increased 7.6%.
Year over year.
That's been fund net redemptions were up 141 million. During Q4 2019 were an improvement over net redemptions of 225 million last year.
As I mentioned I Gmps Q4, 2019 adjusted earnings per share were 84 cents up 12% from Q4 last year and referendums represents the highest fourth quarter in our history.
Slide 12 contains the breakdown of I chance quarterly results across our segments.
I'd highlight that earnings at I.E.G. wealth management, and Mckenzie were both up in the quarter relative to Q4 2018.
I'd note that the corporate <unk>. Other segment reflects the inclusion of <unk> share of personal capital losses of 4.5 billion, which we began equity accounting for January 2019, excluding this amount earnings increased strongly across all segments.
Turning to ICICI wealth management's full year 2019 in Q4 2019 highlights on slide 14.
I am reached a record quarter and high up 93.2 billion up 2.6% during the fourth quarter and 12.1% for the full year 2019.
Jeez Q4, gross inflows increased 7.7% relative to last year as we continue to have success, attracting new high net worth capsules, which has driven improvements in consultant productivity.
We're also seeing an improvement in gross and net sales during February relative to last year.
Finally, I'd achieved a number of an important milestones during 2019 on our journey to modernize the company and delivered better client and advisor experiences.
On slide 15.
We're introducing a new view of client activity, which covers total gross and net flows from hygiene clients. This view is now relevant with the recent launch of the energy Advisory account during Q4.
This new single fee fee based account enables all clients to hold our unbundled managed solutions high interest savings accounts and other assets.
Going forward fees will be earned on assets within the account.
Spaces gross client inflows of 2.5 billion were up 7.7% year over year and net client outflows were 112 million.
Slide 16 include some additional perspectives of Q4 gross sales sales into our high net worth solutions increased to 27% and.
And to 1.3 billion.
Better beta almost also remains a focus with managed solutions, representing 84% over a long term gross sales.
Slide 17 provides more insight into how our clients segmentation has shifted since 2016.
I have two main points on the left chart first you can see that since 2016, we've increased the emphasis on acquiring new households, with greater than 500000.
Second we tightened our recruiting standards and are requiring fewer mass market households. This has created some headwinds in our flows but we're confident of our strategy and that is working with high net worth momentum accelerating in the recent corridors.
And on the right our National Service Center now has 1.7 billion in a U M and over 200000 clients.
Santarus staffed with salaried financial advisors, providing clients with smaller accounts that value proposition and great service levels. At the same time. This is free time for consultants to focus on segments with more complex needs.
On slide 18, first I've mentioned that weve been focused on hiring fewer but higher quality recruits.
Gross sales per consultant, but less than four years increased by 17% in Q4 relative to last year, and we saw even stronger growth of 26% of from consultants in their first year with GE.
We had another strong quarter of recruiting I'm over 50% from the same quarter 2018.
His recruits are coming from traditional sources as well as experienced financial planning focused advisors.
We're also focused on increasing sales productivity of our experience consulting practices, which saw gross sales per practice increased by 24% in Q4 2019 relative to Q4 2018.
As I mentioned I GE completed a number of important milestones during 2019 on our journey to transform the company as you can see listed on slide 19.
These initiatives will enhance our competitiveness fee transparency consultant productivity and overall efficiency as they get fully rolled out in 2020.
We also have other exciting initiatives planned to further transformer business. Some of these include digitizing key processes and forms for their modernization.
Of our client portal enhancing our high net worth products and services and accelerating our high net worth household acquisition with continued client segmentation efforts.
Before passing the call over to Barry ill close my remarks on the slide 20 by providing some perspective on the strength of jeez investment product offerings.
As I mentioned, we now have unbundled pricing often options available to all clients.
These solutions are expected to account for virtually all of AG sales in the near future.
Context, I'm pleased to share an example of the print and digital promotions, we've been running earlier this month.
Feature this strong performance of our managed solutions with nine of 14 of Fiveg wealth management portfolios rated four or five stars by Morningstar for series you.
Over to you Barry.
Thank you, Jeff and good afternoon, everyone.
Turning to slide 22, which shows Mckenzie is full year and fourth quarter highlights for 2019.
Cantees investment fund AUM reached 64 billion at the end of last year, a new record high level and a 15% increase over the course of the year.
Strong growth in a number of our categories and two I'd like to highlight here are each year platform and alternatives products.
Since launching our each yet business in April 2016, just under four years ago, we've experienced rapid growth to $4.7 billion Mackenzie has built the sixth largest each ship platform in Canada through a successful organic strategy.
We've also can continue to be a leader in the alternatives products category, which reached 1.3 billion in December.
2017 to 2019 combined with the best three year period in Mckenzie history on a number of key metrics, including record high total mutual fund gross sales and record.
Sorry record retail mutual fund gross and net sales were also that lives.
During 2019 alone we generate over 1.4 billion of investment fund net sales at a time when advice channel appears experienced meaningful outflows.
Mackenzie is rankings by financial advisors is among the best in the country driving strong retail net sales and increasing Iraq and M.F.D.A. sales penetration.
Focusing on the fourth quarter Mackenzie saw record high mutual fund gross sales.
We also recorded Mckenzie 13th consecutive quarter of positive retail mutual fund net sales and EPS southern 15th consecutive quarter.
The retail and creations.
Mckenzie one for Lipper front awards during the fourth quarter and 12 Fund data Awards last month, which we're very proud of these awards on or funds at least in delivering strong risk adjusted performance relative to their peers.
Slide 23 highlights Mckenzie is operating results.
Mckenzie continues to capture market share versus peers in the advice channel.
Our long term investment funds, which includes both each gifts and long term mutual funds had a net sales rate of 2.4% during the 12 month ending December 30, Onest 2019.
Record High Q4, adjusted mutual fund gross sales of 2.5 billion increased 5.6% year over year.
Total investment fund net sales for $301 million during Q4 last week, we announced january's net sales of $338 million.
Kenzie experienced net redemptions of 86 million in the institutional sub advisory and other category.
I spoke on our last call about our strong institutional pipeline and I'm happy to report that our team continued to add new wins during the fourth quarter as of end of last year, we had over $1 billion of unfunded institutional and strategic Alliance net inflows that are expected to fund over the next three to nine months.
200 million of this funded in January and is included in the mutual fund sales reported in our January press release.
Our retail results are highlighted on slide 24, Mackenzie is retail sales captured 6.5% of advice channel long term mutual fund gross sales during the fourth quarter and 7% for the full year.
And as I mentioned earlier mutual funds any shifts more consistently attracting positive retail net flows quarter after quarter end.
And we've seen our strong retail net flows momentum continued into January and February.
Turning to slide 25 net flows in EPS continue to be strong during the fourth quarter I.
I mentioned earlier that Mckenzie ETF AUM was 4.7 billion at the end of 2019.
During January we exceeded 5 billion in assets and we're nearing 6 billion halfway through February our.
Our each CF assets continue to be to diversified across my time and investment strategy with retail, making up approximately 45% Mackenzie Bcf a user.
On slide 26, you'll see a Mckenzie is investment performance remained strong at the end of the quarter, 50% of Mckenzie Mutual fund assets were above median in the three five and 10 year periods and 47% of Mccain is a unique isn't four or five star rating funds.
And finally, turning to slide 27 to look at investment performance and net sales across our investment cheeks value oriented strategies remain out of favor and the source of our retail net sales results are consistent with that.
Attendees growth oriented boutiques continue to have the majority of their assets rated four or five stars and are attracting significant net sales in the retail channel.
Our global equity income team and fixed income team are also performing very well and attracting assets.
With that I'll turn over to look to review items financial results for thank Barry.
Good move to page 29, and I'll, let glu remarks earlier from Jeff Kearney.
Financial markets were very good to talk claims journal between 19 up 13% and Thats continued into January and February with that with very robust markets and are really confident environment.
We would have page 30.
Those were pretty uncomplicated this quarter you can see on the rate.
Our net revenue rate is that has been trending as stable at about 1.21% throughout the year and you could also see the impact of operating leverage with the unit costs going down significantly and our EBIT margin increasing from 52 basis points in Q4, 2018 to 57 basis points this quarter.
When the page 31, which has ITM consolidated income statement.
And highly first at the bottom left net earnings of $220 million up 11.6% and EPS up 12%, reflecting an all time record high Q4 results I'd have to comments on this slide.
First you can see and point to that noninterest expense.
Expenses are down 1.1% from last year and our full year result was better than our guidance.
Q4 did have some of the benefit or funds through it so services those sourcing arrangements that we announced last quarter and as Jeff indicated we're keeping our guidance of no more than 3% growth in this line during 2020, and we will let expect to provide guidance in each one around around expense outlook for 2021 and beyond as we continue our trust.
Mission program.
Second I would highlight one small thing that.
We had in Q4 2019, a few small nonrecurring adjustments in the tax provision line were just over $1 million and we would expect this line to be running closer to a 22.4% effective tax rate in future quarters.
Moving to page 30 to two quick comments and margins at fee rates.
Can see net management in mid fee rates of 197.8 between quarter continue the trend as expected, we do continue to see and increasing composition of high net worth client clientele within our asset mix and this is continue to impact the fee rate.
On asset base comp.
Give guidance for next year that as.
C, which we discontinued selling 2016, but at the existing bloc countries mature, we do see upward pressure in the asset based comp rate and would expect us to be around 53 to 53.5 basis points during 2020 and offsetting that on the right chart. The sales commission rate, which has been running at about 155 basis points.
We will be closer to 125 basis points through 2020.
Moving to page 33, you can see the income statement provide you will.
Earnings before interest and taxes of $206.3 million were up 19.9% from last year. The only compensate have on this slide is to remind that net investment income and other.
In Q4, 2018 was depressed because of a few few fair value adjustments in the period and the 16.8 million recorded during Q4 2019 is more reflective of our run rate.
At this point zone.
I don't have also given that guidance earlier and increased expenses they were down 4.8% in the quarter part of this was timing of expenditures in Q4 2018.
And we have given our guidance for 2020, keeping that wins in that 3% growth.
On page 34, you can see Mckenzie net revenue is stable and this reflects continued strength in retail as well as a greater proportion of assets in equity products.
And then to page 35, I just highlighted Mckinsey is income statement that we had earnings before interest and taxes $41.4 million. This was up 16.9% from last year and we do expect continued meaningful earnings growth in 2020, given the operating leverage in here in the business and continued growth. We're seeing that concludes my comments.
To Keith.
Yes. Thank you Luca military will open up the logical.
Certainly we will now take questions from the telephone lines.
A question and you are using his speakerphone. Please lift your handset before making your selection. If you have a question. Please press star one and your telephone keypad isn't any time you wish to cancel your question. Please press the pound sign. Please press star one at this time if you have the question there will be a brief pause for the participants register thank you for your patience.
Millennials align open.
Im sorry can you hear me now.
Yes, we can hear you we had we haven't been able to here theres been any questions. Okay. I'm, sorry that made it must have been up from the time. So if you're hearing me now.
Did you hear the instructions for the participants on how to queue up.
No if you could repeat please certainly ill repeat the instructions.
We'll now take questions from the telephone line. If you have a question Andrew using his speakerphone. Please open up the handset before making your selection. If you have a question. Please press star one on your telephone keypad. If at any time you wish to answer your question. Please press the pound sign.
Press Star one at this time, if you have a question there will be a brief pause for the participants register thank you for your patience.
Although our pizza.
The first question is from Jeff Kwan.
Hi, good afternoon.
Jeff as we get.
Closer to are making progress on this transformation if were having this conversation a year from there now I'm just wondering how you would define.
Accessible twentytwenty, whether or not there is certain milestones forgot to the transformation.
Any sort of specific numerical metrics as to how you kind of think about benchmarking 2020.
Yes, I mean were.
We're excited about our momentum.
And.
And the quality of work, we've done and the investments that we've made into our value proposition obviously with the.
Salesforce implementation, which is going really well, which is going to scale, our consultants and we'll have modern technology to be able to have better conversations with our clients and on top of Oliver information and so we're really excited with that.
Already in motion, so thats being rolled out as we speak.
Great team working on it and working closely with Salesforce.
From.
Product standpoint, Theres lots of great things going on with our product shelf and its inspired our consultants by bringing in.
Blackrock and oil price than other big manufacturers and and they've been taking advantage of those new products and.
Ms sharing their as weather clients.
As we go forward.
It is it's a lot theres a lot going on behind the scenes that will be coming out in the months to come and but we definitely have momentum for landing some projects already and.
We're excited about what that's going to due to our value proposition.
Okay, and then just on the on the retail side as well.
Do you have to do you feel comfortable that at some point in Twentytwenty youll be able to consistently get back into the positive flows.
Yes.
Feeling very good about this I mean, unless something happens in the markets in the next month type we feel very good about.
The momentum we have.
And building out part of the RSV season, and we expect to.
To get our share and.
We're excited about that and our teams are ready to go and they're calling their clients.
Prospects and so we expect to have a strong a couple of months here.
And then maybe just my last question.
Dovetailing off of that in his commentary because you talked about having better SPC isn't sounds like you're.
It sounds like you've got some momentum into RSP season, also curious as to Barry's comments, but when you take a look at it overall within the industry like.
Given what we've seen in the industry in terms of improving overall flows do you feel like it's going to be kind of a normal ish RSP season and are you feeling this can be im more optimistic RSP season than usual.
Yes, I think it's going to be above average.
I think so.
As we've had a tough year and then we serve.
[music].
Some balancing and now it's starting to get better again in the markets are giving cupo competence.
And hopefully we'll have a long path of.
There are markets behaving this wave so that we can get through it but.
We're optimistic we think that Theres theres, a lot of opportunities for us to dislocate relationships with other providers and we're going after all those opportunities our consultants are very.
Excited about what's ahead of us and.
Now, having mars capabilities and round them, they feel more confident and going after those I know where clients that we want and we're seeing our significant growth.
And our high network.
Yep.
Ben Bury your thoughts.
Same same sentiments.
As we all know when we came into the RSV season 2019 from the market downturn of Q4 2018. It was the investor sentiment was in comp as was not there.
And what was there was focused on fixed income flows so.
This time around.
For a barometer reading Mckenzie, you probably noticed our Q4.
In 2019 was quite strong and we felt that coming back very nicely from the confidence perspective, and then of course. This is just continuing to January in mid February and the confidence of Maxim is right there. So.
So.
So much petrus year over year, certainly and to Jeff's comment probably yes, probably above average.
We will lose weeks ago here on the RSP season are as.
As Mackenzie being manufacturer, we tend to get.
RSP flows in March as well because the.
Theres or are taking in deposits and they deploy than March. So we have a three month to see how is we're feeling very very good good about that.
And if I may because you had a great question on on the side of it how you would define success for 2020 for US as we indicated we from Mckenzie, we were having a good run here we've had three consecutive years.
Our best three years on many many measures and so for successive either for that to continue into 2020, we don't see why that would not.
It could accelerate a little bit more than 2020 versus the prior throughs, which would be good. Thanks.
EBIT performance leaves innovation keep advisers investors happy.
We'd like to see the flows come from multiple channels and multiple vehicles each month in each yes.
Nicely geographically dispersed across the country and and also having a number of our boutiques.
Succeed and so with that that as well gives us some business diversification. So yes overall.
But.
Does that go to Joe just one provides okay.
The markets are still remain quite points and confidence is there and so.
If that takes a term.
For all confident we'll be market share, but that might so.
That might pull back some of it flows events.
Okay, great. Thank you.
Thank you.
The following question is from Gary Ho of Deutsche Bank Capital markets. Please go ahead.
Thanks, Good afternoon.
Question for Luke just on the non commission expense.
Jumped around a bit from quarter to quarter Lou can you help us out in terms of timing of how this will extend in fiscal <unk> 20, and also can you provide a bit more color in terms of the Mckenzie number this quarter it was quite a bit higher 92.6 million.
That's helpful guys. So.
Seasonality you can expect it to be similar to 2019 going into 2020, we do have normal seasonality in Q1 with at high end. It does taper off and then come back a bit in Q4, given the seasonality of our business and our promotions.
Mackenzie did have some some severance.
In the fourth quarter and so that's something that wasn't the results.
That said, we gave guidance for the full year and run overall and so as far as Mackenzie into 2020, we are expecting 3% growth were better and any of the seasonality should be in line with with the history.
And can you quantify and that onetime severance.
Yes, it's approximately $3 million.
Perfect and then just related to this just looking at needed to be on 2020 and into 21, it's going to 3% growth how we should think about.
This line item looking at.
I'd say right now grade, 3% or better is is what we've put up there for 2020, and we're going to meet that.
In the first half of a 2020, we are expected to give further guidance for 2021 and beyond and we are working through a transformation program, we have a number of of exciting opportunities.
Work on to improve client advisor experience, but also to run our business we're more effectively.
So we'll be will have greater transparency to provide to a two to all of our stakeholders later on this this year.
But we do expect before June to come up with with announcement of guidance for 2021 beyond.
Got it and then next question is going to the GE consulting Canada was down again.
Percent versus Q3.
Tone from the last call would that's what's going to stabilize the level off.
Just wanted to hear kind of what the plans are looking out I did see offsetting this now the consulted productivity this did improve year over year.
That said Jeff.
We're excited we've got historically weve been inorganic organization, where we brought in.
You know people from other.
Firms are professions and that came into our organization and that's great and but now we also are recruiting.
Experienced consultants and so we're seeing a lot of take up on that they buy the culture, where we haven't.
There really excited about being a part of AI jie wealth and so that's a new opportunity for us and.
The talent that's coming in is generally from the banks.
But others as other competitors as well so I think you'll see that continue to go.
And.
I said in a call before that we wanted to get into 2000, 2000 teams and Thats still our goal.
And we'll be working on that as we go forward. So.
But it will take time.
Obviously to get there.
Got it in the first year, but it'll be that overtime, but we want to we still want to hold and standards.
We've done for new people coming in through their career profit versus.
The opportunity due to some come from industry. So so I think you'll see alive.
Good things coming out of that and will elevate our position as well.
And curious would be but I'd add to discuss expectations. The math of how we set up our field than with consulting practices, representing those products is over to over four years I make two comments, one we tightened or produce standards significantly and sort of getting that bucket requires for your graduation, and so overtime. We're recruiting at about 350 people per year.
We have the capacity recruit more if they make the standard but they do have to graduate to four years to getting that number at the same time, we have natural attrition of people, just retiring or otherwise, leaving the industry and their clientele is being reallocated to our existing practices and as Jeff said those practices are focused on improving.
Activity the average practice size written us $45 million and Theres a lot of room for upside here as we as we care as a high net worth clientele. So that's our focus is productivity and there were some math going on now where there is normal attrition of people, leaving the business or otherwise retiring and really recruiting at a certain level one geographical comment.
That's what Jeff said is right now on recruiting experienced advisors, we have been including them in the under for your line next quarter. We are looking to reclassify them over the last two years. We've recruited just under 100 lose people. They are very productive survivorship is going to be extremely high obviously given that they have experienced and we're target a little too.
But there is that geographical issue that we will at very attractive proposition by GE and for the first one ever for a number reasons, we are able to attract experienced people to our platform and we're doing that and we'll be providing greater transparency into that next quarter.
Okay.
Perfect and then just last question for me.
The the model generates decent free cash flow just in the past I know you've invested in personal capital well simple et cetera, just looking at 2020, what are your priorities for capital of free cash flow allocation.
You look at buying back stock at these levels.
Great. We obviously feel are up our stock is a bargain we always obviously always feel that way, we're very bullish on our future.
We do feel that we've got no supplement of excess capital and we will be evaluating over the period, how we deploy it sure buybacks would be would be a consideration and we're looking at number of opportunities to really enhancer business and we've we've tried to be clear with things that would be attracted to us whether it be expanding distribution reach.
Were the product and service capabilities of our core firms so as the as the year unfolds, we'll we'll give guidance on how we do deploy that capital, but more than anything we do not look forward just like you don't to having and sit on our balance sheet.
On productively.
And will you provide that in your area Investor day, perhaps.
Absolutely okay.
Thats It from me thank you.
Thank you. The following question is from Graham writing of TD Securities. Please go ahead.
Hi, Good afternoon, just follow on on the consultant conversation you gave some color that you recruiting.
Experienced advisors as well as people sort of coming from different industries for the advisors that are leaving IBG are they.
Moving to other competitors.
Or are they shifting out of the industry altogether is or the mix.
I think theres always people coming and going its humans.
Pat.
There is no material.
As thing going on there is the bar.
We're always recruiting so as everybody else.
And.
But there's.
Very stable.
And so forth.
Okay got it and then just on the sales trend it sounds like the improving that you're seeing in the high net worth side is not enough right now to offset the lower sales.
On the more national are good.
Soldier is that the dynamic and I guess why is it.
Why is it.
Offsetting more so you're not in the net sales plunged level. It yeah, yeah, it's just a massive.
Turning over the smaller accounts into the larger accounts and Thats, that's playing out as we go.
So it takes a little bit of time. So did was a drag because we used to go after a smaller accounts and now we're not getting that anymore. So thats just rolling through and that will go away and that in our flows our net flows will go up.
And Graham just on the strength of on page 16, and 17, just walk through some of the highlights gross sales were up 6% in the quarter, but it was 27% to high net worth and so right now that 6% overall as we are heading into 2020 were no running at 20% up year over year and that high net worth acquisition is really driving it so we.
We're through not.
Not taken claims we should be taking on with under $100000 and so you've seen that headwind there and we're doing that for long term health of business, but but behind that were strategy is working and we see a longer than we try to illustrate on some of the slides.
So what else is when I look at the this or is the market share.
Gee relative to the banks and the advice channel is out.
Why your shoes, giving up some market share because of that shift away from the mass market.
It's and there's two elements to that Graham one does not take you on that clients that.
That traditionally were taken on as we changed our emphasis and the others not recruiting people, who who otherwise would makes in the business and those people to use to bring in clientele and most the clientele were in that same segment. So that is a short term headwind, but but the long term tailwind is happening with behind that with the improvement.
The thing I would guide.
We would guys is just around comparing us to the industry that I see as a dealer and and what the enhancements that Jeff walk through is that we will be more focused on given this goes were under 80 way as opposed to our AUM of it because that is really the measure of the clientele coming into our or dealer.
And on that last bit the fees that you get on the way.
That flow through on the administration line in Nigeria, where do we see them I think thats. A question that we were expecting is that with the announcement of the ITC advisory account and move twin bundled we are not charging advisory fees on on third party business and so we are enhancing our disclosures that next quarter and I are laid out a few quarters.
Obviously on the call that because the change in the cared for business, we will be changed your disclosures to better reflect the fact that we're charging or advisory fees, which lowers component of our revenue on products that go beyond or 81.
Got it so it's already in there right now, we're just youre going to break it out right now it's and it's a good question right now it's embedded to the extent that we havent bundle. It's embedded in the management fee line going forward, we will have a wealth management revenues line and will provide a detailing of the advisory fee as opposed to flex program fees and we're also fully transparent in our fees.
Understood. Okay. That's it for me thank you.
Thank you.
The following question is from Tom Mackinnon of BMO capital. Please go ahead.
Yes, thanks, good afternoon.
As we further but the transition at GE wealth and the impact on the flows.
When you wouldn't barked on this a movement more into high net worth did you envision that the flows would suffer and.
When you when we declare victory in that Okay. Now we have the platform that we want.
And would there be a lag impact you would see on flows like after that I like how long before this transition in terms of your business and then this transition in terms of flows would be expected.
Yes, it's happening right now that kits were just going through so I'd say well take that long.
But we're going through that process right now.
Is your plan to.
Ultimately just service only high net worth clients.
Yes clients over 500000, exactly and when you embarked on this thing it.
Did you envision this transition plan to do you envision that it was going to hurt flows.
Yes.
Okay.
Then maybe we I mean I tried to set us on the calls many times, but we were were competing against.
500 up like Thats, where were taking the model that's why we're investing in.
All this technology and Salesforce and everything else is.
We believe by having.
Our every one of our consultants EMS House CFP.
So that they can unlock the full potential of every one of our clients.
And Thats, our whole strategy and we are using.
The best.
Resources globally to do it, including Salesforce, and others are suppliers, including Blackrock and others and and we're just the puzzle that puts it altogether and using all of these incredible capabilities.
Differentiates us from everybody else and then.
Consultants are going to become much more productive as a result of that and they will be using the skills that they actually have on that whatever the using for clients were $100000 now they're doing it with millions and 5 million than $10 million clients, because thats with their expertise it.
And.
We think we can be very best at that and it's the.
That's why I Love. This company from the date I came here is that we are grounded in all the knowledge you need to unlock the potential of every client and we want to make sure and I use this where it but its we'd want to make sure theres no leakage in their savings. So we want to deal done along every possible capability of how they can save for their families and weather.
Trying to achieve or their charities or whatever else. It is and its as by making sure that see monetize the full potential that clients and everybody wins, obviously, because we do that.
The client wins, which is the most important thing and their families.
The consultant certainly wins because.
They are monetizing the full potential. So then thinking yields do that and that that will drive their compensation and obviously the from wins huge because we've already got a lot of clients.
On the books and Red Green and more clients now than we have historically.
In two ways went through.
With taking.
Consultants away from other firms, but also our ongoing organic growth of our consultants and.
When we get to that 2000 teams.
They're all productive and they're delivering that value proposition I don't know how anyone detail.
Well, Hey, I appreciate the color in the passion there.
Luke I think you mentioned something on slide 31 about tax guide.
Should we just expect the same kind of tax rate or did I hear you mentioned something different.
Got it right now there was it detects detect the effective tax rate was a little bit elevated this quarter because as a onetime items. So I just want to give that guidance that we're we're running closer to 22.4% and effective tax rate. So I want to make sure people were clear on that and obviously, there's a few things to cause it to bounce around including the proportionate share of.
Of equity accounted for investments.
But but I just want to give that guidance because it was a bit higher in the quarter.
And so what is the guide for the tax rate then.
22.3, 22.4% yeah, Okay, yes.
Great and then the last question is we saw.
You were majority shareholder restructure and they're working towards more of a financial services focus now at least.
Somewhat of a change in strategy.
You are more focused strategy.
Looking at building out their alternative asset platforms as well is there any way that you guys see.
Fitting into that mix going forward or is it just sort of just business as usual fried GM.
Given the restructuring up your parent.
It's a question on on the simplification of their cost structure, which we thought well not not necessarily simple, but then the the more focus on financial services is there any kind of way of.
As they focus on alternative funds is there anything that is there any way that you guys.
Benefit as a downstream company from that.
Okay.
Obviously, we have ongoing conversations with all the power group companies and all that theaters and.
Share what was going on and that Theres ways to partner with any of them are going to definitely have that opportunity I know that there's some.
That being done on that and there's certainly more demand for alternatives.
And.
Our liquid alternatives, which Mckenzie is already done a great job that.
But we want to be in that space too and we want to build off of that to our consultants.
Within.
Well.
They are going to declines will demand it and we want to make sure we haven't end.
Barry said got great experience in that space and that knows a lot about it so.
We will definitely be a big player in that space.
Yes, but there hasn't been any specific discussion is in terms of.
The revised strategy now with you guys at all as there for our for US it's really.
As a as well where it weekly we can hire any one right. So we can go and look to find places to go.
But.
We've already got liquid alts Im sure varies looking at that space as well.
Again, you've got a lot of experience in that space. So.
We'll see how that plays out over time, but it's obviously, there's more demand for you can see the clients are asking for it.
We want to be a big part of.
Great. Okay, if I guess to Jeff's comments.
Just independent about.
As he mentioned.
The alternative space is obviously very large and growing very fast globally and we've been trying.
At Mckenzie from a manufacturer perspective to continue to monitor.
Trends globally that may or may not come to Canada, and you've obviously seen us and build on an organic ETF platform by successfully we launched numbers social small investing funds now that are growing very very nicely.
And then any alternative space, obviously, we launched our focus quite a bit on the liquid alts sites that gives us.
Individually as you can access of these return parameters, but we're always watching and looking and.
Testing.
The attractiveness of the alternative space independent.
Our parent company because.
It is a full service asset management company, it's an area that.
Monitoring and.
Valuation.
We'll get to that.
Over time.
Okay. Thank you.
You're welcome.
Thank you once again, please press star one at this time if you have the question. The following question is from Scott Chen of Canaccord Genuity. Please go ahead.
Hi, good afternoon.
On your on your 2020 as gene, a 3% or better guide.
If you look at an Investor group, Dan Mckenzie platform in isolation is or one of the platforms where are you spending more.
On the transformation plan.
Yes good.
Right now, it's it's clearly as Ed I G.. So a lot of the the things were embarking on let's just starting with the move to one bundled and and that's a company with the migration of older Clay until two our nominee platform our dealer platform. So thats been a lot of work that's been over over six years and especially the last two.
That will have been a $140 million program and and we're just nearing the completion of it in the coming few months. So thats been a lot of investment and it really does normally hence the products that we're bringing to market and the ability to have a fee based account.
But but it really doesn't has the advisor quite experience and we're so pleased.
Pleased that that migrations could be done done between 20.
On top of that.
Advisor a portal with Salesforce was another big Big investment for the for the IP network to really accelerate their their relationship with their clients and another big investment beyond the brand relaunch and and it has to enhanced marketing, what the financial well being score and all the work around around helping to quantify.
On a 100 point scale, how optimized Arclight tells us financial well being is and we believe its industry, leading so those have been some of the key things that we working at ITC, specifically and then on top of that is all the transformation work around items operations and Weve that we planted a number of flags over the last few quarters and indeed.
You updates on that and there was more in the works as Mike did them and all of us.
Are working on bringing that fiber transformation proved to life and really realize that all those opportunities to outsource.
Or automate and really drive efficiency.
Great and got very well go ahead. Please go ahead.
Let me that I'll have mckenzie versus perspective shirt so were.
Mackenzie, we we're feeling good about our ongoing investments, we're making the business to remain relevant has occurred.
You're probably seeing those.
Launched a new products, because it's all about innovation and attracting scale and so we've been launching two three years now again, each shifts and Sri in liquid alternatives.
We've we announced late last year the formation of a dedicated alternatives team under Michael shipments.
We announced also a dedicated Sri team interfaces year.
A lot of work, we're doing if our Chinese partners with CMC.
We continue to expand our distribution retail the sufficient enter institutional institution. So thats not been constraint for us at all to do that I'm looking at more digital wholesaling account.
Some more data and.
Or virtual digital applications and approach to enhance productivity of our wholesalers. So yes, it's for us if the ongoing investments of the organization that Mckenzie and the firm's remain relevant.
And continue to fuel this nice.
Three we think multi year momentum that that were were part of the some of the investments aren't as significance and transformational as our GI partners, but as Lou mentioned, there's there's the GM transformation sourcing of funds services other aspects that benefits all the operating companies with an eye Jim including the.
Obviously.
Great and others. So thanks for the question.
And and Barry just on the institutional side. The 1 billion. That's unfunded can you give us a flavor what asset classes that might have been then.
Yeah, what we're we're happy with as it were getting nice Friday.
We don't line getting a billion plus one strategy any time, but we're actually.
It's been a combination of emerging market equities.
Global fixed income.
US long short.
In the alternative space.
And global equities so.
It's a nice variety.
We've got so the pipelines strong pipeline strong we expect more more windows in the next little while which will announced for you but those are.
All wins announced.
And as you know institutional role than you.
We want to start to show you the pipeline in terms of.
Formal approved wins and then there is the funding period, where you have to onboard those assets. So what we'll do going forward. We've done last couple calls now say here's what the wins are in here. So much as funded here as much as unfunded. So for US is 200 million of that came in January.
And so we now center flows January so we've got so we still have already over a billion dollars unfunded wins that are coming in Q2 in Q3.
Do you think you think that the strong pipeline can offset the just the general.
Headwind on the institutional side, including Mackenzie.
In terms of to entered into positive note you rate. If you don't mind, reaching a topic in terms of definition of institutional so we probably should parse that out to two categories at which we do because we have an institutional team and they go after one group are.
Canadian platforms dealers et cetera.
The bank platforms, and others, who are very sophisticated.
Consumers and they actually evaluation and higher managers with an institutional lens, we call that institutional sub advisory, let's call them and then theres. The pure it's called the traditional institutional which were also winning and where those are pension plans and the investment consultants, who are very influential in those buying decisions with there.
Clients.
And those are in Canada, but also as I cannot use in Europe also so if they want to confuse issue, but we could you could parse that out going forward, but but those are two types institutional wins.
It is common for managers.
Two cost by institutional business to include both sub advisory.
As well as of the traditional pension plans.
And then davin, obviously, some bolt on type of wins.
And that kind of prices as one wholesome, yes, definitely and ER and out of those two which one is that.
Kind of in more demand that Mckenzie assumes the former sub advisory into into bigger.
They're both were winning info and get it it's not reverse focus like we're not we're not out there.
You know trying to be.
Machine gun looking at all of our strategies and very handful selective institutional quality strategies from CICC set were marketing and we've been actually successful right now in both of those categories. At the latter one has been just recently, we've been building building that out hard to get out there and.
Peaked in the institutional consultants get on their radar screen and get along with get on short list of sales cycles quite long. So we're getting some nice traction here still early days and has refocused, but yes. The former is the one that also is.
Growing nicely for us the sub advisory and has been across multiple mandate.
And that and just last question for Jeff in European Mark you talked about.
Equity markets in 2019 since the credit crisis.
But yet your EPS was 319 in the prior years 329.
How do we kind of think of kind of growth. During this transition and ITM earnings growth of earnings our growth earnings growth Oh, Yes, thats with for all here for that so.
Sure.
We're very excited about.
Our value propositions as I said.
You know, it's it's we got our print like it at the end of the day year, you'll have to see how we do but.
I can't give you forward looking.
Results here, so I'm not going to go there but.
We were we've put a lot to over the last three or four years.
In two well.
To make it is.
The leader in the industry and.
And.
The value proposition as Weve.
I told you about.
Clients that were going after and and we're getting traction and our consultants are getting more confidence and.
And so the momentum is building and so you're going to yield judges side every quarter and we'll see how we do but we believe that they were going to have a long run here because.
The value proposition, but also because the quality of our teams.
And the consultants that we have.
Okay. Thank theres a lot of a lot of operating leverage here and I would highlight with the up.
The 2019 remark average assets were only up 3% result of the timing of equity markets coming down in Q4 2018 in the coming back up so.
A lot of lift going into 2020 and with that have fixed cost base. There is just a ton of operating leverage that business and we're going we're here for double digit earnings growth and Thats, what we hold ourselves accountable to.
Okay got it avenues weekend long weekend.
Thank you.
Thank you.
The following question is from Graham writing of TD Securities. Please go ahead.
Hi, I will try to be brief to follow up questions just.
Lukens you throw some numbers just really sure heard them correctly asset based.
<unk> rate is going up from 50 to 53 to 5300 basis points as I've gotten that's right and then the other one you said I think was the sales based commission rate was dropping down.
Yes, Thats right. So we're still going through that as we discontinue DSC in 2016. So we still have some legacy DSC on the books as the DSC continues to mature asset based based comp goes up at that time, and so thats going to come to go up at the same time sales based compensation is say is coming down and so that will be about 100.
25 basis points next year in and you had the rate numbers for the asset based guidance we gave.
Compares to the Salesmen Street.
Yes, 156 this year five so it seems to be close to 125.
Yes, Okay and then.
Then my last question is do you guys provide any numbers or have you talked to about sort of the number of households that your consult just servicing that are greater than 500000 relative to the number of households that are less than 100000 sort of how that's evolving.
The best to disclose we have is the we've obviously provided rich disclosure on the component of our sales that are high net worth solutions versus theirs is not that we haven't given the share for assets that also relates those different client segments.
And that's that's a little which will continue to do that on the other thing we've done or investor.
Materials is it's actually shore market share in each of those those segments and so when the it what we call the mass affluent being 100000 2 million or share is 5% of all candies and savings.
We're in the.
We hope what we call high net worth as opposed to ultra high net worth the million to 10 million category our share of Canadian savings is 2% and that's where we're focused we know that are.
Our financial planning is most suited to those with clunky needs and as Jeff said, we believe were the best added and and so that that's where we're focused as building or share in those categories and we will help to deferred as you would transparency into its workflows are coming from and growing and right now as you've seen we have really.
Moved our practices not to emphasize postal's with under $100000 unless they have the character that they are going to grow into account with morococha needs.
See that headwind, which is it and near term phenomena and we're so pleased the success, we're seeing and actually seem that amplification of acquisition of high net worth pointing out because that's what our stretches though.
Okay. So said another way.
We're now at 58% of our sale activity going behind that were solutions and we're also over 50% of our assets the with high net worth clientele and that's that's going to be the continuation of the trend.
Okay that helps thank you.
Thank you.
There are no further questions registered at this time I'd like to turn the meeting back over to Mr. Potter.
Thank you Melanie and thanks for those joining the call today wish everyone, a good weekend and with that I'll close the call.
Thank you.
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Good.
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