Q4 2020 IGM Financial Inc Earnings Call
[music].
Yes.
Thank you for standing by this is the conference operator, welcome to the I T and financial fourth quarter 2020 earnings results call.
As a reminder, all participants are in listen only mode and the conference is being recorded and.
After the presentation there'll be an opportunity to ask questions did you and the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal of the operator by pressing star and zero I would now like to turn the conference over to Keith Potter Senior Vice President Finance. Please go ahead.
Good morning, and welcome to <unk> financial 2024th quarter earnings call. Joining me on the call today are James O'sullivan, President and CEO of why GM financial game, and Murchison, President and CEO provide you walk management.
And also Barry Mcinerney, President and CEO of Mackenzie investments and Luke Gould Executive Vice President and CFO of IBM financial.
Before we get started I'd like to draw your attention to the cautions concerning forward looking statements on slide three of the presentation.
Slide four summarizes noninterest financial measures used in this material on slide five we provide a list of documents that are available to the public on our website related to the fourth quarter results dry GM financial and.
And with that I'll now turn it over to James.
Well, thank you Keith and good morning, everyone.
Before we jump into the quarter I'll start with the highlights for the full year 'twenty and 'twenty.
As we reflect on the year. It was certainly unlike any we've seen yet despite the challenges of our business and people face during the pandemic.
We continued to build momentum.
We achieved record high of you M&A of 240 billion, which was up 26 per cent from last year.
We achieved record high new flows.
Of $7 1 billion up from net redemptions of $1 7 billion.
And we delivered strong adjusted EPS of $3 from 20 cents.
Which is up slightly from 2019.
As I spoke to on the Q3 call. We also made significant progress on business transformation initiatives with the objectives to enhance back office efficiency and elevate the client and adviser experiences.
And to build on this I'd say, we're about halfway through our modernization journey and has much to do in 'twenty and 'twenty, one and beyond to digitize, our back office and hit full stride on our outsourcing and productivity focused initiatives.
Finally, we were very active adding scale and new capabilities to drive future growth through acquisitions and.
And in the case of personal capital.
Monetize and the investment that we believed was the best way to create value for our shareholders.
We were able to achieve these results by quickly transitioning to a work from home environment and March and.
And focusing on the health and wellbeing of our people and clients during 'twenty and 'twenty.
On behalf of the leadership team at AGM and I'd like to thank our employees consultants and advisors for their commitment and resilience throughout 'twenty and 'twenty.
Turning to slide eight on cash.
Q4, 2020 highlights for I T M.
Overall, I would say business momentum accelerated in Q4, we.
We achieved record M&A and the quarter of $240 billion.
Up six 7% excluding acquisitions.
We also achieved record high total net flows of 2.2 billion the.
The strong results from wealth management and record high net sales and Mackenzie.
<unk> Q4 earnings per share were <unk> 96 cents and adjusted earnings per share of where 86 assets up slightly from last year.
EPS included a non I FRS adjustment, primarily consisting of the gain on the sale of the Quadras group of funds.
I am proud I'm very proud of and fact that ITM was recognized by corporate Knights and it's one of the top 100, most sustainable corporations globally and as the top rated investment services company.
The global 100 assesses several performance factors and ITM strong showing was based on above average results for clean revenue.
Female representation at the board and executive level racial diversity carbon and energy productivity and certain important HR practices.
Finally to closeout of the busy year, we closed the acquisitions of GLC Green chip and north lease during the quarter.
Turning to slide nine on investment returns.
Q4, 2020 saw strong equity market increases across all major indices with low volatility.
While fixed income returns were flat.
Overall, <unk> average client investment return of five 5% was strong during the fourth quarter.
We've seen equity markets increased further and so far in 'twenty and 'twenty, one with client investment returns averaging approximately two 4% year to date February 9th.
Turning to slide 10-Q, four long term.
Mutual fund net sales were $16 4 billion for the total industry and 7.2 billion for the advice channel.
This is the best fund industry Q4, net sales and history.
We're encouraged by the momentum of the industry.
And at AGM as we complete the RSP season, and look forward into 'twenty and 'twenty one.
Turning to slide 11 on results for the fourth quarter average M&A of 202.2 billion increased seven 9% year over year.
With the closing of GLC on December 31st we add scale to our platform and ended the year with M&A of $240 billion.
<unk> Q4, 2020, adjusted net earnings per share of <unk> 86 cents were up slightly from last year.
As I commented and net earnings per share of 96, and primarily reflects a gain on the sale of the Quadras group of funds.
Yeah.
Slide 12 highlights quarter over quarter and year over year EBIT contributions from our segments.
The year over year increase and adjusted EBIT was driven by the asset management segment, and China, AMC, which were up 14, 5% and 63, 9% respectively.
Slide 13 details the strong improvement in net flows across all segments during both the fourth quarter and full year 'twenty and 'twenty.
Q4, 'twenty and 'twenty consolidated net inflows were an impressive $2 2 billion and $7 1 billion for the full year.
I've spoken before about the momentum that is building across our businesses. This slide very well demonstrates it.
We are well positioned to complete the modernization of our businesses and the business processes.
But the strong focus on net flows net sales and expense management, we look forward to delivering a strong year for our shareholders.
I'll now turn the call over to Damian to review <unk> results.
Thank you James turning to idea of wealth management, and Q4 2020 highlights on slide 15.
We're pleased to report record high AUM and <unk>.
<unk> ended the year at 103 billion of five 9% during the quarter driven by strong client returns and net flows.
Record high growth in full for the period were driven by a combination of new client acquisition and contributions from existing clients into investment accounts.
From a consultant productivity perspective gross sales per consultant practice increased 19% relative to the same quarter last year and as we've talked about in the past calls we are attracting more experienced advisers with the existing client relationships and that is being transferred to <unk> wealth management <unk>.
<unk> fourth quarter net sales were positive $485 million, the best Q4, and over two decades I want to turn to slide 16 the.
And it demonstrates the building momentum and net flows across the various time periods and on a 12 month trailing basis the.
Chart on the right illustrates how COVID-19 has masked some of the momentum we have in this business. We enter 2020 with the strong upward momentum in both growth and net flows into Covid and then.
And home, we trade and we had the transition period and allow us to develop tools skills and the expertise to provide advice remotely and momentum of Orient and returned in August through to the end of the year and has continued into 2021 in January we had net inflows of 180 $82 million and over $1 billion and of <unk>.
Selling 12 month basis, fueling our net sales of $105 million in this and this past month.
Turning to slide 17.
This shows our typical overview of operating results for the quarter share you can see positive net flows of momentum is driven by higher gross inflows and lower gross outflows right.
Our net flow rate was one 1% and on a 12 month trailing basis, showing our progress, but let's be clear here and it's still early days and we're building momentum and we have not hit our stride yet.
Turning to slide 18.
I will take you through a deep dive into our growth and net flows and explain how AOA transitions into <unk> and.
And to Orient you to this to the slide briefly and we are of a table on the left which shows the change and our <unk>. During 2022 on the right. We break down our Q4 2020 net flows into two key components described to describe what were seeing the first component of net flow or by sales and switches within the client accounts the second.
Our income transfers from other dealers and just as a reminder, we arent and advice fee on AOA, which represents 65% of our revenue.
And so looking at the first point on the page.
The net buyers of $140 million into Mackenzie investment funds IV consultants and clients have access to and approved list of select Mackenzie products to cover categories, where <unk> currently does not offer solutions.
Hi, Jim and full margin on these assets, but these flows do not show up as mutual fund net sales at IAG and as you can see 95% of the total investment solutions sold at <unk> wealth management, our AGM solutions, the second and third point deal with third party funds and securities. So let's go to a point number one.
And we will highlight the $373 million and third party funds and Securities transferred Inc, kind to our firm the.
This is directly connected to our success and building new client relationships and consolidate existing client investments and well with our focus on mass affluent and high net worth we expect to continue to see momentum here <unk>.
Free as we continue to transfer and securities and <unk>, we expect to see a significant portion migrate to our managed solutions as you can see the.
In the quarter of $125 million migrated to our solutions.
And the fourth item on our <unk> growth as expected, we are seeing and increasing cash balances as we migrate our clients to our nominee dealer platform.
While we had on migration to the high interest savings account and the first half of 2020 and cash transition of client accounts and December from year end distributions. We do expect this level of transfer and cash balances to increase over time, given on our attractive rates and this provides a tremendous opportunity to put this cash to use and our consultants worked with their with their clients.
Turning to slide 19.
And I want to focus on the productivity growth of our network is something that is key to our strategy.
We are more focused business driving the work with more of a mass affluent and high net worth Canadians and our belief is that as we match our financial planning skill and expertise with the complex financial planning needs of these segments are consultant's productivity and will grow as we bring more clients on board with more meaningful assets.
We continue to see significant increases and productivity across the board productivity out of a one of four year consultants was up 8% versus Q4, 2019, and our experienced consultants up 19% year over year. We're just getting started here and have lots of upside as we continue to execute our strategy to go upmarket.
Crude experienced financial planners and complete our transformation focused on it and the advisor and client experience.
Turning to my last slide Slide 20.
Our customer value proposition is rooted in many of the benefits of the dynamic living plan with the strong long term advisor relationship and well constructed managed solutions being able to deliver on the dynamic living plant is core to who we are.
The highlight the rollout of our next generation of the <unk> living plan, we rolled it out in December to elevate our client experience and considered to be leading edge. The tool allows us to show our clients their entire financial picture and ways that are easy for them to digest and enables us to work with what if scenarios with our clients and the simplified accessible way and it empowers us to you.
Use artificial intelligence to determine and planning strategies, which are deeply customized to each individual.
It's the combination of leading edge financial planning tool with the deep expertise of our credential. The advisor that we believe gives us on a competitive edge as we strive to work with more and mass affluent and high net worth Canadians, who have complex financial planning needs.
Now I'll turn it over to Barry.
Thank you very much Jamie and good morning, everyone I'll take up the page 22, where I'll begin my comments on Mckenzie as Q4 results total.
Total AUM reached a record high of $186 8 billion up 10% for the year with the total annual net sales of 6.25 billion.
The percentage increase ex excludes the incremental 33 billion relating to the acquisition of Green ship and G. L C and the impact of the disposition of the QUADRA as a group of funds.
Net sales for a record high of one 7 billion during the fourth quarter the one.
And we're seeing is truly broad based across Mckenzie foreign equities Canadian equities balanced and fixed income categories, all generating positive net sales.
Both the retail and institutional channels delivered positive net sales and this quarter marked our 17th consecutive quarter of positive retail investment fund sales.
We enhanced the capabilities of our investment management organization with the completion of a number of initiatives during the fourth quarter, we executed on our succession plan for past Chief investment Officer, Tony of Labia, who retired on December 31st by appointing Steve block CIO of fixed income and multi asset and welcoming Leslie marks to Mackenzie to take on the role of <unk>.
Oh equities I have full confidence that Leslie and Steve will lead our investment management team to build on Tony's legacy of success.
As James touched on earlier and Mackenzie acquired Green Chip financial this past quarter highly regard of Canadian firm focused exclusively on the environmental economy. Since 2007. The Green Chip team is now set up as of Mackenzie investment boutique focus on environmental thematic investing and continues to manage the top performing Mackenzie global environmental.
Equity fund.
And lastly, with the close of the GLC transaction, we added a new Canadian equity investment boutique and welcome on number of new investment professionals to the Mackenzie family.
Slide 23 demonstrates the exceptional Q4 and full year 2020 investment fund net sales and Mackenzie and how we've seen this momentum extend into the RSP season.
January investment fund net sales, excluding institutional fund allocation changes were a record high of $779 million, reflecting a continuation of our success and the retail channel.
Slide 24 highlights Mckenzie of Q4 2020 operating results.
Total mutual fund gross sales of four and a half billion were up 74% year over year, the strong increases in both retail and institutional channels.
Retail investment fund net sales were 1.3 billion, including $1 billion from mutual funds and 300 million from primarily active and strategic beta Etfs.
The Kansas Long term investment fund net sales rate was five 5% as at January 31, 2021, and this represents six significant organic growth and Mackenzie.
And finally, we had 60 per cent of AUM right at four of five stars by Morningstar, which continues to be close to the decade high levels.
Slide 25 displays the investment performance and retail net sales of cross our investment boutiques and I won't review this in detail, but you'll see us kind of sense, rather for the breadth of our momentum from the information on the slide and you'll note the new Green chip boutique experienced strong retail net inflows during the quarter.
Slide 26 relates to two of our growth catalysts sustainable investing and private markets as announced in December we acquired green share financial to form of new sustainable investing boutique focus on environmental Sematic investing.
The team's expertise in the energy transition and climate change will help us meet a growing retail and institutional demand has accelerated in 2000, and 'twenty and into 2021 and.
Mackenzie Global Environmental equity fund has net sales of our 200 million and the fourth quarter and the additional 194 million and the month of January alone. We are excited about this offering and our plans to expand upon this with the new global bounds fun and global sustainable Bond fund and we expect the launch shortly.
And this isn't just a large opportunity for growth at Mackenzie, but also an important step to address climate change and to support the IGN group of companies commitment to the recommendation of the sort of a task force on climate related financial disclosures.
I also talked about North sea, if on our last call and as a brief update and very excited to announce that Mackenzie now has the seat at a private credit offering memorandum fun in January the liquidity sleeveless and place and the first capital of calls ex Pats It on April one.
We also launched the Mackenzie private equity replication fund, which will be used as the liquid component of the private equity O M and we plan to launch later this year and we also have plans to bring infrastructure products to life in the near term.
Standalone norfleet of experienced solid net commitments and Q4 and has made great progress working with the I G wealth and great West life to bring additional private market strategies to the respective businesses.
Another driver of growth is China, and China AMC on page 27, and while we are extremely proud of mats and we are seeing and Mackenzie, China AMC was and the league of their one and 2020.
On the AMC organically grew the AUM by 42% during the year and trying to Amc's fourth quarter 2020 earnings grew an impressive 49% year over year and as James mentioned the earnings contribution of I G M and Canadian dollars increased 64% from the same time period.
We remain very optimistic about the long term growth profile of China, AMC and the Chinese asset management industry as a whole.
I'll now turn the call over to Luke.
Thanks, Barry good morning, everybody the.
A few quick comments on slide 29.
First on the left and we closed the period with $240 billion. This was the very strong quarter and the quarter were proud of and excluding the $30 billion and acquired assets are M&A grew by six 8%.
The day 2021 is obviously and the good to us and we were up over another 3% due to the financial market increases and continued strong net flows on.
On the right I would remind the in the quarter, we had record high net sales of $2 2 billion, which was an annualized net sales rate of four 4%.
And on the left I'd remind you that as the result of the huge D that we all live through during 2020, our average balance of day you M&A during the year was relatively unchanged from the balance of 'twenty to 2019.
And with things, where they are right now, we're rolling and meaningful growth into 'twenty and 'twenty one.
Moving to page 30, you can see our quarterly EBIT on the left and our EBIT margins as a percent of M&A on the right on.
The left chart by the highlight here that we have an additional $17 million and our fourth quarter expenses were driven by strong sales performance during the quarter.
The first item, we've highlighted as wholesale and commissions that Mackenzie, which were up by $10 million and there's 10.
And many doors of the true up for a full year of activity and it's driven by retail gross sales and net sales of Mackenzie and Youll see and a couple of slides retail sales were up over 50% of the quarter and net sales quadrupled.
I'd also remind that these commissions are not capitalized, but our expense as incurred in spite of the fact that were going on and revenues over the holding period of the units, which tends to average of seven years.
Really a component of corporate bonus is driven by market share of net sales activity and as result of the strong sales activity and the fourth quarter and this element of compensation increased by $6 $5 million.
On the right hand side, you can see there of net revenue rate was stable at 103 basis points and excluding the expense items I described just a second ago. Our EBIT margin was similarly very stable in the period.
Both of these 31, you can see the consolidated income statement barrage of financial.
First we pilot and the first two points the geography of the wholesale and commission and the corporate bonus adjustment and our business development line and our operation and support expense lines respectively.
And the business development line I'd also remind you that this lines up seasonally in the fourth quarter as we wrap up advertising and events of the RSP season.
And 0.3 and the bottom right. We're also highlight that the tax loss consolidation arrangements that we've enjoyed with our parent company for a number of years and discontinued and the fourth quarter of 2020. This was running at about $2 $8 million per quarter.
Turning to page 32, I'm going to apologize and event. This is a very busy slide but it is something I want to make sure. We spent the moment on walk you through how on Mackenzie business development expenses should be expected to behave in relation to the retail sales activity and we're putting on given the significant momentum we're seeing the business.
I'd like to highlight and the top of the page the retail sales results and then I'm going to pivot to the bottom or we talk about the expense and how it into place.
So on the left you can see our last 12 months trailing gross and net sales per retail mutual funds at Mackenzie you can see and the light Blue line, we've been trending at about $1 billion per year of net sales for the last four years and you can see starting in August some things happening and we started to see very meaningful improvements and.
Of that.
The net sold of $1 billion and the fourth quarter, which is where we've been trending for the four previous annual periods.
We're pushing with all of you got right now and you'll see we're running at over $2 billion and the line continues to steepen as we traveled through 'twenty and 'twenty one.
Added four dots there to give you a full of possibilities to help you understand how expenses will behave in 2021.
And the churn the middle and the right you can see our quarterly and annual retail sales results on mutual funds and this gives you the context to see how Q4 was a breakout quarter and why we did have this unexpected true up for our full year retail sales commissions on.
On the very right. We show those four sales possibilities for 2021 and you can see on the charts, where we are.
And up 53% year over year.
Year on Q4, our gross sales and Youll see from our January results, but that's continuing into 2021.
On the bottom we piloted the business development expense line.
This line is comprised about $20 to 25% commission their sales base of about 25% advertising, which is discretionary and the remainder of the other people and promotional expenses.
As mentioned all of this is expenses incurred and generates retail sales that contribute of margin of about one per cent of assets per year over and average seven year holding period.
If all of the business development expense line of cross Youll see that extra 10 million true up in Q4, 2020, and as the expense was $20 3 million up from $16 million and the prior quarter.
I'd also highlight if you keep all of them across to the right Youll see the this line item was $80 million for the full year unchanged from 2019.
I'd note when the considering commissions, we reset the bar every single calendar year and for 2021 of the bar has been set much higher than 2020.
At the right you can see all of this expense is going to vary based on sales activity if growth sales improved by 20% you can expect this expense to go up by five if growth sales improved by 50%. This expense will go up by 20, and we will keep engaging with you on a quarterly basis to help you understand how these expenses traveling in relation of the sales we put on it.
The last point before leaving the slide I should highlight we're obviously pushing for continued 50% year over year growth and you heard from Barry we have all of the conditions for success and we're leaning in and we have the number one sales organization of the country. We have a broad range of compelling and relevant products. We had very strong investment performance and we have a very stable the market environment.
Turning to page 33, and bridging on those last comments.
And given some guidance to help you understand how expenses will travel in 'twenty and 'twenty one.
Yeah, I've mentioned and business development expenses Theres variability based upon sales and other volumes and there is also meaningful discretion that management has to manage expenses.
We expect this to be under 3% this year and we're going to manage this.
At Mckinsey or giving guidance for 5% growth and is highly and the prior slide theres a lot of variability with sales and meaningful discretion of this line and and we'll keep you posted as we travel through the year.
Youll see and 0.1 of the bottom that there's a theme on the expenses next year that there is significant business momentum at Mackenzie and we're leaning in and.
And the operations and support line from Mckinsey Youll see that were planning for 5% growth before the expenses from acquisition and this growth is being driven by investment and and a number of product opportunities that we're bringing to life.
We'd encourage you to do the math on Mackenzie journeys trajectory. There is a lot of operating leverage and this business and were expecting significant earnings growth based upon where we're traveling anymore. We're sitting right now.
And in operations and support expenses, you can see we're expecting the <unk> expenses to grow by less than <unk>, 5%. We believe we of the resources, we need to compete and win and as you saw on the and infection. There is strong momentum and the business traveler me into 2021.
Moving to page 34, you can see our fee rates provides you well I have a few remarks.
First you can see the advisor fee rate was 105 basis points during the quarter.
I'd remind that this weighted average fee rate varies based upon the composition of our clientele as we bring on more high net worth and mass affluent clients. It puts downward pressure on this rate similarly, as our clients migrate into higher wealth tiers. As a result of investment returns generated for them. It puts downward pressure on this right.
Over the coming two quarters, we would expect this rates declined by about seven to nine basis points per quarter, and and we will keep you apprised of developments on the high net worth client acquisition as the quarters traveled through 2021.
Second at the bottom you can see our sales based compensation rate well commissions that IGT of capitalize and amortize we want to remind you that we have one final year of these commission rates dropping as part of our migration away from deferred selling commission brought the number of years ago and.
2021, and beyond you can expect this rate to be closer to 105 to 110 basis points of gross inflows down from the 120 basis points has been trending up.
Moving to page 35, you can see the income statement of Pride you will the.
The comment I'd make on this slide is the highlight that sequentially. Both our other financial planning revenues and the other product commissions are up as a result of the seasonality and the sale of insurance products.
Also highlight and increase in business development expenses from Q3, as we did ramp up advertising heading into the RSP season.
On page 36, we have another busy slide and.
And I do apologize, but we've added the slide to help you understand how are you on that Mackenzie has changed with the acquisition of the GLC and Green chip as well as the divestiture of the Qantas group of funds and Youll see Theres a lot of moving pieces.
I'm not going to walk through the waterfall chart on the table, but would make the point that as part of the divestiture of the coach group of funds and approach kind of like the establishing their own mutual fund complex. We've had of $13 4 billion transfer out of our investment from reporting and we've added $43 5 billion into our sub advisory reporting of institutional SMA.
And you put a footnote right at the bottom the pro forma for these transactions and Mackenzie now sub advisors and $47 2 billion to kind of life and this represents 42% of the Canadian individual individual and group channel assets under management.
And the ongoing basis, we're going to call of this the <unk>.
And relationship for Us and we're going to share the share of their own that we represent and the associated revenue said, we're generating and youll find the disclosures coming in Q1.
I'll also advise that you can find the detail of how kind of life individual and group businesses are traveling in their entirety within the great West life co supplemental information package, that's available on a quarterly basis and this will allow you to see how Mackenzie is addressing the AUM.
Moving to page 37, you can see Mackenzie its operating metrics and we've given some guidance on the slide how to model the impact of the GLC and green ship acquisitions.
On the left you can see of pro forma AUM at December 31 was $186 8 billion and on the right you can see the net management fee rate of stable at 71 basis points.
Just to the right of this we've given a couple of dots, where we provided the pro forma net management fee rate of $54 five basis points, including the $30 billion and net assets acquired as part of the GLC acquisition.
You'll see on the comment bar of the top of the annualized net revenue. We've added at December 31, 2020 was $33 million and the incremental expenses coming on in 2021 of $20 million.
On page 38, you can see the Mackenzie income statement first.
The first point here as discussed there is an additional $10 million of wholesale and commissions within the business development line and this is contiguous.
At the bottom I'd highlight and that third the column from the right you can see Mackenzie its earnings were up 14, 5% year over year, excluding debt incremental wholesale and commission item were up 30% and I would remind you. There's a lot of operating leverage and this business as the of business continues to grow.
Page 39, and I'm going to conclude my comments on our strategic investments.
A few quick remarks here first you can see on the right maturing value or the trading value of the case of great. West is now $2 9 billion, we haven't made any revaluation per well simple and but youll see on the appendix that continues to put on considerable growth.
I would highlight in the.
And fourth row from the REIT, we closed the acquisition of north of it during the quarter as Jerry mentioned, it contributed $800000 and the week since closed in the fourth quarter and we give guidance we're expecting contribution.
Approximately $10 million after minority interest and 2021.
As you saw from Barry China, and <unk> growth continues to be considerable and our share of its earnings are up 63% year over year.
One last comment and leave as I conclude is that we are continuing to evolve our disclosures and we have one more enhancement that we're going to be launching during the first quarter based upon feedback I've received from several of you and several of our shareholders.
Specifically, we're going to bring our statement disclosures downturn and net income line on the EBIT line, where it is currently.
And we think theres going to be very helpful. For those wishing wishing to assess valuation on the p/e basis and the play some of the parts of approach and we are going to provide this disclosure retrospectively for two years within the quarter.
That concludes my comments I will turn it over to questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone of acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two to join the question queue. Please press Star then one now.
Our first question comes from Nik Priebe of CIBC capital markets. Please go ahead.
Okay. Thanks.
And to start with the question on dividend policy.
The dividend has been relatively stable over time.
But in the context of a pretty persistent market strength from the <unk>.
And that you're seeing on the net flow side.
How do you think about dividend policy is there a target payout ratio either on earnings of free cash flow that you would be kind of comfortable with there.
Yes, Tim.
And Nick it's James I'll start and Luc will have a comment.
You know my observation would be that the dividend is strong.
And the payout ratio is is at a very reasonable level of currently.
So that dividend I think as I would describe it is well supported by earnings well supported by capital.
Our focus now is on earnings growth and as we grow earnings of obviously the capacity to increase that dividend will what will emerge and.
And that's very much of a topic that we will take before our board as we execute on our 2021 and financial plan.
Okay.
And then I appreciated the color on China AMC.
So added strength in net flows the AUM growth trajectory there.
I Wonder if you could share your thoughts on how.
How you plan to do.
Realize value on that investment overtime.
You are receiving a dividend and you.
You do participate and earnings growth debt business, but.
And just from a longer term perspective, it would be helpful to understand how you're thinking about that one.
Well you know what I would say Nick is.
It is a very attractive investment, we're very proud to have and it has been a source of.
Very impressive earnings growth and strong inside of our strategic investments of portfolio.
But I kind of view I wouldn't be the China AMC as I view many of the investments inside of that.
And that division or that segment.
For each of those investments over some reasonable period of time, and we have what I would describe the strategic optionality.
And I like that because of these businesses generate free cash flow. If we can we can commit that free cash flow to investments and the business to dividends or to M&A and so as I look across that strategic investments portfolio I see optionality over some reasonable period of time, and that's kind of how we're viewing.
And yet.
We love it we're open minded and the time will tell and the interim.
And is generating a very impressive and growing stream of earnings for our shareholders.
And if I could add on it's Barry if I could add on China.
The the partnership between Mckenzie and see and she has just been so strong the last four years now and we continue to look for areas of collaboration and cooperation so as you're probably well aware and Canada, we've launched a Chinese.
Equity mutual fund and a couple of years ago, which is high of start now and bringing about 2 million of day and starting to get some half of about a quarter billion dollars of size.
And we plan to launch of climbing Chinese fixed income fund and.
And in very near future because of the search for yield as we all know continues for not just came busters, but all investors and looking for other opportunities to bring their capabilities to the second largest stock and bond market and the world to Canada and the same time, they continue to look for opportunities for us and the institutional rolled and China and we've been making some good progress there.
And we're exchanging ideas on on AI on day to manage spent on technology.
So it's it's a really strong partnership so as James pointed out.
Stand alone and it's compelling investment for I G M. But also what what adds to its attractiveness is also the the strong business cooperation between that between the two companies. Thank you.
Okay.
That's it for me thank you.
Yeah.
Our next question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, good morning.
My first question is on <unk>.
Just with the focus.
Having moved to high net worth investors and I know, it's hard to generalize, but just wanted to understand how their behavior of kind of differs.
And whether or not the gross sales redemptions relative to the typical client of <unk> would have had from before and there was the move just to focus on high net worth of for example, like is there any more or less seasonality around the <unk> flows.
Just RSP season, the less important part of these high net worth investors just because they may have a higher paying jobs and.
The pensions and therefore, the RSP contribution limits or lower to the invest in different types of fun use insurance more of that sort of thing.
Hey, Jeff It's David So I would say that on.
On the whole and generalizing, but the mass affluent and high net worth space.
Would be would be less influenced by the RFP season, and you're generally dealing with larger non registered accounts.
So they would tend to they would tend to invest.
On the.
Whenever they they had money to invest now that being said youre dealing with with a lot of individuals executives that they get year end bonuses and so youre dealing with that is obviously at year end or early in Q1 and.
In terms of the the full gamut of portfolio generally as you get to mass affluent and high net worth of Youre dealing with more insurance with higher face values youre dealing with more tax type situations, because youre dealing with individuals debt that are self employed.
Our own the small and medium size businesses. So I would say to you that the the profile looks different than mass affluent, but the big the big takeaway is more non registered less registered assets higher account balances of more complex financial needs.
Okay. Thank you and just my other question was Barry I know you talked about it earlier.
Earlier in the call just essentially the.
Sales performance has been really strong.
The overall performance of the funds versus peers and that's been good you also I think exposed to a lot of the fund categories that are selling well, but kind of looking into that 2021.
And what where where do you see the the greatest opportunities to drive even better numbers as the distribution is it.
Selling more into.
Kind of the key accounts that Youre doing right now.
Yeah.
Types of would be helpful.
Yeah sure Jeff Great question so.
So where we do expect as Luc mentioned from 'twenty to 'twenty, one if the market's hold and conditions hold which is the.
And our control.
And we should we should nicely exceed our 2020 levels. Its just gone very very well the industry flows of strong risk on zero interest rates.
Savings rates are up and then we're gaining market share and an environment, where the industry flows were strong and so that's just that's the perfect environment for and asset management firm.
And as I've mentioned on prior calls, it's broad based and we will look at it kind of two pronged, where we're really and Mackenzie.
Really the accelerating our market share and the really deep pools of global equities global fixed income global and domestic balance that's gone very very well and I might add by the way that one of the advantages we fill of Mackenzie and the fact that we do have some very strong growth equity offerings, but we actually.
Our more core and value and are offering value of course, and it's been a disadvantage for quite some time, so and the market start to broaden out and normalize I think for wallet and we're gonna be well positioned to take advantage of those.
And those types of markets, even though of the markets as we speak today, we're taking a bunch of them and then of course as I mentioned before the growth catalysts the sustainable investing.
The China, the ETF visa and the alternatives on.
All of these areas are seeing significant growth across kind of investors and advisors, we're well positioned and so we're seeing growth across the board and the RSP season its startup.
Clearly so strongly from day, one as you know normally ramps up a little bit in the January and gets going and February but it's been it's been gone consistently day in day out with significant growth and that's the gross and net sales for US broad based on every day, even through February and and again as we remind ourselves of market's holding.
Conference calls with investors March was a very difficult month loss last year.
And the significant industry outflows, which we experience too. So again, if we can avoid that occurrence then you should see a very strong Q1 across the board.
Thank you.
Great. Thank you.
Our next question comes from Gary Ho of days of our debt capital markets. Please go ahead.
Thanks, Scott and good morning, maybe just follow on on the same theme and the last question.
And so what do you attribute the industry strength that we've seen over the last few weeks.
On months, particularly and the advice channel any anything that you guys can can point to.
Well I'll start and I'm sure my colleagues will jump in.
I mentioned the the.
Prior question again, if if you if you just see what the environment is right now we've got you know of historic monetary and fiscal support right. So that is giving getting confidence and the stock market.
And the stock market looks forward looking and looking at earnings a year out and of course, if we can get through this year and then the economy, a little more and obviously the vaccine distribution and efficacy holds the.
And that's that's that's that's a parts of positive thing second of all of the monetary policy liquidity, obviously as far as interest rates would be very very low and so on.
The relative game and again investors are coming into the marketplace. So there was a lot of cash on the filings it still is and they're going into this risk on environment to get into all of the.
And the stock market and so again you you you probably have noticed the industry flows have been at record highs and.
And and and Mackenzie were again, gaining market share and so that's a great combination and we're not to say that the markets will be volatile. This year. They will be they were last year. There will be this year and nothing is perfect. But this is shaping up to be a a very a very robust year actually across the board and so we're just really focused to make sure of that when these.
And then occur and as the conditions occur and they're not always and place when they are in place.
And the risk on it's for us to harvest it and were just completely 100% focused on doing that and that's why we're leaning a little more of this year of Mckenzie and in terms of of some investments to take advantage of this.
Phenomenon that were experiencing.
Okay, Great and then my next question for look at the two part question.
Maybe just going back on slide 37, and for a bit and at the top you mentioned I think $33 million revenue 20 million of expenses of 13, EBIT, let's call it.
I thought GLC, when you guys announced and that was closer to $20 million by itself.
Are you and netting out maybe quadras and and there or what's changed and then second just related to expenses as well and 2020 and benefited from kind of lower travel and entertainment costs. That's across all your peers. So what are you building and in your fiscal 'twenty. One guidance are you expecting some of that to ramp back up later this year.
Or what's in that plus 3% number.
Thanks, Gary So first one on you'll see your you've got it absolutely right. So its 20 million was the was the guidance on <unk> itself. We did have the divestiture of the quadrants and that's the the 7 million difference and the lost revenue on on the divestiture of the Quadras, that's something that tapers off overtime, meaning it's more on the <unk>.
In years, and and it tapers off to Tim.
Nothing over seven years, so that's the impact of there on the of the TNT the travel and entertainment expenses were expecting very little ramp up during that during 2021, where we're going to navigate the year as we as it comes right now of I know the whole organization has adopted the remote and.
The very effective way and so as we've set of 'twenty 'twenty. One plan. The first eight months of the year, we had very minimal ramp up and travel and entertainment and ended the quarter, we have some but I'd call it slight.
Got it okay.
And then next question maybe for Dave and just saw the consultant count get the bed in the quarter. After an increase in Q3, but I would say we've seen the productivity trending higher can you give us your outlook for this year, what's the recruit recruitment environment like today.
Yes, I would say that.
With our with our slight drop and consultancy and Q4. It was it was primarily driven by by the.
Seasonal retirements, you generally have your advisors and consultants retiring and late in Q4. Some in the early Q1, and our pipeline of high quality financial planning and candidates and double what it was last year and at this time. So we feel that we feel really good about where we are we continue to see signs and our value prop.
Physician is resonating in the in the marketplace.
And then.
That being said and you mentioned and our primary focus is on increasing the productivity of our existing consultants.
Average consultant practices is roughly double the size of the average FDA advisory practice right now, but we're still only 40% of the average size of the average Iraq advisory practice. So we have significant opportunity to grow our existing practices as we continue to kind of enhance our client experience and focus.
Going on up market to mass affluent and high net worth so in terms of guidance and we selectively look to add financial planners to two of our network.
We're not in a hurry, it's more about getting the quality and doing it right and making sure that they are of fit but our clear focus and GPI is on a price on productivity.
Okay, perfect and then if I can just sneak one more and Barry.
And can you talk about the new fund launches at North of leaf Whats your expectation for fund size and also kind of remind me. If there is any on balance sheet seed capital that's required to get these funds off the ground.
Yeah.
Sure the Oh.
Great question, because as you know this was the final leg of the democratization of alternatives to get the private investments and the hands of individual cluster. So it's really exciting a lot of education I do want to mention Jeff as you could probably match and a lot of education that tub of rolling out working with the dealers to get approvals.
But we will have a full suite of this here of Oh EM funds for Mackenzie norfleet of private credit infrastructure and private equity, so there'll be and market the.
They are being structured so that they can support liquidity if need be and each of them have of liquidity sleeve for instance, the private credit that's up and running.
Criticised uses our actually of our high yield ETF and are are floating rate ETF and then and then it uses the the private credit as an example of norfleet, so they'll all be and place education, but the there's strong interest early days because.
The take private credit for instance, the search for yield you have to fixed income is a terrific asset class right and just have to work harder over the next 20 years that did last 40 years to do that you need to look for additional yield opportunities corporate yield.
Obviously, my emerging markets, China of fixed income as I mentioned is very high and private credit now so it's a it's a very nice sleeve and the fixed income portfolio and overall portfolio to allow you to meet your retirement needs going forward, so and and it infrastructure and private credit has to have the wrong attributes and I will if I put a quick little pug.
And which is an interesting one and so the private credit hallway and when we launch it will have the obviously the direct private equity Cape.
Capabilities of northeast and that fun, but the liquidity sleep will be the mutual fund and we just launched last month, which is the private equity replication fund, which is a really unique way of <unk>.
<unk> private equity returns and using the public markets.
More true more coming on that one, but we're really excited by it and Oh. After obviously initial period of education and the dealers getting comfortable with the risk profile, we expect some loss from strong flows.
And I think at minimal capital requirements on the interest.
Yeah, Yeah, Yeah, that's correct.
Okay perfect. That's it for me thank you.
Thank you.
Our next question comes from Tom Mackinnon of BMO capital. Please go ahead.
Yeah. Thanks, very much morning, just a couple of quick number question for Luca and then a follow up the additional $20 million and expenses associated with the GLC and Green chip, It's why I'm looking at slide a.
38 and.
Where should we put those expenses are they sort of sub advisory business development operations and support just the just to help with the modeling.
Good good good questions on all of them are in the in operations and support.
Okay, and then and.
And you can think of all of those expenses substantially it's people it's the investment teams.
Okay, and then the 0.7 day 0.9 guidance in terms of and I Miss.
Miss that that was in and when you were discussing slide 34 was that on the advisory fees of the 0.7 of the 0.9 beeps per quarter reduction and advisory fees was that was that was that what you're referring to yes right right on top of on page 34. It was the advisory the weighted average advisory fee rate and you can see it was the 105 basis points and Q4.
And you can see the trend from Q2, the Q4 and so I was just giving guidance that the where markets are at going into Q1 and with the continued trend of bringing in high net worth and mass affluent and we expect 0.7 of nine basis points decline during Q1 and Q2.
And we will be circling back in may on how that travel is going.
And that there's but there's no impact on product and program fees is that correct yes.
Yes, that's right.
The advisory fees varies based upon the composition of the clientele.
And program fees varies based upon that the the nature of the underlying product and I and all of the product and program fees relative stable.
Alright, even though.
And there's no benefit for higher net worth people in terms of product and program fees.
No everyone pays the same thing on proactive program the differentiator pricing on advisory fees.
Okay and then the.
The question with respect to the you know the.
The movement up.
And the mass affluent and high net worth.
And I G with the consultants in terms of and then and certainly more complicated financial planning with more insurance involved and.
And more tax planning and involved.
How are you coping and this just seems to me to be a lot of training and mentoring and how are you coping and the COVID-19 environment and.
With respect to that and is there a point and time where our.
You know the ability of these advisors to and <unk>.
And the new ones that are brought on to really get a grasp of the can.
<unk> of dealing with the high net worth clients and sort of as they just sort of as you know.
Sit and it sit at home are sitting on their basement and do the is the to what extent do you have the kind of get back to work and get training and mentoring people into that.
Hey, Tom So in terms of your question and and we call. It again, just being able to provide advice across the spectrum, whether it's investments insurance tax planning cash management.
You name it so it starts with the fact that we are deeply committed to having a credit and advisors.
And we were pretty much leaders in terms of on the number of advisors that we have that have their their designation of their financial planning designation. So when you have that you are already off to a strong strong start and you have a foundation.
That being said, we've invested a lot in IGT University, which we believe is it is the industry leading.
Knowledge sharing practice management sharing and training component of our business.
And it goes it goes into and kind of all of the things that you need to do to be of true financial planning shop, and variety of University, which predominantly started as a face to face program. We've migrated over the years to digital.
So we were ready for the pandemic without obviously forecasting the pandemic that was that was going to take place where we've been able to train all of our new consultants and our existing consultants on the multitude of things because obviously youre going through a transformation and we are changing how they're interacting with the with their clients on a daily basis on.
All through the University. So we believe it puts us in an enviable position now that being said, if you're new to the industry this year and and a pandemic, it's tough it's going to be tough.
And we know that but the fact that that debt the new consultants have so many other consultants and leaders that they can rely on the.
And they can rely on all of our training we do believe it puts them in the best possible business and to succeed but I'll remind you our recruitment efforts of have steered over the last few years to really focusing on recruiting experienced advisors.
And that's been true and as you recruit more experienced advisers doesn't just the average age of the consultants go up Hum like are you eventually missing it you know and or eventually just having.
And older and older advisers, and then kind of missing out on the emerging affluent people that way or.
Well if you were just recruiting.
Anyone it could but we're selective as to who the recruiting first off we're looking for someone that fits our model, which means they have to have the financial planning mindset.
And not just managing the investment side of of the business and number two we want someone that debt wants to grow with us and that we want to grow with them generally and advisor would come to Ikea and wealth management because they see this as the go forward platinum, but they want to be a part of to be able to compete effectively against the competition the competition out there.
So.
When you look at it theoretically it could but for us that's not the case and in order to make sure that we continue to to have a nice farm team. We've really expanded the number of associates within within our network that has continued and is a segment within our population and has grown its going to continue to grow because ultimately we believe that.
The consultant practice teams and they grow in size and their capabilities will grow and as their capabilities and grow our ability to provide better gamma to our clients' core growth.
Okay, and I call on Wednesday.
But some of it's look one thing I'd add to what the today on his comments I think you asked a really important question and debt are doing the highlight of the advantage of <unk>. It's it's a it's sort of special support. So we've got a team of defense financial planning specialists, we've got it to the securities specialists and sort of insurance specialist estate planning specialist and so when you when you take this environment.
Our specialist support that each of our consultant practices has and.
And the value that the specialist bring to the high net worth and mass affluent Canadians and what the pandemic is done and the stability of two to work remotely and it's really amplified the the way our specialist and advanced financial planning team can engage and client relationships and you.
You and I, we would have seen these people and airports.
And and behind it with clients that that's done we've been able to pivot to the way that we can really leverage the these people and ways that we couldnt before and we of the best minds of the country. When it comes to advanced financial planning and it is a real asset of the organization and it's been a real a real a real good amplifier of.
And this talent, having the pandemic and having this pivot to remote.
Great. Thanks for the color.
Our next question comes from Graham Ryding of TD Securities. Please go ahead.
Hi, good morning.
Given the sort.
Yeah, just thinking about <unk> market share and who do you how do you benchmark yourself. The on Slide 17, you showed your net flows rate relative to the advice channel, but I'm. Just wondering is that the most relevant benchmark for you or the banks of the channel that.
Youre trying to increasingly compete with both of the branch level and the full service broker channel.
Yeah. The the the benchmark is truly all of the wealth management dealers out there the.
The key here is that that information is not readily available it's pretty interesting in this country. The the information on asset management is out there.
From daily to monthly and you can get it you can access it you can benchmark yourself you can track the progress for various business, but on the wealth management side, it's not like that a lot of these numbers are called wholesale growth.
Held closely to divest and we're working with with our competitors and with the <unk>.
Industry industry organizations to try to open up the reporting so that we can truly have a benchmark that makes sense ultimately at the end of the day, we believe that we should be benchmarked against all of the of wealth management.
Organizations across the country on whether it would be the banks or the independents and then we are going to hold ourselves accountable to gaining share against those organizations.
Okay understood.
And then when I look at the recruitment and you talked about recruiting experienced advisors.
Is there any context, perhaps of.
On your 1800 and 37 I think is what you have.
And with greater than four years of experience how many of those you've recruited.
From external firms or perhaps in 2020, how many advisors, we're able to recruit relative to past years is there any sort of color on that front.
Well I would say I would say to you that we just really started recruiting experienced advisers over the last 12 months.
The little too early to start benchmark benchmarking, there, but I will say this is debt.
Our level of the recruitment has dropped substantially.
Over the last four of five years.
And where we were recruiting significantly as the primary driver of of our business and Kpis to a point, where it's and it's important but it's not a core kpis.
It's something that of course, we believe and and we're going to continue to do that we're going to do it at a measured pace because we want the right people. So it's about getting the right people the right way.
But our core focus is on productivity because if we can drive productivity with the <unk> thousand 800, plus teams and we have out there that are located across the country and everyone's communities where the clients are.
We will drive this business and get to a net flows right where.
Everyone can see the this businesses is quite healthy.
Okay great.
And then one last if I could look just on slide 34.
And you mentioned sales based comp I think it's coming down in 2021, and what about asset based comp is that going to be steady of 46 basis points or is there. Another another uptick again this year.
Yes. Good question, Tom So you can see on page 34 asset based comp has been relatively stable right. Now you know we're almost at the end of the migration, where the the legacy different selling commission balance is fully matured and brought on my calendar. It's October 1st of 2023, and it'll all be matured. So we will have some upward.
Pressure on asset based comp as the the mature.
The units continue to mature and they're entitled to it to a higher and higher trail.
But you've seen that that's been slight in the past quarters that we really haven't seen a line of quarter by quarter basis and so.
I wouldn't model or expect any any meaningful increase in that line.
And and I would highlight as well the the Unmetered DSC, it's a relatively small part of our asset base right now.
Okay, great. Thanks.
Once again, if you have a question. Please press Star then one on.
Our next question comes from Scott Chan of Canaccord Genuity. Please go ahead.
Hi, good morning, and.
And maybe I went back to slide 37, and looking at the 33 million.
Annualized revenue number of based on the net 30 billion from TLC and and Green chips that would imply I guess, just over 10, beeps and and management fees start.
Is that correct on on kind of.
And that kind of life platform.
Okay.
The 10 bps.
And I'd say two things the one.
And as we as Gary had to ask the question to that so that includes the the divestiture of quadrant as well, but one of them, but I think youre doing the math. The net is the reporting 30 33 billion and and there is three 3 million of revenue coming on but we will start doing in the coming on the coming quarters as we'll give the transparency on GLC, Here's the 47 billion of ryzen and here's the here's the revenue.
But just over 10 basis points that that's the right number.
I would highlight that this is a and almost 50 billion dollar relationship and that's important and the fees I'd highlight that the transfer pricing framework is the same on we're using for Iag's based and Mackenzie and and I would highlight as well and Theres a lot of fixed income and the and the business that we bought.
Okay, so that the the.
The the the transfer of free pricing for Mackenzie for IGT is pretty similar in a lot of low double digits I believe right.
Yeah, that's right and and you can think of the <unk> rate being a little bit higher because it's more weighted to equities.
Okay, Okay that makes sense and one of your competitors yesterday.
And you know had the more noticeable performance fees this year than than ever and when.
And I look on your platform specifically on Mackenzie.
With the alts are liquid alt and and perhaps north leaf.
And the strategic investments or kind of the future funds is there.
And the future of is there ways that that that that IGF and.
Could that potentially earn performance fees that we can kind of see and the financials or any.
Any any kind of thoughts.
Thoughts on that and and on.
And how to think about that.
Well its good question at the Paris, Great question, you know we.
We're always looking for a win win when we price products.
And you know we're open to any type of pricing mechanism, but we're very thoughtful again to your point to see what's the competitive also see what's the future trend and then particular transparency right. So.
You know sometimes you see.
Transfer of institutional work on the retail world and probably the performance fees are a little more relevant to the institutional world, but I wouldn't say that that trend is accelerating and fact, I've I think thats, probably transparency as they are and ensuring of alignment between our the investor and and and the asset manager of that.
And you know that's probably not something that we could see a lot of us doing going forward and we're always open to it we will always look to see if it's appropriate to align the interests of the investor and the asset manager going forward with new products right now, we don't have back and our structure and our products and and even our and some of our new liquid.
And others, we decided not to do that we thought for transparency purposes was the best just to to.
Price at two of the the normal mechanism without the promise of fee element to them.
And I'd say that the one the one place and you mentioned the alts and private the one place we do have the performance fees and you can expect to see them is the is the northeast and and so that that in many cases will be us said distributing or including their products within the IAG Mckenzie and and other of our solution, but that is an area, where we do have performance fees and and.
It will show up through our share of ownership of north of the if overtime.
And and that share of North Platte, and we saw the first contribution this quarter I think it was about two months point $8 million.
Is that kind of income.
The run rate and is there like potential for special dividends or anything and in certain quarters that we should be aware of.
Yeah, So I'd say right now and the guidance that we were planning for and you should expect about $10 million to be our proportionate share of the north heaps earnings during the year.
To the extent that there are performance fees, it would be and the fourth and the.
The fourth quarter of the calendar fourth quarter of the year. So Q4 2021 would be the next time that we will be at the reporting on that.
So this Q4 2020, you guys weren't.
And the position to earn performance fees because of the number was so low and the acquisition close is that fair, though the there.
The our share of performance fees was it was trivial we had a few weeks of of having and the acquisition and and during 2020, there weren't meaningful performance fees that flow through of the products that we participate in.
So the if I if I hoard of lives the I guess, the Q4 and North sea if it would be over a million, but you are saying it should be about of two and a half million contribution per quarter, excluding performance fees.
Yeah, and what and.
And I'm, saying it could be 10 million next year, we don't have a lot of what plan for performance fees and and they could surprise and and if there was a surprise it would be and the fourth quarter 2021.
Right now our guidance is that our 56% ownership of North Sea will let will give us and earnings contribution of $10 million over the full year.
Okay.
Perfect. Thank you very much.
Youre welcome.
This concludes the question and answer session I would like to turn the conference back over to Mr. Potter for any closing remarks.
Yeah, I think around for joining the call today and for the engage and questions.
We wish you all a great weekend and with that Ariel I'll I'll close the call.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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