Q3 2022 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the I G M financial third quarter 2022 analyst call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero.
I would now like to turn the conference over to Carl Martin's Treasurer, and head of Investor Relations. Please go ahead.
Thank you Saatchi.
Morning, everyone and welcome to <unk> Financial's 2022 third quarter earnings call. Joining me on the call today are James Sullivan, President and CEO of Biogen financial Damon Merkerson, President and CEO of <unk> wealth management.
Luke Gould, President and CEO of Mackenzie investments and Keith Potter Executive Vice President and CFO of <unk> financial.
Before we get started I'd like to draw your attention to our cautions concerning forward looking statements on slide three of the presentation.
Slide four summarizes non I for S financial measures and other financial measures used in this material.
And on slide five we provide a list of documents that are available to the public on our website.
And on SEDAR related to the third quarter results for <unk> financial.
And with that I'll turn it over to James.
Well good morning, everyone I will take us to slide seven to start with the ITM highlights for the third quarter.
Earnings per share of <unk> 91.
What's the third Q3 on record.
A strong outcome.
M&A ended the quarter relatively unchanged compared to June 30th down only one 6%.
That said, we continue to operate in a challenging macroeconomic environment with continued market volatility.
Mackenzie, it's net redemptions of 819 million are in line with the industry results for Q3.
I'll speak more to the industry operating environment on the coming slide.
At wealth net inflows were a solid 406 million during Q3.
Demonstrating the strength and resilience of this operating platform.
Nor fleet maintained its trend of AUM growth during the third quarter.
And while we don't include our AUM inflows from strategic investments in our reported numbers. We do believe it's important to highlight to our shareholders. Our growth path. These firms are on.
Last quarter, we reduced 2022 full year expense growth guidance of no more than 3%.
Which compares to our initial guidance of 5% in February .
We believe this is the prudent path to be disciplined in our expense management. During this period of heightened uncertainty in the market.
We have begun our planning for 2023.
While we will not be providing expense guidance today for 2023, you should expect the planning to be guided by similar consideration to those that have driven the current fiscal year Prudence and caution remain important watchwords.
Turning to slide eight.
We show our clients' investment return alongside major equity and fixed income indices.
Third quarter was another volatile quarter in the financial markets.
Our client returns started the quarter in positive territory, but by September 30, we're effectively back to where they started.
Equity markets were generally down across the board during the quarter with China and Asia. The most impacted while fixed income markets health study.
The strengthening U S dollar helped our AUM as it has the average Canadian investor with an allocation to U S capital markets.
October was a much better month for global equity market, leading to a positive three 1% average return for our client last month.
Turning to slide nine on the overall industry net sales the industry experienced broad based long term fund net redemptions across asset classes totaling $17 6 billion during the quarter.
The worst Q3 on record.
Industry asset manager peers overall experienced $8 $5 billion of net redemptions down.
Down south of Lake.
From the record $9 1 billion dollar net inflows last year.
Turning to slide 10 on <unk> results for the third quarter net earnings were $216 million and earnings per share were <unk> 91.
Slide 11 highlights net earnings by business segment, which Keith will review in detail during his remarks towards the end of the call.
At a high level earnings across our three main operating company reflect the year over year declines in average AUM that put downward pressure on revenues, while a meaningful component of expenses are fixed in the short term.
Turning to slide 12.
<unk> declined 8% to 12% across wealth management.
And Mackenzie during the 12 months ended September 32022.
However, both China, AMC and North fleet have grown their AUM over the last 12 months.
<unk>, 8% and 24% respectively.
Turning to slide 13 on net flows.
It will snap flows continued to be solid.
And these results are being achieved during challenging market that are quite different from the record setting industry environment in 2021.
This demonstrates the leading clients and advisor value proposition at it well.
Mckenzie sale results are in line with the industry outflows during Q3.
And northcliffe continues to attract new capital to the firm with $291 million of new commitments during the third quarter.
Overall, while market and macroeconomic factors are impacting our results.
I'm pleased with the underlying performance of our businesses and Theyre positioned within the industry.
Equally I'm struck by the commitment and determination of our leaders employees and advisors to navigate these times.
I am confident that we will emerge from this environment, even stronger and even more resilient with that I will turn it over to Damon.
Thank you James and good morning, everyone, turning to slide 15, and <unk> wealth management's third quarter highlights we ended the quarter with <unk> of $105 billion, a decrease of 0.4% during the quarter as a result of modest financial market declines gross inflows of $2 $8 billion were the second best third quarter in our history second only to the record high in Q.
Three 2001.
We achieved our eighth consecutive quarter of positive net flows in Iga wells with $406 million during Q3 and.
In this environment, where naturally seeing a slight uptick in client assets held in cash high doesn't gic's at some clients take time to put new money to work into long term solutions.
This is to be expected and it's a natural part of the journey as we work with our clients to put their money to work in today's volatile capital markets.
Oh jeez redemption rate over the last 12 months remains well below the industry and ended the quarter up slightly at eight 9%, while the industry redemption rate increased to 15, 5%.
Our positive net flows continue into October with positive net inflows of $150 million.
We continue to see strong high net worth and mass affluent new client acquisition with inflows from newly acquired clients over $500000 totaling Florida and $1 million in Q3.
Turning to slide 16.
You can see the Q3 2022 gross and net flow flows remained solid relative to the past 10 years, especially in light of this year as volatile capital markets and on a year to date basis wealth has achieved the second highest gross and net flows but over 20 years at $9 8 billion and $2 3 billion respectively.
On the chart on the right you can see visually what I spoke to on the prior slide we are achieving solid net flows at IGT wealth, while seeing short term products like cash play a larger role due to the current market environment.
We're also pleased that our positive net flows continued into the first month of the fourth quarter, which demonstrates both the resilience of our business model and the attractiveness of our value proposition centered around financial planning in the marketplace.
Turning to slide 17.
Minder this slide demonstrates the mechanics behind our net flows and how they can materialize into ITM investment solutions. After first arriving as cash Gic's hives US third party funds and securities.
We're pleased to see solid client inflows as we continue to gain share of wallet from our existing clients.
Acquire new clients and recruit experienced financial planners to IAG.
Given the current market environment, it's natural imprudent for advisers to build short term positions in dollar cost average into the markets over time.
With this in mind, we fully expect there to come a quarter, where AUM growth exceeds AOA growth noticed really as short term money is redeployed as a function of our clients financial plans.
Turning to slide 18, I'll reiterate that during the quarter Q3, 2022, we achieved its second best gross inflows in our history at $2 8 billion and our net inflows remained solid we firmly believe we are winning market share through new client acquisition and greater share of wallet with our trailing 12 months net flows rate of $2 <unk>.
9% to end the quarter.
On slide 19, we highlight how <unk> clients tend to remain committed to their financial plans.
Periods of market volatility.
Oh Geez wealth last 12 month's redemption rate of eight 9% remains low while the overall industry redemption rate for long term funds on the other hand had experienced a sharp increase during the third quarter, reaching 15, 5% at the end of September .
Turning to slide 20.
Highlights our momentum and high net worth client acquisition, which continues to be significant contributor to our overall gross and net flows at IGT well.
Gross flows from newly acquired clients over $500000 remains significantly higher than what we've experienced from 2017 to 2020.
Our advisers continue to engage directly with their existing clients, while still acquiring new clients throughout this market environment. We believe this demonstrates the attractiveness of our value proposition and the planning expertise at our financial advisers offered a high net worth Canadians.
Lastly on slide 21, this shows our productivity by advisor experience both of our new advisers and most experienced advisor practices are continuing to deliver strong productivity numbers as measured here by gross inflows per advisor, we've undertaken a number of initiatives over the past five years to drive productivity gains and expect continued.
<unk> momentum in future quarters.
Now I'll turn the call over to Luke Gould great. Thanks, David Good morning, everybody.
I will take you to slide 23, and review Mckenzie as Q3 results first totally AUM of $180 5 billion was down two 3% in the quarter due to the negative investment returns of one 2% and negative net outflows of $819 million.
The second point investment fund net redemptions were $680 million, reflecting a net redemption rate in line with industry peers as described earlier by James.
Third we're very pleased to report that Mckinsey is overall advisor perception study rank improved a second into 2022 advisor perception study by and Veronica we.
We continue to be ranked number two in advisor sales penetration overall and across all channels Iraq M. S. T. A N insurance and we also maintained a rank of second and brand equity.
1.4, I'd highlight we had to fund launches in the quarter, we launched the Mckinsey inflation focused fund in September .
This fund is a balanced fund co managed by the resource in fixed income teams is designed to provide an inflation resilience through tactical allocations and different inflationary environments.
We also launched the Mackenzie Bluewater Nexgen growth fund. This is a global equity fund that seeks to invest in dominant businesses underpinned by next generation products services and business models.
And then coming slides, a mouse or was going to profile continued strong business development at norfleet with E went up 5% in the quarter and year to date fundraising of $2 5 billion, leading to a AUM growth of 18, 5% to 23 billion year to date.
On page 24, you can see October Q3, and year to date investment fund sales results.
As mentioned earlier the profile on the next slide our net sales results were in line with industry peers and gross sales declines are also consistent.
During the third quarter as profiled earlier by James We continue to see in the industry significant migration to safety with meaningful flows the gic's other deposit products and high interest savings account offerings my.
My overall observation on this would be the in the context of Canadian portfolios. This net flow is relatively small and Canadians generally and University I remain committed to their financial plans.
You'll see on the coming slides that we see improved investment performance during the quarter with a boutique approach. We're fortunate to have diversity of products with compelling performance and features in categories that are very relevant to this environment and we're leaning in on these offerings.
On page 25, I've already summarized net flows and spoken to the industry environment at.
At the bottom in the left you can see that falling record high net sales results and meaningful market share gains. We're currently maintaining market share.
One of the product areas, it's been depressed for us in this environment, it's been fixed income where we'd seen earlier success in several categories. We have solid relative performance in many of these products been flows have been affected by industry sentiment I'd.
I'd also highlight in the bottom right that we had a noticeable improvements to the proportion of our assets in four and five star funds.
I'd remind everybody that with our diversified boutique approach, we target to have 60% of assets in four and five star funds and to consistently be above 40%.
During the quarter, we did see rating increases in three of our five largest funds to four or five star.
On Slide 26, you can see our retail mutual fund AUM investment performance and net sales by boutique.
This boutique investment structure continues to offer diversification benefits to the company an excellent choice for advisers through market cycles.
You can see with the asset weighted percentiles in Morningstar ratings that we have strength across many of our boutiques. Some of the things, we're currently emphasizing including inflation resilient mandates, which.
Which we offer across multiple boutiques and product offerings. This includes our newly launched inflation fund and other products managed by our resource team infrastructure and tips offering within our Etfs offer inflation resilience and we also have our infrastructure and other private offerings with norfleet, which are very very compelling during that during inflationary.
<unk>.
I'd also profile dividend and income mandates managed Berg global equity and income team and our monthly portfolios. All have exceptional investment performance and are managed by our asset location team that keeps the monthly income portfolios and I do want to highlight our green chip environmental products, which are currently our best sellers and are so relevant in this environment and have exceptional performance and the last one I had.
Late that we're leaning into his Canadian equity, where we have strength across multiple projects and we do see you see demand in the marketplace.
Moving to page 27, a few comments on China, AMC, starting with the slide on industry assets and flows.
You can see on the left industry assets of 26 billion one is relatively unknown.
Sorry, 26 trillion, one is relatively unchanged in the quarter.
Well look we markets experienced declines and actually meaningful declines. This was fully offset by continued significant contributions to long term funds by Chinese citizens at 666 billion won in the quarter. This represented an annualized net sales rate of 17% on luxury funds.
On the right you can see Chinese C continues to gain market share within our high growth market.
Can see that we continue to be the second largest in the Chinese industry in long term funds with four 6% share of assets.
On page 28, it focuses on training them sees growth in AUM, which continues to be strong.
Long term funding overall total assets were essentially unchanged quarter over quarter in spite of financial market declines as a result of very significant net sales activity.
For perspective, China, Amc's annualized net sales rate as a percent long term funds has been trending at over 25% over the past few quarters.
And turning to page 29, you can see normally capital partners $23 1 billion in AUM and the strong growth across private equity private credit and infrastructure asset classes.
As mentioned earlier year to date, North leaf has expanded by 18, 5% driven by strong fundraising of $2 5 billion.
I will turn the call to our CFO , Keith Potter, great and thank you Luc and good morning, everyone. On page 31, you can see our M&A. The charter on the left shows ending assets were down one 2% during the quarter due to negative market returns and it was a volatile corner that started with strong results in July but it did reverse course, and we ended slightly neck.
While markets are off to a positive start October with client returns of three 1%, we expect market volatility to persist in the near term and we will continue to manage our business accordingly.
<unk> 32 shows quarterly EBIT in millions of dollars on the left and as a percentage of M&A on the right have a few comments here.
First on the left you can see our overall revenue of $827 3 million is up from last quarter of $824 7 million, even though average M&A is down three 2% and there is a few reasons for this first.
Net wealth and asset management revenue of $527 7 million was down only one 3% relative to the M&A at three 2% in the quarter that is driven by higher net asset management fee rates that Mackenzie Theres also one additional day and Q3 relative to Q2, we also had a better quarter in the mortgage insurance business with us.
Financial planning revenue up $6 million.
The second point on revenue is that the share of associate earnings and net.
Investment income are up $8 6 million combined.
With respect to expenses the combination of business development and ops and support is up two 8% relative to 2021 and down 4% relative to last quarter as we stay focused on expense management.
And on the right you can see our adjusted EBIT margin as a percentage of AUM is up slightly relative to Q2, but down relative to Q3 2021.
Turning to slide 33, we can see our consolidated earnings for IGF I just have three comments on this slide first I'd point out that net investment income and other was $11 1 million in Q3 2022 that is driven mostly by interest income earned on cash as we experience a rising rate environment and second.
From favorable seed capital marks on certain mandates and some small FX gains.
Two operations and support business development expenses combined increased two 8% year over year as I mentioned, but I will point out that expense growth would have been under 2% if not for a one time item at IPC.
We maintain our full year 2022 expense guidance of no more than 3% and as James mentioned earlier, we're in the middle of the 2023 planning process and will provide guidance on 2023 expenses in the new year, but I will reiterate that we continue to take a prudent approach like we have done in 2022.
Lastly on <unk>, three our dividend payout rate on a last 12 month basis is 70% of cash earnings.
Turning to slide 34, you can see a summary of <unk>.
And the key revenue and expense margins on the top right. Our advisory fee revenue rate was down six basis points. This quarter and this was primarily driven by the mix shift of over $600 million.
And to cash <unk> and <unk>.
In the quarter, we do not charge an advisory fee on this amount, but we do earn a spread on cash just not to the same level as the advisory fee rate on long term solutions.
We expect to generate a higher spread on cash balances in Q4 and into Q1, which will put upward pressure on the advisory fee rate, having said that as we continue.
It would continue to expect some slight downward pressure.
Five basis points per quarter as investment returns improve and we make progress in the high net worth market.
Our product and program fee rates decreased slightly in Q3 up from some targeted fee rate changes announced in June and certain <unk> funds as part of their prospectus renewal process, but we would expect this line to stay relatively flat going forward as it has for the past several quarters.
In regard to asset based compensation rates I would highlight that we continue our efforts to drive productivity growth through our network.
Get harmonize the support available to our regional leaders in Q3, which shifted the geography of about $1 3 million from sales based compensation into the asset based compensation line and this had approximately a <unk> five basis point impact on the asset based compensation rate this quarter.
And the reduction in sales based compensation for the period is not noticeable in the expenses as it would have been capitalized and amortized. So just to be clear. This is a small change it does not impact that total amount of compensation paid but just the geography.
As we look forward.
Five basis point per quarter increase in this rate is reasonable.
<unk> for the remainder of 'twenty to 2022 as DSC units continued to mature and just as a reminder, all DSC will mature by the end of 2023 and will alleviate some of the increase here.
On Slide 35, you can see overall earnings of $109 5 million down 22% relative to Q3 2021. It is primarily driven by lower at M&A and the impact it's had on our revenue.
Also we continue to remain focused on managing expense growth in the combined business development in ops and support was up 2% from Q3 2021 trending below our full year guidance for AGM of no more than 3% growth.
Moving to slide 36, you can see Mackenzie AUM by client and product type as well as net revenue rates at one comment on this slide and it really on the right focusing on the Blue line you can see the net management fee rate for third party clients, excluding kind of life at 82 basis points the increase of one five.
Basis points quarter over quarter is primarily driven by lower deferred selling commission expense, which are netted within this line as well as the seasonal impact on how asset based compensation paid to dealers.
As I mentioned last quarter Mackenzie stopped selling DSC and low load options and therefore expense for Q3 was zero versus $2 3 million last quarter and other than this we would expect this rate to stay fairly stable going forward subject to any major shifts in <unk> and.
In retail versus institutional or client asset class shifts.
Turning to slide 37.
Where we show asset management segmented profitability, just one brief highlight under one the ops and support business development expense combined were down 1% year over year and business development expenses were down primarily due to lower variable costs related to sales linked compensation items.
Slide 38 is Chinese <unk> results on the left total AUM of RMB 173 trillion is up 10% from last year at the bottom you can see long term funds were up 17% from last year and the dark blue stack driven by continued net sales.
Industry and for China FC and with respect to earnings on the rate at point out that Q to.
Q3, 2022 earnings included an after tax at $2 million negative impact from seed capital marks and Thats in the context of a 14% decline in the CSI 300 in the quarter and so normalizing for this earnings would've been closer to $16 7 million.
Now moving to slide 39, a few comments first on IPC other than markets. The year over year decline in earnings is primarily driven by a $2 $3 million pretax nonrecurring expense and our mutual fund pricing change, which accounted for about $1 2 million.
Second on wealth simple valuation, it's unchanged this quarter, we've seen public market peer valuations stabilized and well symbols growth is also well in line with our expectations and finally in a table at the bottom we've reflected the upcoming purchase of an additional 13, 9% stake in China AMC for 1.15 billion.
And along with that transaction to sell a part of our great West life stake and we do expect this to close in 2022.
And lastly on slide 40, you can see our typical disclosure around some of the parts.
The October 31 closing price of 36% to 47% the implied <unk> multiple for IGN Mackenzie based upon expected 2023 earnings to six five times I'd also highlight in the second column from the right unallocated capital another where you can see we have excess capital of $772 million or around one.
$97 million pro forma the Chinese see transaction close and that will conclude my remarks, and we'll open up for 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.
If youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then.
We will pause for a moment as Congress joined the queue.
The first question is from Nick <unk> from CIBC capital markets. Please go ahead.
Okay. Thanks, good morning.
I wanted to ask the question of Iga wealth.
From a segmentation perspective, when you breakdown net flows between high net worth and non high net worth.
Is there any discernible difference evident between those two client categories with respect to the resiliency of flows in a volatile market like the one we've seen this year I suppose another way of asking is are you seeing a lower redemption rate from high net worth clients in that channel.
Yes, Nick it's Damon I would say that for the high net worth part of.
<unk> of our business.
<unk> resiliency in a sense that.
You know the redemption rates are pretty consistent across the board for all segments VCU resiliency and in a sense that they generally have more cash to deploy.
So a lot of the cash positions would come from that high net worth segment and then we take a long term approach to particularly in this market to dollar average cost into into their long term positions. So that that generally leads to once again have a pretty good redemption rate as to where we are today.
Okay. That's helpful. And then just one other point of clarification.
Vacation.
On the increase in the proportion of Mackenzie fund assets that are rated four or five stars by Morningstar.
You noted in your prepared remarks that it took a bit of a step up in the quarter.
But if I look at the proportion of fund assets that are performing above median on a trailing 12 month basis that was essentially unchanged sequentially. So was the increase in the four and five star.
Fund assets was that just a product of a few larger funds being pushed from three to four stars in the quarter just any additional color you could provide maybe on that yes for sure and again the largest one so you know as you know the the Morningstar ratings is combination of the 10 to $5 three year returns and the risk risk adjusted.
Where we saw the improvements was first of all our Canadian growth mandates, which did very good in the quarter were pushed up and that was two four and five stars in E&S, respectively. Our global dividend, which is our third largest fund was upgraded and IV for an equity has actually performed very well in this environment and had upgrades.
Okay very good.
Thats helpful. I will I'll pass the line. Thank you.
The next question is from Geoff Kwan from RBC capital markets. Please go ahead.
Hi, good morning.
I just wanted to ask you about the China AMC transaction just.
More broadly, though is what sort of appetite would you have.
To acquire the remaining 10% stake by that other shareholder if that were to occur.
What that has any change in terms of how China AMC might operate in call. It strategize given it would only then just be human citic as the shareholders.
Yes, good morning, Jeff.
I think pro forma our acquisition of powers approximately 14% stake in the property.
I think from a size perspective, I think we've got it about right I mean, it gives us meaningful exposure to.
China AMC it gives us meaningful exposure to.
The Chinese economy.
But on the other hand from a risk management perspective, you know it'll be about 15% of consolidated earnings so.
That's really what we're balancing here, we want exposure to a great property in a hike what we believe will continue to be a high growth market.
We do look at this overall from a risk management perspective, and 15% contribution to consolidated earnings.
It feels about right.
So that would be my my my take on that 10%.
Okay. No. That's helpful. And then just my second question was that Luke.
There's been generally a greater trend.
Trying to sell alter.
Alternative strategies private equity funds those sorts of things in covering different asset classes to qualified retail investors.
Is this something you would like to do with with Mckinsey to further differentiate yourself kind of in the market and if so do you see north leaf as capable of achieving this or might you need to partner or even acquire other players.
Great question, Geoff So we've done.
We actually saw Britain anniversary on Friday was the two year anniversary of our northeast acquisition.
Since then we've launched four products.
Now covering all three of their asset classes private equity private credit infrastructure and you remember when we launched the <unk>.
The integral funds on private credit earlier this year. So right now we're out there actively promote those products were so pleased with that north leaf as a partner and and what the offer we don't have any plans to expand beyond north leaf and we're out there right now we're educating advisors and worked with dealers to promote these products and and as mentioned we think these products all three of them.
Those categories are still relevant in this environment. So we view ourselves as a pioneer.
In bringing our privates to retail we do called the missing middle institutions for so long have had access to it to private markets and in retail has not and and we're so excited about the future for these products. We think it's going to be a big part of Mckinsey and a big part of Canadian portfolios going forward. So it is so great question and we're leaning in on.
This one.
Okay perfect. Thank you.
Okay.
The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Hi, Good morning, just maybe a bit of clarity on the net investment income if I kind of look back in past quarters. It kind of a range between two and a half two to call. It over 3 million in last two quarters were more negative.
And you spoke that majority.
Income came from our excess capital was that from the unallocated capital that will be reduced.
With China, AMC I'm, just trying to figure in a rising rate environment, how sustainable that line might be near term and what could be a normalized rate going forward.
Yeah. Thanks, Scott, it's Keith here and good morning.
Yes.
The $11 million this quarter I would say the majority of it would just be coming from interest income on cash. So you can look at our balance sheet, we have about $1 billion in cash on the balance sheet, you can call out $7 million.
11, and the rest would have come from some favorable seed capital marks and some small FX gains as I mentioned so.
So as you think about as we finalize the China AMC transaction about half that cash will be put to work too.
To finalize that transaction.
Rates have risen we will continue to earn that.
Interest income on the remaining cash balance.
That's very helpful. And then you talked in your opening remarks about our investors, Brian G. The quarter being better in mortgage and insurance and I remember last quarter kind of telegraphed that ensure I'm sorry is that mortgages might be weak again in terms of prepayments with higher rates, maybe you can talk in more insurance.
That was better in the quarter or maybe an update on both those kind of product line in the quarter.
Yeah sure so I'll start with the mortgage business and we.
We did have.
$8 3 million in.
In the quarter versus $4 five one of the biggest differences we didn't have any institutional sales, where you recognize gains and losses upfront and if you recall last quarter, we had a loss of $2 8 million as this commitment costs with rising rates. So that's one of the main differences this quarter.
Prepayment penalties.
We're quite we're quite in line with Q2.
Clients are just aren't are breaking mortgages to to renew into higher rates. So we expect that to continue going forward. If you think about the mortgage business.
Subject to our funding mix.
$6 million to $8 million per quarter is a reasonable way to think about it and then on the insurance side. We did have a better quarter of insurance is up by approximately $3 million just had some larger case insurance that we wrote this quarter you can also see that flowing through.
The other product Commission line Thats up a little bit as well. So that's those are those two items.
Okay, and just last question on China, AMC and maybe on the industry very.
Very helpful. In terms of what you provided in Q3, obviously the CSI it was down about 14%.
And your commentary on that slows, we're 17% annualized which help protect China AMC as well in terms of ASP in the quarter and it seems like that.
Brendan so opposite versus what we see in North America when markets are down flows accelerate especially in China going into long term funds. So.
Was there any special dynamic in the quarter that drove that net flows or is it more just that low penetration and a better industry dynamics that we're seeing there.
Yeah. Good question. We view this is Luc speaking we view this as a secular right now China is building retirement system.
This is an industry that's in its infancy still in spite of being a bit larger than Canada has already and so this type of contribution as we expect it to continue.
It is a growing industry.
The Chinese are contributing to their savings and they're going to continue to do that so that's been our mantra, they're building retirement system.
There's a number of initiatives that are going to promote further individual savings like the individual digital retirement accounts that have been approved just last year and.
China is going to be a part of that growth and we're excited for it.
Okay. Thank you very much.
Yeah.
As a reminder, if you have a question. Please press Star then one.
The next question is from Graham Ryding from TD Securities. Please go ahead.
Yes, I'll start with a question for Dan.
But it's more of an industry question, so if James or Luke if you want to.
Chime in as well by all means but slide 19, you show that.
Wealth continues to outperform the industry with respect to redemption rates.
But it does look like the industry overall has not seen the redemptions like we saw back in the global financial crisis or even the recent peak in 2019.
Is it just a matter of time before the industry gets back to those levels or do you think there's something structurally that's changed here within the financial advice industry are our investors more willing to stay the course.
Now relative to past cycles, yes, what we're seeing is that that generally speaking investors are more informed.
Than ever before and they are willing to stay the course.
More than we have seen in the past.
This is different usually when this happens there someplace to also height.
And theres been no place to hide.
But to stay invested and that includes real estate real estate has always been the biggest substitute.
In our industry and certainly it's not a place to hide right. Now. So you know what devices are across the country and particularly at <unk>.
Doing a great job of talking to our clients and making sure that they understand what is happening in context of their long term plan and that's why we stress test. It so that they are informed and when they are informed and they can they can make informed decisions and.
And that's what we're seeing.
I'd add to that.
Speaking.
That mantra. They said earlier generally people are sticking to the plan that there is some reallocation to perceived safety and I would reinforce that perceived safety is perceived in the context of inflation people people are not preserving their wealth by moving to cash and cash substitutes right. Now. So we think Canadians are being responsible and that's slide 19.
To listen to the well will it go up to 18, 19% as an industry rate. It is still rising, but I don't think it's going to get there at this time.
Okay. That's helpful.
Look I'll stay with your just your fund performance side of things.
We saw some improvement with your four or five star funds, you're targeting 60% is that a new <unk>.
Metric or a view always targeted that.
Have you been.
Above that level in the past or would that be a milestone.
Yes, that's been our that's been our target for about seven years, now seven or eight years and.
With our boutique approach first backup by staying in Canada.
CFC categories, the categories against which were evaluated they are very broad.
So you've got a global equity County, there is a category. There is no global equity large cap growth category or global equity large cap value.
As a consequence of that when you look at our boutique approach.
If we ever had something above 60%, we'd actually be reasonably learn bill, saying something's wrong people, who are talking to each other we've got group think or we got concentration. So we perfectly targeted to 60% we were there about to about four quarters ago.
We're at about 61%.
And that is our target and we've actually.
Search results, if we're doing all of the controls right. So when you look at the advisor perception study and in kind of the 42 metrics. If we're doing all the controls right and we consistently got between 40 and 60% of our assets in four and five star funds, which we should have with this boutique approach and trying to have investment excellence everywhere.
And then we can be a consistent talked three net seller in this industry. So that's been our target is a range of 40 to 60.
<unk> is our target and if we ever found ourselves at the 70% to 80% of our us its four and five star given the wake categories of construction in this country, we would be ring. The alarm Bell, saying you know how is everything doing so well our boutiques talking to each other and sharing best ideas, which is something they certainly don't do they were torn with boutiques.
Okay.
Helpful. One more if I could.
Keith just you made a comment I think on just the asset based comp level at IAG.
Yeah.
Five basis points per quarter does that persist until the end of 2023 or is that just for this year.
Yes, I know, we talked about in the past.
As we as markets.
Move up and rise again, and we continue to shift our mix to high net worth we had guided in the past quarters that we would expect it to tick up above five basis points per quarter.
And then when you.
You combine that with the.
With the impact from.
The maturing DSC units. So there's there's a number of variables, though that can influence this line item.
There is the.
Obviously, the company's shift in client mix.
I just talked about.
There is also the investment returns and we saw that happen in Q2 when markets fell we actually had clients shifting peers and so that's another thing that can influence that line item.
And then the other thing I just spoke to is the mix shift between.
Really right now between cash Gic's.
And our long term solutions.
That as well.
But.
The impact that line.
So.
Really at the end of the I would say a 0.5 basis point.
Impact with.
As.
As the.
On the asset based comp is it really going to come from.
<unk>.
Yes.
To me the <unk>.
<unk> five basis point impact is or isn't really going to come from.
Okay.
Yeah.
Excuse me.
Yes.
Five basis points.
Yeah.
Going to come from the.
Yes.
The.
Yeah.
[laughter].
But.
Please me.
Yeah.
0.5 basis points.
He is going to come from the.
Excuse me.
Sure.
[laughter].
[laughter].
Why don't we take the next question operator, and we'll come back to this.
Great. The next question is from James Shanahan from Edward Jones. Please go ahead.
Good morning.
Everyone.
Im going to apologize in advance because you may have mentioned this and I missed it.
Can you. Please catch me up on the timing related to the closing of the additional interest in China, AMC and the sale of great West Lifeco shares.
Yes. Thank you for the question.
We've been working hard at it made great progress.
Progress and we believe.
We fully expect the transaction to close in Q4.
Okay and my follow up question is related to.
The financial advisers I noticed that there was a decline in.
The number of financial advisors.
With the.
With the firm for less than four years, and I was curious, perhaps but what's happening there.
My understanding was that you had re initiated efforts to recruit and train advisors and the Sip.
Here's to be perhaps a modest setback and it's just like a quick update on the strategy there for recruitment and development. Thank you.
Yes, James its statements. So yes, no we are recruiting advisors, but our strategy has changed and as Ed said, it's not.
Quantity its quality, we're very selective in who we bring to the organization well delivering advisers that really want to specialize in financial planning within their communities and make sure that they focus on providing advice beyond a divestment device to their clientele.
And we're quite pleased with where we are with our network. Our size of our network has been is quite steady and when you take a look at the numbers youll see that.
That overall the mix has changed and we really added a significant number of associates to our team. So we believe the future is.
So the smaller number of teams, but larger teams, where it gives them more capability to provide broader advice to their clientele.
So we're like I said, we're very pleased with the with the size of our network and in the trend of where we're going.
And James just look one thing I'd add on the disclosures, we disclosed advisor practices with less than four years and greater than four years.
We've defined the less than four years as he has in terms of industry experience. When it brings in an experience to recruit from a competitor that goes right into the greater than four year bucket.
Hmm.
That's interesting I wasn't aware of that thank you.
Could I ask one more quick question as a firm disclosed publicly the percentage of.
Client accounts are client assets that are handled by the National Service Center.
Yes.
We've been we've been public that the fact that we've got we've got over you've got over 230000 accounts at the National Service Center, and it's something that quite frankly, we're going to look to grow overtime because that allows us to ensure that we're serving these clients are generally speaking are more advice light and one a little bit more of a digital experience.
What.
Quick advice when they need it it allows us to service them appropriately and the best way for them and it allows us to free up our advisers and once again provide more capacity for them to focus on providing the advice that high net worth Canadians need which is more complex and it takes more more time and more of a human touch.
Thank you.
Okay.
The next question is from Jamie <unk> from National Bank Financial. Please go ahead.
Yeah. Thanks, good morning.
First question just.
Digging into the client types and that not so much focused on high net worth clients, but more on your your average household, let's say and looking at that savings rates declining.
And here in Canada, but that.
Just wanted to get a sense as to the performance of that average Canadian household what are you seeing from from their perspective on net flows either in the IAG Auden Mckenzie business.
So Jamie it's David I'll start off and then and then Luca can chime in what we're seeing across across our segments.
There are a few things obviously as you move more to high net worth you're dealing with.
Individuals that hybrid is higher disposable income and their savings rate tends to be higher. So yes, you are bringing in more more cash right now.
And I've already mentioned that.
Next question, but.
And beyond that for all segments, what we're seeing is that.
It's always been the Canadian way to diversify your portfolio, but I always do to also diversify your advisor.
And with what is taking place with Covid and now with.
The markets.
Inflation and interest rates, it's given.
A lot of our clients really the opportunity to juxtapose their advisors.
And who is providing them advice, particularly advice beyond investment advice.
And what we're seeing right now is there is a consolidation of the advisors within all segments.
So for us it's been an opportunity to capture a greater share of wallet with our existing clients.
So while savings rates, while they are savings rates.
Well it might be you know in the in the 1% or 2% a little bit lower than over the previous years.
Still a great opportunity to bring in new assets with existing clients as well as obviously new client acquisition.
And actually I build on what David said, so a few things one there's certainly not only differences savings rate by by household wealth, but also by age and and one thing that we've been not surprised by what we observe as our people are aging and entering $60 $70 Theres still contributions that are happening.
So we are actually building products and a lot of what we do is about managing people through decumulation, but I would put out we actually see contributions across our across ages, but I want to start with your first comment about savings rates declining.
We actually are big fans of Investor economics, as a firm and strategic insight in that group and right now the contribution rates Canadian savings, that's being forecast by industrial economics is about 3% of assets per year.
We are obviously declared that one of our north stars that that's kind of maintain market share for us. If we got net sales rate of 3%, but they're not seeing a decline in contribution rate to Canadian savings over time.
Last year was obviously above average in terms of contributions to the to the industry into savings given the pandemic and a lot of what we've experienced.
The outlook that they have and what we share is that savings rates will continue to be very healthy in Canada for the next decade, and a net contribution rate of 3% per year is where we anchor our thoughts.
Okay I appreciate that perspective.
Second one.
The the M&A environment.
Ed.
Has the pipeline of potential opportunities increased.
Given what we've seen that as a reduction in valuations or is it sort of.
Case, where your currency has declined and that also sort of streamlined potential opportunities or where pipelines available to you in the M&A upfront.
And about that.
Your growth through that.
Okay.
It's James.
I do not think that the opportunity set has has increased at all I think we're still on that.
Stage of.
Of the market where buyers see value at.
One price and sellers see value at another price.
And so youll see the volume of transactions kind of fall precipitously.
This is this is true in multiple markets, including obviously the housing market.
In this country and I think it's still the case that there is my observation would be theirs.
There is still a very large gap it may be as large as I've ever seen between public.
Public company valuations and private market valuations generally.
And <unk>.
Public valuations reset quickly.
As rates Rose and we know that we know that it takes private markets a little bit longer for values to reset, but ultimately I think that will happen.
This environment actually could persist a bit longer frankly, where it's where you don't you don't see a high volume of transactions and you don't see.
A lot of a lot of M&A.
Understood Thanks very much.
Yes.
This concludes the question and answer session I would like to turn the conference back over to Carl Martin for any closing comments.
Thank you Staci and thank you everyone for joining us on the call. This morning, and certainly hope everyone has a great weekend.
Starting with that we will.
I'll ask that you please close out today's call.
Gentlemen. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].