Q4 2022 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the I G M financial fourth 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'll 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 Kyle Martin's Treasurer and head of Investor Relations. Please go ahead.
Thank you Ariel and good morning, everyone and welcome to <unk> financials, 2022 fourth quarter earnings call joined.
Joining me on the call today is James O'sullivan, President and CEO of IGN financial Damon Merkerson, President and CEO of I D.
Wealth management.
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 FRS measures and other 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 for our G. M. So with that I'll turn it over to James.
Okay. Thank you Kyle and good morning, everyone.
To start the call by reviewing a few highlights from 2022 on slide seven.
Earnings per share were $3 63.
Our second best annual adjusted EPS on record second only to the record breaking year in 2021.
We ended the year with AUM and day of 249 $9 billion down 10% from December 31 of the prior year.
The decline was caused by broad based global equity and fixed income market volatility during 'twenty two.
In this context <unk> overall net flows remained positive.
Adding $1 $2 billion in client assets over the course of the year.
<unk> wealth management's continued momentum and the high net worth market segment was partially offset by Mackenzie flows which are in line with the overall challenging industry environment.
While not included in our reported net flow numbers.
North lease had a strong year with new commitments of $3 $8 billion in 2022.
I G wealth management announced an investment and strategic partnership with <unk>, bringing an industry, leading digital experience to clients and advisors.
In addition, we closed the China AMC transaction in January 2023.
And have increased our ownership to a meaningful 27, 8% and a leading Chinese asset manager, providing itm's investors attractive exposure to a long term secular growth opportunity.
We are proud of our results.
So that we would not have been able to achieve but for our employees consultants and advisors.
Each of them persevered through uncertainty in the volatile economic backdrop, demonstrating resilience and positioning I G. M for further growth in the year ahead.
Before turning to the results from the quarter I'll take us to slide eight where I'll share a bit about our outlook and priorities for 2023.
To start we are planning on an improved operating environment through the second half of the year, while continuing to position our businesses for further organic earnings growth as we navigate ongoing market volatility.
Part of our planning includes the continuation of our prudent approach to expense management.
While maintaining investments to support our strong competitive positioning.
Keith will speak more to our specific expense guidance later on the call.
Our businesses remain strong and uniquely well positioned.
Wealth management will continue to build on its momentum in the mass affluent and high net worth space.
Mackenzie will continue to focus on executing well on a subjective to be Canada's preferred global asset management solutions provider and business partner.
Our capital allocation priorities are aligned to positioning our businesses for continued long term success.
We look to deploy capital through both organic business investment and through M&A to support and extend our wealth platforms and our global asset management capabilities.
We remain committed to sustaining our current strong dividend.
And finally, we will consider and evaluate share buyback opportunities within the overall context of our capital allocation strategy.
On slide nine we show <unk> highlights for the fourth quarter earnings per share of <unk> 94 cents.
Second best adjusted Q4 on record.
Strong it would come I think in the current environment.
We ended Q4 with M&A of $249 4 billion, an increase of four 7% quarter over quarter.
<unk> overall net redemptions were $440 million in the fourth quarter with positive net flows at IAG being offset by net outflows at Mackenzie.
GM continues to receive recognition as a leader and I'd like to take a moment to highlight two recent developments.
GM was recognized as one of corporate Knights Global 100, most sustainable corporations.
Our fourth consecutive year being a part of the top 100.
And ITM was also recognized as a top 100 employer in Canada.
Turning to slide 10, the fourth quarter saw a market rebound in global equity markets, while Canadian fixed income returns were muted.
Equity markets continued to gain ground during January and the Canadian fixed income market delivered attractive total returns still we remain somewhat cautious given the continued macro uncertainty.
We continue to believe that market volatility will remain an important factor throughout the year.
Turning to slide 11 on the industry operating environment market volatility over the past 12 months has continued to weigh on industry flows with net redemptions across equity and fixed income asset classes during the fourth quarter totaling $28 $1 billion.
<unk>.
Slide 12 through 15 provide further details on our quarterly and annual performance.
Delight, a few key points, while Damon Luke and Keith will dive into greater detail in their prepared remarks.
Slide 13 highlights earnings across our businesses.
Which reflected the declines in AUM and year over year for IAG IPC and Mackenzie.
Turning to slide 14.
North leaf on the other hand has delivered a 24% growth in AUM over this period.
And China Amc's AUM grew by approximately 2%.
Which compares favorably to the roughly 20% decline experienced in Chinese equity markets over the course of 2022.
Yeah.
Slide 15 presents Itm's consolidated net flows for the fourth quarter and full year across well IPC Mackenzie as well as north Leafs fundraising results al.
I will turn the call over now to David and then look to expand on the results of their businesses.
Great. Thank you James and good morning, everyone, turning to slide 17, and ICU wealth management's fourth quarter highlights.
Ended the quarter with a $110 8 billion an increase of five 5% during the quarter driven by client returns of five 4%.
Most inflows of $3 billion were the second best fourth quarter in our history second only to the record high of Q4 2021.
We achieved our ninth consecutive quarter of positive net flows at <unk> with 428 $29 million during Q4 2022.
<unk> gross outflows as a percentage of average over the last 12 months remained well below the industry and ended the quarter up slightly at nine 1%, while the industry redemption rate increased to 16, 6%.
Positive net flows continued into January with net inflows of $30 million.
While equity markets continue to gain ground in January we know the speed at which our client contributions are deployed into long term investment solutions will be impacted by the volatility we experienced over 2022 and the continued uncertainty in the near term our advisers continue to work with our clients taken unhurried approach in executing their financial plans.
In most cases dollar cost averaging into these volatile markets.
We continue to see strong new client acquisition in the high net worth and mass affluent client segment with inflows from newly acquired clients over $500000 totaling $431 million in Q4, and $1 8 billion for full year 2022.
Lastly, we announced a strategic partnership for Igt's mortgage operations, which I'll speak to it.
<unk> come a slide.
Turning to slide 18.
You can see the Q4 2022 gross and net flows remained solid relative to the past 10 years, especially considering last year's volatile capital markets argued.
<unk> achieved the second highest annual gross and net flows in over 20 years at $12 9 billion and $2 $7 billion respectively.
On the chart on the right. We continue to see short term solutions like cash and GIC play a larger role due to the current market environment.
Turning to slide 19.
Reiterate that during Q2 2022, we achieved the second best gross inflows in our history at $3 billion and our net inflows remained solid we continue to gain share of wallet from our existing clients, while acquiring new clients and recruiting experienced financial planners to IAG.
Given the current market environment, it's natural and prudent for advisers to build short term position in dollar cost average into the markets overtime as James mentioned, we are planning for a stronger operating environment in the second half of 2023.
With this in mind, we fully expect there to come a quarter, where AUM growth exceeds AOA growth noticeably a short term money is redeployed as a function of our clients executing their financial plans.
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 two 4% to end the quarter.
On slide 20, we highlight how IV wealth clients tend to remain committed to their financial plans throughout periods of market volatility.
<unk> last 12 months gross outflows rate of nine 1% remained low.
The overall industry redemption rate for long term funds on the other hand as experienced a sharp increase during the fourth quarter, reaching $6 16, 6% as at the end of December 31.
Turning to slide 21.
This demonstrates a very strong year of new client acquisition in particular clients over $500000.
Had $1 8 billion in gross inflows from newly acquired clients with over $500000, which represents a 3% increase year over year and a 210% increase over the past five years.
Something to note.
Gross inflows from newly acquired clients with over $1 million represented 25% of newly acquired clients. During 2022, that's up from 22% a year ago and 12% five years ago.
This is a testament to our client value proposition and our ability to execute our high net worth strategy, especially during volatile markets, where we continue that we continue to experience.
Turning to slide 22, this represents the productivity of our advisors.
With our new advisors and more experienced advisors practices are continuing to deliver strong productivity numbers as measured here by gross inflows per advisor.
We have undertaken several initiatives in the past five years to drive productivity gains and expect continued momentum in future quarters.
Lastly, I'll turn to slide 23 I'd.
I'd like to take a moment to discuss the changes we made within our mortgage business at <unk>.
A new and exciting partnership to drive a simplified and modernized mortgage experience for both our advisers and our clients.
This will be done under the <unk> brand powered by a white label solution.
You can view mortgages as an important component of our clients' financial plans and this renewed focus on our mortgage operations will allow us to better address this important client need we have.
View this as a compelling opportunity to grow our mortgage business in a profitable way, while continuing to digitalize, our business and improve our overall advisor and client experience.
Now I'll turn the call over to Luke.
David Good morning, everyone.
So turning to page 25, a few comments on the quarter first our AUM increased by three 4% driven by financial market improvements during the quarter equal.
Equally important they remarked that we published January a few days ago and these financial market improvements continued with assets up another 4% and we're starting to see a bit more investor confidence as we start the year.
And point to your concern that redemptions, which were aligned with industry net sales rates in the industry environment review by James earlier.
And 0.3, we're very pleased to see the share of our assets in four and five star funds increased to 57% from 50% at September . This is the highest we've been on this metric over the last two years and places us near the top of the industry on this metric as we enter 2023.
0.4, we have the final prospectus filed and approved for our new corporate Knights Global 100, most sustainable companies ETF and mutual fund I'll review. This in a few slides and will launch this product in early April and lastly, as described by James We closed the purchase of our additional 13, 9% stake in China AMC at the start of January and we're very pleased to close at that important trends.
Turning to slide 26, you can see the trended history Mackenzie, Matt net flows.
As with last quarter and highlighted once again earlier in this call. We continue to see migration of safety and to the sidelines in the industry with meaningful flows to deposits and savings accounts.
With a boutique approach we have a number of relevant product themes that were emphasized in the market and that's a significant liquidity on the sidelines gets reallocated, we're optimistic that we're going to return to positive net flows.
As you have seen initial industry results for January I'd highlight that year over year declines in gross sales have improved and redemption rates have now stabilized our.
Our leading position in Canadian retail and access to distribution through strategic relationships provides a strong foundation for us to maintain share in volatile markets, while positioning us to deliver continued growth over time.
Turning to page 27, I would highlight that our retail gross sales decline at the top left was in line with industry peers and in the bottom left you can see our net sales range. Similarly in line with the industry.
As mentioned in the bottom right you can see our share of assets in four and five star funds improved during the quarter and as mentioned, we do right near the top of the industry on this measure at this time.
Turning to page 28, we have a retail mutual fund AUM investment performance and net sales by boutique.
With our boutique approach, we seek to have a broad roster of relevant products with compelling performance and features across different market environments.
Lower sales are reflective of currently at current industry trends and market volatility you can see based on the asset we percentiles in Morningstar ratings, we have strength across multiple boutiques as we enter 2023, a number of larger boutiques have very compelling performance I'd note in the middle Green Chip remains our best selling product and we continue to see strong interest here and a lot of sales potential.
2023.
Turning to page 29, we profiled our upcoming launch of the corporate Knights Global 100, most sustainable companies in the World Index ETF and mutual fund. We're so pleased departments corporate Knights on this endeavor.
Index reflects the top 100, most sustainable companies under corporate Knights its methodology.
All of the 8000 publicly traded companies with annual revenues in excess of $1 billion a year.
We believe this is a core global equity holding and as you can see as part of the methodology. The top hundred it's diversified by industry with industry weightings proportionate to their weights in the MSCI all cap World Index, It's also very well diversified geographically.
The industry has an 18 year track record and as you can see on the right. It behaves very similar to the benchmark and has a very strong track record of risk adjusted performance.
Corporate Knights this methodology incorporates a variety of social responsibility and finance and financial criteria and we've highlighted the investment thesis that we believe is simple and intuitive responsibly run businesses are consistent with long term shareholder value creation.
We're very excited about the launch in April .
Turning to page 30, I'd highlight on the left that the Chinese mutual fund industry declined very slightly in the quarter and AUM with net outflows primarily within fixed income funds.
You can see the strength in net flows over all the prior quarters and I would note that this isn't that helpful. In fixed income as isolated relating to interest rate increases at the long in the curve and some movement out of these products at bank wealth platforms.
Growth has been very robust throughout the last three years and we expect this to continue as China continues to emphasize growth in their retirement system.
On the right I'd highlight that China Mcs position remains very strong as the second largest fund manager in terms of long term mutual funds, they're market share increased during the year from four four to four 6% within a very robust market I'd also highlight that including money market funds Chinese see improved its market position from fifth place to third place during the year.
And its share increased from three 9% to four 2% on this measure.
Turning to page 31, you can see China sees growth in AUM over time total assets were up 4% in the year and mutual fund assets were up 10% in the year driven by strong net flows and market share gains.
And on page 32, you can see the continued growth at north lease with AUM growth of 23, 6% in the year driven by strong fundraising and.
And the churn on the right you can see that we had fund raising over $1 3 billion in the quarter and this was diversified across private credit infrastructure and private equity offerings.
Also highlight north leaf has averaged about $1 billion in fund raisings during each of the last eight quarters. Since we began our partnership with them and acquire a stake in them and we are still pleased with the ongoing success I'll turn the call over to Keith Potter.
Thank you Luke and good morning, everyone on Slide 34, you can see our M&A. The chart on the left shows ending assets were up four 7% during the quarter due to positive market returns, which is the first positive quarter in 2022.
Also.
Start to the year with client returns of four 3% in January However, as James mentioned, we do believe market volatility could persist in the near term and we will manage our business with that in mind.
Turning to slide 35 shows quarterly EBIT in millions of dollars on the left and as a percentage of AUM and <unk> on the right have a few comments on the left chart on adjusted EBIT first we had a strong contribution from share of associate earnings and net investment income relative to last quarter and Q4 2021.
Second net wealth and asset management fee revenues are down slightly in Q4 relative to Q3, and that's primarily from lower other financial planning revenue and finally, we had a sequential increase in expenses between Q3, and Q4 and that was largely timing related including technology and other project related expenses on the.
You can see the adjusted EBIT margin is down slightly versus last quarter and.
And that's from the two items I just referred to.
Turning to slide 36, we can see our consolidated earnings at AGM under <unk>. One we had another quarter of higher net investment income and other of $15 6 million, which is driven mostly by interest income earned on cash and secondly from favorable seed capital marks at Mackenzie.
Looking forward I would note we have now closed the Chinese transaction and we will have a lower cash balance and that would have accounted for approximately $6 million in investment income in the quarter.
Second we had an increase in proportionate share of associate earnings and that was driven by north leaf and great West Lifeco and all three operations and support and business development expenses combined increased 4% year over year and two three on an annual basis, which is within our previous guidance of no more than 3%.
We are issuing our full year 2023 expense guidance of 3% growth and I'll speak to this further in a few moments and lastly, our dividend payout rate on a last 12 month basis is 73% of cash earnings.
Turning to slide 37, you can see a summary of <unk> and.
And the key revenue and expense rates on the top right right. Our advisory fee revenue rate was flat quarter over quarter and as I have discussed on past calls we continue to expect downward pressure of about five basis points per quarter in this rate from a mix shift as we acquire high net worth clients, but it's also important to note that the.
It will be influenced by the mix of client cash and deposits and the spread on that cash.
For the first quarter.
The mix shift from advisory fees earned on high net worth solutions was offset.
By higher spread on client deposits in Q1, and expect an increase in cash spreads to offset any downward pressure from high net worth client acquisition.
Product and program fee rates were stable quarter over quarter, and we would expect this line to stay relatively flat going forward as it has in the past several quarters and on asset based compensation rate, it's up four basis points in the quarter as we continue to see DSC units mature and as a reminder, as DSC units do mature.
The asset based compensation rates on those units doubled we did discontinue the sale of these products in 2016. So the impact of this will come to an ended Q4 of this year at which time all DSC units will have matured.
On Slide 38, you can see <unk> overall earnings of $104 6 million was down 26% relative to Q4 2021, primarily due to lower M&A and the impact that had on revenue as well as $6 million and lower contribution from <unk> mortgages is that was primarily due to unfavorable accounting mark.
And the management of our securitization structures.
Raymond commented, we have a great opportunity to enhance our mortgage solutions for our clients in 2023, and we would expect to see this having a meaningful benefit for growth over the next three to five years as we implement the platform and build our mortgages under administration and.
And finally, we continue to remain focused on managing expense growth the combination of business development and operations to support <unk>.
For Q4, 2022 was up 7% year over year.
Moving to slide 39, you can see Mackenzie AUM by client a product type as well as net revenue rates it was fairly uneventful quarter on the right.
Focusing on the Blue line, you can see net management fee rate for third party clients, Excluding Canada life at 82, three basis points and this was fairly stable and in line with what we had communicated last quarter and I'd just remind as we look forward to Q1, we have two fewer days upon which we charge revenues.
However, our asset based compensation paid to distribute distributors and advisers is based upon a one quarter of the year and the combination of those two things will have a negative impact on our revenue rate in Q1, and just for some context. During Q1 2022. This had an approximate 30 basis point impact.
On the overall rate.
Turning to slide 40.
We show asset management segment profitability, just two short comments first net investment income increased year over year, driven by favorable returns on seed capital and operations and support business development expense combined were flat year over year and up three 1% for the full year 2022.
On Slide 41 is China and see results on the left.
Total AUM.
In RMB was 172 trillion, which was up 4% from last year and flat quarter over quarter with respect to earnings on the right.
Q4, 2022 earnings were down relative to Q4 2021, and this was primarily due to lower performance fees that are typically earned in Q4 and this is in the context of very strong markets in 2021 and negative returns in 2022.
Looking forward, we are very pleased with our increased ownership in China and see.
<unk> strong earnings growth.
Markets normalize.
Okay.
On slide 42, I have a few comments versus an IPC just a reminder that the decline in earnings was.
Driven by pricing changes in Q2 of 2022 and.
And second on Norfleet earnings are up $6 million relative to 2021.
Part is certainly due to AUM and revenue growth over the year, but there are also a couple of lumpy items benefiting the quarter, including timing of fees earned on new commitments and a lower effective tax rate some capital distributions within north leap entities, we continue to expect earnings closer to about $3 $5 million per.
Quarter.
Finally, you can see at the bottom of the page, where we have included the pro forma fair value of life co and <unk>, which closed on January 12.
On Slide 43, you can see our typical disclosure on some of the parts at January 31 closing price of $41 53, the implied multiple for <unk> wealth management and Mackenzie based upon expected 2023 earnings is eight five times I'd also highlight the second column from the <unk>.
Right.
Unallocated capital, where you can see we have excess capital of $196 million as a result of the China AMC transaction that closed on January 12.
And on Slide 44, we provide expense guidance for 2023, 3% growth.
We believe this level of growth enables our business to continue to be positioned for long term success.
And the guidance does account for normalization of in person and travel entertainment expenses normalization of Mckinsey wholesaler compensation with a view of improving net sales environment 2023.
To support a competitive compensation for our employees in an inflationary environment.
And we do expect lower pension expense in 2023.
I will point out that the increase in Mckenzie is slightly higher than the overall guidance, so thats really driven by higher.
Variable compensation for our wholesalers as we expect the sales environment to improve that concludes my remarks, and I'll turn it over to questions.
Thank you.
Now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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We will pause for a moment as callers join the queue. Thank you for your patience.
Our first question comes from Geoff Kwan of RBC capital markets. Please go ahead.
Hi, good morning.
My first question was just on <unk>.
The consultant count.
It's been declining, albeit very they were very slightly over the past few years, so let's call it flattish.
But in that obviously the percentage of experienced consultants has increased significantly and just wondering what's the strategy here.
Because now you're roughly about 85% of the consultants have at least four years of experience is it is it to keep the consultant size around this level and just further mature it in terms of the proportion that have at least four years experience or.
Now that you've kind of made the changes you are seeing the fruits of that labor that to plan to increase the consultant count and does that.
Matter of hiring more in existing offices or is that opening up new offices in footprint.
Hey, Jeff its its statements. So in terms of our adviser count it's less about the actual number of advisors and more about the quality of the advisors. As you know we have transformed from an organization that that is just focus on 100% career changers to an organization that is really focus.
On bringing experienced financial planners that are out there in the industry to <unk>.
Risers that want to compete for clients in their community the value financial planning.
And all that <unk> has to offer now we still continue to bring in career changers, but we do see that more and more our strategy is going to be around experienced advisors.
Just as a whole in the industry I think the grow and the trend will be less advisors more experienced bigger teams.
So when you look at our organization I think you want to take a look at not just four years, plus and 1% to four but you also want to take a look at the associates.
By making sure that our teams are larger and have associates and have teams that that can build capacity and capabilities, it's going to allow us to further penetrate the mass affluent and high net worth market.
Okay. That's helpful and just my other question James just wondering if theres been any change on the kind of M&A front in terms of the level of activity that youre seeing and also too is just on pricing. If there still is any sort of meaningful disconnects in terms of ask.
<unk> prices.
What you are willing to pay.
Yes, Thanks, Jeff.
We remain we remain active we remain in the traffic.
Clearly we have.
Not consummated anything.
To this point, although as I said in my remarks, we're very proud of our investment in <unk> in the commercial partnership with <unk> as well as.
The work that led to the closing of China AMC.
In terms of pricing what I say.
Continue to observe others might see it differently, but I continue to observe a large gap.
<unk> public company multiples and private market multiples, where deals are being transacted, although overall I'd say theres, probably fewer deals being transacted in this in this in this market environment and I think what that means for US Jeff is that it for if we're going to do a transaction and we're going to pay.
A big multiple.
Property is going to have to be both important strategically and it's going to have to have growth rates attached to it.
Reflect the multiple that we're paying relative to our own multiple.
So we remain active we remain busy and we're looking forward to 2023.
Okay.
Great. Thank you.
Our next question comes from Scott Chan of Ken Apart. Please go ahead.
Good morning, Luke.
On the <unk> side.
You know 2022, you kind of talked about Q4 and year being in line with the industry.
The mutual fund flow fine and when you look at the past two calendar years Mackenzie was pumping a lot Bob and then maybe can you talk about like what your shoes.
Outside of the industry.
I'd like to note that affected.
We're not slow trend in 2022.
So I think it's two factors I'd point to.
The significant dislocation.
And the industry in 2022 and in particular, the way different product categories were impacted.
A lot of strength, particularly in the brokerage channel in fixed income and when you look through the at the product level at Louisville answer is it really is getting to those those themes and so one thing I'd say is with us being so diversified in a boutique and looking at our performance in relation appears that's what you should expect from us.
<unk> been tracking with the market, we're not as volatile as others and there was a lot of dislocation and a lot of places.
So we are maintaining share and you know that we're not happy with that we want to grow market share. That's why we're here, but when you look through the <unk>.
<unk> Thats, what Youll see is different product areas were affected in different ways and in fixed income is a category in particular that that's when where we had strength and given the declines in fixed income markets.
And the net outflows in those categories. That's one thing that impacted us and was offset by strength we had in other places.
The other thing I would highlight is the percentage of our assets in the four and five star.
<unk>.
We actually were a bit lower throughout most of the year than we had been in those those prior two year periods and I am pleased as we closed the year at the end of December were back to the highest level in terms of the percent of assets in four to five star funds than.
And then we had been for the last two years and so that's another feature of our of our condition in 2022, and again, we love, having the diversity and loving always boutiques, but we're striving for investment excellence everywhere.
And yes, we're pleased to be back close to 60% for us four and five star funds, which is our target.
So when we think about 2023 and I think the commentary was a high expenses just based on.
Wholesaler selling more what do you anticipate that coming from is there any particular hotspots or strategic partnerships primerica is that right.
To that kind.
What's that.
Yes, the biggest ones is when you look at us and I've been I've been activated.
We've got a lot of compelling performance and features and a diversity of places that are relevant to date are sustainable and we showcased the CK 100, but and also green chip are doing very well dividend income, we've got strength across boutiques and rode through emphasizing it and it's in demand Canadian equities, we've got strength across boutiques.
It's in demand and and then of course, our income offerings and privates are also areas that we're emphasizing we think are very relevant and we have real strength.
Alright, and then what does that housekeeping question on the great West life.
Equity contribution.
It seems like it's on the reported earnings are non core and just looking at the Q4 results yesterday is that correct yes.
Yes, that's correct.
Okay. Thank you very much.
Okay.
Okay.
Our next question comes from Graham Ryding of TD Securities. Please go ahead.
Good morning.
This question I guess, both for Iga wealth, Andrew Mackenzie, but.
You've got a lot of cash.
Building up at the <unk> level, and then Mckenzie your series forecasting better sales in the second half of the year. So what's the base assumption here that sort of again.
Get sales moving into your higher funds into your investment funds at IGN sort of improving sales at Mackenzie is this.
Interest rates.
Increase is likely behind us some markets are less volatile or whats sort of the basic assumptions behind those forecasts.
Hey, Graham its statement so from an <unk> perspective, we do have a significant amount of cash and.
Clearly see that as a significant positive for our firm it's important that everyone knows if this was four years ago. This was not possible. It was our move into from client named a nominee.
And the transformation that we went through that's allowing us to to be extremely competitive from a cash standpoint allow our advisers to put our hands around our clients.
At our firm we are a firm made up of financial planners and.
<unk> financial planners, we don't time the market.
It's best to be invested so what financial planners tend to do is to dollar average cost into the market.
Starting in February I think youre going to see.
That cash deployed but doing so over a six to 12 month period I think it's for US the back half of the year looks extremely positive as I said in my comments, we believe that we're going to see a period, where AUM growth exceeds AOA growth.
And we saw it last year at this time.
With with IAG win when we had a significant amount of cash and AUM exceeded.
It's just a.
A great environment to invest.
Right now obviously, there's a lot of uncertainty in the market. So we've seen this we've seen this before this is nothing new and it plays out generally the same way every time.
Yes, I'd Echo David's comments, we've seen them.
The main mantra I'd say for 2022 as Canadian stuck to their financial plans and we're rewarded for doing so.
That's the overall theme when you look at the invested assets people did not panic in April into April and May and June of last year. They stayed committed to their plans and they've recovered.
Can we from them, but the investor confidence we saw it in Q4 with with client returns of close to 5% year to date in 2023, we've got another 5% on top of that and we are starting to see investor confidence strengthened again and there is just a glut of liquidity on the sidelines. So when it comes back it could be quite the wave just like we did.
See in 2021, following a buildup in 2020.
Okay great.
Look I'll stick with you just the invest.
Investment performance or the percentage of your funds.
Moved into the four or five star.
A bucket any mandates specifically driving that change or anything you would call out.
Yeah.
Yeah actually there were a few some of our.
Flagships, So we did see a strategic income increase.
Increase in our rating and we have seen that as an improvement in blue water as well, which are some of our larger funds.
Okay Perfect and then my last question just could you remind us what is the payout ratio on your cash earnings.
You would sort of.
It will be targeting in terms of a threshold, where you would start to consider a dividend increase.
Yes.
It's Keith your.
Guided to 60% is when do we start to take a look.
At a dividend increase.
And we're tracking at 73% right now.
Okay perfect. That's it for me thank you.
Our next question comes from Tom Mackinnon with BMO capital. Please go ahead.
Yeah, Thanks, very much and good morning.
Now that you've gone to doubled up your share.
China AMC I was wondering if theres anything.
Anything different in terms of your approach with respect to that if I look at the boutique slide.
It looked like China, AMC is probably like less than one or 2% of your retail.
<unk> AUM at Mackenzie, but to.
To what extent can you do anything different now that you've doubled up your share of China, AMC and what are your plans to sort.
Capitalized more of that investment other than just yeah.
Getting your share of their earnings into your P&L.
Right on time, we're going to continue to stay the course on collaborating with Chinese <unk> and <unk>.
Markets, We believe Canadians and North Americans should have more exposure to China in their portfolios.
It's only going to become more relevant over time, and we're going to continue to be the leader in bringing those solutions to it to Canada, and <unk> and beyond and then of course cultivating relationships in Asia is another advantage for us and so we did announce some.
Very good flows last year in terms of us sub advising towards China, Hong Kong and we have a lot of doors open for us in Asia that we went to otherwise have absent. This investment. So we're really staying the course this is a secular investment for us and that collaboration between the companies is so important to US. We're also pleased now.
Obviously in the last number.
For months and weeks to see trying to opening again and there's a lot of excitement with both the companies around being face to face as opposed to virtual.
And so this is actually a very exciting moment for us.
Okay and then the second question is with respect to the 3%.
Opex guide for 2023 like in the face of inflation here, obviously, there's got to be quite a bit of wage inflation. That's a P.
Parents across all kinds of financial services industries, not to mentioned years as well. So how do you kind of marry that with our guiding to a 3% opex.
Opex growth.
And so.
So just kind of looking for your comments there is it some other discretionary spends that get cut back.
I'm just trying to see if how you can balance it with respect to kind of what you pay employees and and how you can still all in.
Can guide to a 3% SG&A growth.
Sure. Thanks for the question Tom It's James I'll start so of course in 2022, we came out of the gate, saying look for 5% growth.
And there's no question there were significant obviously inflationary pressures in 2022.
And we started to our outlook grew more cautious.
You know, we said well what do we control and certainly one of the things. We do control is our expenses to a significant degree.
So we lowered our guidance on expenses and ultimately as you've observed come in not at 5% on the full year, but.
Just under two 5%.
So as we think about 2023 as you point out, we're saying not more than 3%.
And I would say the principal tactic to.
To kind of generate and maintain that discipline is around head count Tom.
Really around head count just discipline.
Around who were hiring why we're hiring whether the role is critical sort of or not.
And at the same time I'm very proud of the fact that we have been able to.
Particularly for our.
Our lower tiers of employees.
We've been able to respond.
H wage increases that were we're proud of so.
For lower lower bands of employees at the wage increase was in the 5% range. The total budget was kind of 4%. So if you went up.
As you got higher in the organization.
Lessor was the merit or the Cola.
Chris the other thing we did this year is we've made sure that everyone in the organization on salary was earning a salary of at least $40000.
So if youre going to do that.
Got to watch head count and I would say the principal tactic has been watching head count.
Second major tactic has been <unk> been.
Being being disciplined on project spend.
And in that regard Tom.
We spent 65 ish million dollars a year on what we call project spend and that's a number that if youre not disciplined kind of creep up and we're committed to maintaining spend at that level.
But we meet frequently to make sure that we're we're on budget and that we're not approving projects that are going to take it.
Take it meaningfully north of there so I'd point to head count I'd point to two.
Project spend and I'd say it's.
Balancing all of that against.
An imperative.
The lower band employees well in this environment, we believe we've done that.
Square that circle as well as we can.
And I'd just add to that.
We've also invested in technology in places process automation.
And other investments in technology that has taken costs out of our business that gives us the opportunity to invest in other places to grow the business and a great example, this year is the mortgage business and the partnership with billing with Nashville. So that's an area that we're going to invest and we're doing that through savings from other initiatives in the past.
Okay. Thanks, I appreciate the color.
Once again, if you have a question. Please press Star then one are.
Our next question comes from Jamie coin.
National Bank financial please go ahead.
Yes. Thanks.
Wanted to dig into the mortgage banking.
Banking and upside I mean, this is a business that generated $26 million last year, a 45 million roughly in the years prior to that.
<unk>.
I'm sorry, do you think you can drive to drive.
To that revenue line is there is there a plan to shift I guess, the strategic outlook for that business from maybe.
Holdings mortgages selling mortgages like are you looking to change how you generate those revenues at all in that.
And that platform.
Hey, Jamie it's it's Damien I'll jump in and then I'm sure Keith will have some ways to say, but in terms of the mortgage vessels were very excited about the opportunity here.
Really what we're trying to do is we're trying to elevate the experience for both of our advisers and our clients.
Being modernized to make sure it's digital buy.
By leveraging really a best in class Tech stack with <unk>.
To be able to offer mortgages at a very competitive rates for our clients.
Right now, we're punching below our weight and if you look back and not <unk>.
As to the future I believe at.
At one point were earning $70 million in this business. We believe that we can get there back again.
And be very very competitive its not like we need more clients we have the clients.
We just want to make sure that we have the experience to be able to deliver what they expect from us.
From our standpoint, we've transformed our business.
Our platforms, our investment products the natural sequence of things has to be looking at mortgage banking and then to look at insurance.
So we believe that we have drivers for future earnings.
To accelerate future earnings across a number of different spectrums for this firm.
Got it.
Alright.
Can I add to that Jim.
We're probably normalized $35 million per year.
And the mortgage business. If you do look back 2012 to 2016 were growing our mortgages under administration by $1 billion, plus a year and we grew from $7 7 billion to close to $11 billion of over $11 billion. So we think we can easily do that again now that we have a great competitive offering for our clients.
It gets back to that number Damon just mentioned.
$35 million double the business, we're at $70 million in call it five years.
Okay understood.
And then.
Just respect to the.
I guess the net flow outlook.
Seems a little bit more tepid here at wood Mackenzie and I look at like January performance in wealth.
Same story.
What do you what do you think it is like our just our investments.
Sitting on on too much cash at this point, that's kind of what.
What kind of flows you are seeing.
Especially in this RFP season like it just seems a little bit maybe.
Maybe lighter than maybe otherwise you would expect.
Scott you hit the nail on the head its investor confidence we are seeing it improve as we're entering 2023, but that is it and as mentioned there will be a lag we did see financial markets up 5% in Q4, we have seen another 5% in the first five weeks of 2023, and that's what's going to take to actually drive.
Drive investor confidence.
And there is a lot of money on the sidelines right now.
Okay. Okay. Thank you.
Yeah.
This concludes the question and answer session I would like to turn the conference back over to Mr. Martin for any closing remarks.
Thank you Ariel and thank you everyone for joining us on the call. This morning, and I hope everyone has a good weekend aerial with that we'll close out today's call.
Thank you. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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