Q2 2023 IGM Financial Inc Earnings Call
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Thank you operator, welcome to the Ikea financial second quarter, 2023 analyst call and webcast.
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I would now like to turn the conference over to Kyle margin Treasurer, and head of Investor Relations. Thank.
Thank you Kal.
Thank you Sherry.
Morning, and thank you everyone for joining our call. This morning.
Joining me on the call today are we ask James Osullivan, President and CEO of <unk> financial Damon.
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 would like to draw your attention to our cautions concerning forward looking statements on slide three of the presentation.
Slides four and five summarize normally for us financial measures and other fashion measures used in our material.
On slide six we provide a list of our documents that are available on our website related to larger financials second quarter results I'll now turn it over to Jason.
Well, thank you Kyle and good morning, everyone.
I'll start on slide eight and cover some of the highlights for the second quarter.
Adjusted EPS of <unk> 86 cents. Another strong result, I think in the current environment.
Reported EPS of <unk> 58.
That includes a restructuring charge, we took during the quarter as well as two adjustments related to great West life close adoption of <unk> 17.
Our operating companies.
<unk> stood at $261 billion at the end of June .
Reported net outflows were $821 million during the quarter.
While not included in this calculation, we do think it is important to note that.
Strong growth in our other businesses for example, North lakes had $700 million of new commitments during the quarter.
And China AMC generated investment fund net sales of approximately $14 billion in Canadian dollar terms, that's $14 billion in Canadian dollar terms.
I think these are very important examples of the growth that exist outside of our consolidated financial statements.
In this presentation, along with our MD&A, we're now highlighting <unk> consolidated <unk> M&A, including our proportionate share of our strategic investments.
Which at the end of the second quarter stood at $403 billion.
Each of these companies primary business is in wealth management and asset management.
This includes Rockefeller capital management and wealth simple two businesses focused on wealth management as.
As well as asset managers, China AMC.
And norfleet capital markets.
Along with IC wealth and Mackenzie investments each of these businesses are leaders in their respective markets with compelling strategies to drive long term profitable growth and value for <unk> financial.
At the Investor Day in December we will share more about the opportunities ahead for each of these businesses.
Turning to slide nine financial markets. During the second quarter were mixed with most equity markets posting positive returns while the Canadian fixed income market was relatively flat.
The Chinese equity markets had a soft Q2.
Erasing gains realized in the first quarter.
And the Chinese currency depreciated, approximately 7% relative to the Canadian dollar.
During July equity markets were positive across major markets, a strong start I think until the third quarter.
Turning to slide 10, the industry operating environment remained soft during the second quarter as.
The combined effects of recent market volatility the impact of higher interest rates and high inflation continued to weigh on investor sentiment and savings levels.
Canadians are reviewing their financial picture in light of elevated interest rate.
Paying down floating rate and other high cost debt is being prioritized by many Canadians across segments.
Savings are also being consumed to support consumption. During this period of high inflation.
We expect these factors to continue as headwinds for the overall industry net sales during the second half of the year.
However, our businesses will continue to compete well and we'll be positioned very well when sentiment improves and industry net sales accelerate.
Slide 11 presents itm's.
I'll, let David average AUM and a and earnings results Q2, 2023, adjusted EPS of <unk> 86 was down <unk> relative to the same quarter last year.
As I mentioned reported EPS of <unk> 58 includes a restructuring charge and two adjustments relating to our investment in great West Lifeco.
Slide 12 highlights earnings across our core operating companies and strategic investments.
I would remind that our earnings pick up from China, AMC and life co include the impact of the transactions that closed earlier this year.
Increasing our ownership position in China, AMC to 27, 8% and decreasing our stake in life co to two 4%.
Turning to slide 13, well Q2 average M&A at our core operating companies was relatively unchanged from last year, ending AUM Mana is up 8% over the past 12 months.
The growth in our proportionate share of our strategic investments M&A includes both the investments we've made in recent quarters as well as strong underlying asset growth at each of these companies.
I'd note that China, Amc's AUM grew by approximately 4% over the past year in local currency. However, this increase was offset by the depreciation of the currency relative to the Canadian dollar over the same time period.
Slide 14 breaks down Agm's net flows by company, along with nor fleets fundraising activity during the second quarter.
Okay.
Before turning the call over to Ed.
My remarks by touching on the June 2019 announcement, where we shared via press release, the high level details of an important exercise that our management team has been very focused on over the past 12 months.
First I'd remind that ITM financial has been on a journey since 2017, when our digital transformation was launched and we committed to thoughtfully manage expense growth, while positioning our businesses for long term success.
I believe we have delivered on these promises and then some.
In addition to successfully executing on an ambitious digital transformation that elevated our employee adviser and client experiences we have tactically managed expenses year after year.
This initiative is different we conducted a comprehensive strategic review of our businesses and carefully considered how we were matching our efforts against business priorities.
This strategic exercise uncovered meaningful opportunities to stop doing some things change how we were doing some other things.
And start doing some things that we had not done previously.
Roughly half of the savings from this exercise will result in a structural reduction to our cost base over the next two years.
This is important as it reflects our commitment to grow earnings.
The other half of the cost savings will be reinvested in IAG wealth in Mckenzie to drive revenue growth.
As a result of this work our businesses are better positioned for the future.
Finally.
We have been active allocating capital in recent quarters, including reinventing our mortgage business in partnership with NAFTA.
Closing the additional stake in China AMC.
Second largest fund company in China.
Purchasing a strategic stake in Rockefeller capital management, the leading independent wealth management firm of choice for advisors in the United States.
Selling IPC to Canada life.
In short, we believe we have positioned <unk> for growth.
Growth through incremental investment.
And growth through intelligent capital allocation.
And we look forward to sharing all of this in detail with you at our Investor Day on December five.
I'll turn it over to Dana.
Thanks, James and good morning, everyone turning to slide 17 in wealth management first quarter highlights, including IV, well, Rob Cutler capital management, well simple with respect to argue well we ended the quarter with.
$116 8 billion, an increase of <unk>, 8% during the quarter.
Gross inflows of $2 $8 billion represented another solid quarter net outflows of $424 million during the second quarter.
During the month of July we experienced net inflows of $196 million in net sales into our investment solutions of 66 million, which represented a strong month.
<unk> gross outflows as a percentage of average over the last 12 performance remained well below the industry and ended the quarter at 10, 1% while industry redemption rate was 15 five.
Baidu will continue to see strong new client acquisition in high net worth and mass affluent client segments with inflows from newly acquired clients over $500000 totaling $406 million in Q2.
Investment performance continues to be strong with 62% of our assets ranked four or five stars by Morningstar, an 89% break three stars or higher the continued strength of our product. It makes it that much easier for advisers to work with their clients to dollar average cost back into these volatile markets.
On later slides I'll also provide an update on our two strategic investments that are focused on wealth management Rockefeller capital management, well simple both for posted strong results in Q2.
Turning to slide 18, you can see <unk> Q2 flows.
To put into context, our quarterly flows I'll make a few points firstly much of the redemptions that we saw were partial in nature proceeds from these redemptions were used by clients to pay down debt and fund their lifestyle, given the high inflationary environment.
This is a core component to financial planning when interest rates are high and economic uncertainty remains it can be proven to adjust leverage pay down debt and reinforce our financial flexibility.
Secondly, this is not just this.
This is a reality across our industry.
That's the idea of part is that we're not singularly focused on investing our clients' money. We're also focused on all aspects of their financial lives.
We can afford it 6400 $6 million in grocery bills for newly acquired clients over $500000, which nearly doubled over the last five years.
Of note again this quarter Crows, Influencer, new car clients over a million dollars represented approximately 25% of newly acquired clients during the quarter a significant increase of 15% during Q2 2018.
This remains a testament to our client value proposition, our ability to execute our high net worth strategy, especially during the current operating environment.
Turning to fly 21.
This represents the productivity of our advisers both of our newer devices are more experienced advisor practices are continuing to deliver strong productivity numbers is measured here by gross influenced per advisor we've.
We have undertaken several initiatives of the past five years that drive productivity gains that continue to position us well for future growth, particularly in this operating environment.
Turn to slide 22, I will provide you updates on rockefeller's progress during the quarter and year to date.
Client assets grew by approximately $6 six per cent during the quarter and is that June 30th we're up approximately 14.4% year to date, driven by both organic and inorganic growth.
Your debate organic growth drove $2.8 billion in client assets.
And by the team broke remains on track with Rockefeller, adding 12, new teams ear today.
As we said when we announced our investment in Rockefeller They just need to keep on doing what they're doing they executed very well. The results are in line with our expectations for the quarter.
Turn to slide twenty-three well simple continues to put up solid results that reinforce its growth trajectory as an important player in the Canadian wealth management arena, well simple AOA in queue to advance, 10% and is up 38% year over year.
Clients served increase to just under $2.2 million representing year over year growth up 10 per cent.
With that I'll turn the call over to local great Thanksgiving Good morning, everyone. So.
So trying to pitch Twain climb a few comments on the corner.
First or ending a wimp remained relatively unchanged versus last quarter us overall investment returns for our clients with just over one per cent of the corner.
Reviewed by James and Demon in spite of double digit investment returns to clients. During the last 12 months ended June three of 2023 investor confidence has not yet returned industry balloons.
And 0.2 Mckenzie, an investment fund net redemptions of 660 million during the quarter in line with industry trends and we experienced including US that may net sales overall net redemptions of $313 million.
Similar to Q1 last woman trailing gross sales redemption rates and net sales were relatively stable and we saw a slight improvements relative to Q2 2022.
Importantly, we experienced improvement in our share of industry grew sales in the period as we saw improve gross sales of long term funds in the context of declines for industry peers.
0.3, you can see the Mackenzie launched for new funds during Q too.
Primerica true U S dollar U S core fund and the shirt riot global equity fund demonstrate the growing value in depth of a relationship with primerica and their advisors.
Destroy a global equity fund is among the first Orion complaint products in the market and we're pleased to make this available to this community.
The launch where U S dollar global dividend fund expands our true U S D product offering within one of our most popular mandate.
And her last quarters called we reviewed the Mackenzie corporate needs global more sustainable companies mutual fund at ETS, whereas we call. It a C. K G 100.
This Mandy tracks the 100, most sustainable companies in the World based upon corporate next methodology remain currently proud this partnership with corporate nights and the potential that this product offers.
It is a core global equity holding attracts the MSCI all capital. The next very well it has a strong track record over 18 years and it's a very clear investment thesis that response to run businesses are consistent with shareholder value creation.
And point for it and it's coming out on went by James China Emcee Longterm Fund Europe . You are you on growth continues to impress with five per cent growth exceeding industry growth rates and gaining market share.
China M C. In a few slides and will highlight the significant net sales once again to James commented on as well as the strong industry environment in China and.
And lastly, norfleet delivered 700 million a new commitments another strong quarter.
<unk> 26, you can see trended Mckenzie net flows.
On the left in the Middle you can see we had a slight improvement in overall gross and net sales in the quarter and a noticeable improvement at the top in the month of June on.
On the right hand side, you can see continued stabilization of flows with with a slight uptick in the second quarter.
As emphasized earlier were not yet seeing evidence of an improved industry environment. At this point in Q3, but we're focused on market share and we're focused on the broad roster of compelling solutions that are relevant to the current environment.
Also remind there's two trillion dollars of cash on the sidelines and we have many products.
Enhance yield while preserving capital and rock that we emphasize on them.
Turn to page 27 in the bottom left you can see there are net sales right in the overall industry has continued to indicate stabilization and.
And the table in the Middle I first highlight the fourth row down institutional investment fund net sales of $94 million. This.
This reflects our private label fund family relationship with Primerica, and we continue to build relationships and earn the support of American advisers.
We saw a share of gross sales improve again with Springer can the quarter and we're pleased with a track record that we've delivered on our private label fund shelf as it reached its one year anniversary during the second quarter.
I'd also highlight the institutional SMA line with net sales of $273 million, which reflects a win or a sub advisory mandate to Sci and the United States by our global Quant equity team.
I'd highlight that this Boston based boutique of our celebrated its fifth anniversary with us in Maine and is currently managing just under $10 billion. So it's at a very good scale. This.
This team's emerging market mandates just hit their five your return milestone and the performance has been just exceptional rank among the top in the world within the investment database and we're excited as we mark of the teams broad clock capabilities.
Looked at the bottom right as a share of assets and four and five star funds and you can see the percent of assets with four and five star ratings has increased to 45 per cent during the quarter.
Trying to page 28, we have a retail mutual fund num investment performance in net sales by boutique.
I'll call. It Green chip are sustainable focus boutique, which once again posted very strong net sales.
As we often say we're portfolio managers, we believe in diversification, we have compelling performance across many part boutiques and product categories.
Treated page 28, or 29, I'm going to talk a little bit about China.
Hi, Linda left the Chinese mutual fund industry totally went increased 4% in the quarter with total net flows at 1.2 trillion, one or 203 billion the strongest quarterly flows in over a year.
The industry you can see at 735 billion, one or $140 billion in net sales of long term funding the quarter.
Growth has been very robust throughout the last three years and we expect us to continue as China continues to emphasize growth in their retirement system and make improvements to the environment for mutual fund sales.
On the right, China and sees position remains very strong is the second largest fund manager in terms of long term mutual funds.
China M C with the leader and industry Longterm Mutual fund net sales in the quarter with 61 billion, one or $12 billion in net sales. This drove an increase in market share from 4.6% to 4.8% in the quarter.
I'd also highlight the last 12 months trailing net sales rate for the industry is 5% and it was 14% for China M. C. If you annualize the <unk> quarterly net sales rate. It gives you a number of 18% for the industry and 24% for China M. C. So very healthy growth being put on.
On page 30.
You can see that China M C Z U M increased by 2% overall to 1.8 trillion won during the quarter.
As mentioned this as a result of strong net sales and you can also see the very strong growth and long term mutual fund assets of six per cent of the quarter.
I do want a highlight some regulatory developments that occurred in Chinese mutual fund industry during July .
On July 8th the CSR seat the Chinese Securities regulator initiated mutual fund fee reforms intended to get intended to continue to encourage the high quality development of the mutual fund industry.
They provide specific guidance that their intention with an act of equity and bounced products would have management fees no higher than 1.2% down from industry standard rates of 1.5% full.
Following this guidance, China empty and substantially all be industry enacted these new fee rates for equity imbalanced active funds.
We're behind these efforts to encourage the continued high quality development of this important industry in China, and we're very confident in China, Emcees ability compete and provide great service to your clients.
As a consequence of the diversity of China M. C. Z women scale. This fee adjustments affected about 20% of longterm fund assets and 8% of total a win.
As our CFO , Keith Potter will walk through reducing the indicative value of our 28% stake in China M. C buy a boat 17% to reflect the impact of these fee changes as well as the 7% decline in the value of the one well to the Canadian relative the Canadian dollar during that period.
[noise] worthy as I mentioned earlier, China M C. As a net sales right well in excess of 10% of assets should discontinue it would offset the 6% decline in revenue from the fee reductions in the very near term and we would expect to amend are indicative value upwards accordingly.
Moving to page 31, you can see Norfleet C. U M. Now stands at $25 billion up 4.6% year to date strengthened by $700 million new commitments during a Q2.
Fundraising continues to be diversified across private equity private credit and infrastructure offerings and it's averaged about a billion dollars a quarter since our partnership began two and a half years ago. We're very pleased with this ongoing success in north leaf all.
I'll now turn the call over to Keith Potter.
Alright, Thank you Luke and good morning, everyone on Slide 33, you can see her a lemonade.
Shows ending assets were three per cent during the quarter driven by investment returns.
June 30th or investment return rate on the last 12 months trailing basis is over 10%.
Solid market performance best selling cautious environment for investors.
Slide 34, <unk> quarterly EBIT millions of dollars on the last 10 percentage of a lemonade on the right.
A few comments for the 11th chart on ebay.
<unk> net wealth asset management fee revenues were up in Q2 relative to Q1, primarily from higher wealth management revenues at I G well and second we had a small decrease in expenses from Q1.
Right you can see the adjusted EBIT margin is up versus last quarter on the line with Q2 2022.
Turning to slide 35, we ever consolidated versions of IGF with another quarter of higher net investment income and other of $8.1 million, which is driven mostly by interest income earned on cash second we had a decrease in proportionate share of associate earnings year over year. This is driven by a lower contribution from white coat.
[noise] merrily due to the Q1 estimated earnings Chew up the inclusion of Rockefeller slightly lower norfleet earnings.
Three operations.
<unk> development expenses combined decreased.
Percent year over year. This is due to some some savings on the compensation front as well as a deferral of certain brand spending in the second half of this year, which is typically more seasonal and Q2.
The savings from restructuring, we've reduced our full year S and growth guidance to 2% from 3% relative to 2022.
Another notable point does that interest expenses up relative to last year, reflecting $300 million and debenture issuance.
To finance Rockefeller the short term financing facility related to close.
To the close of IPC.
Been allocated discontinued operations.
There are two main adjustments. According net earnings first increase in lifestyle carrying value and a decrease in the game are important in Q1 related to the change an estimate with the adoption of it for a 17 and.
And the second related to the restructuring charges that James reference.
Turning to slide 36, you can see a summary of Igl's Ewe and key revenue and expense rates on the top right are advisory fee right down one six basis points Culver quarter over quarter, primarily driven by a mix shift and quiet be right back in the queue too.
Spreading client kaffirs relatively stable is period and we did not see the type of upward pressure on the right as we have in the past several quarters and going forward continuing to expect downward pressure on a boat five basis points per quarter from a mix shift as we acquire a high net worth clients.
The rate will also be impacted by a mission and client cashbox as spread of cash balances as well as other products were full advisory fee rates are charged such as a money market fund.
The acid based compensation rate is stable and a quarter upward pressure from a trendy assume is offset by general decrease in rate.
On slide 37.
Overall earnings of $112.8 million.
$6, 70% relative to Q2 2022.
I'm only due to higher average a lemonade and the impact that had on revenue as well as $4 $8 million higher contribution from other financial planning revenue.
More specifically the mortgage business and finally, the combination of his development and operations and support for Q2 2023 were relatively flat year over year.
Moving to slide 38, you can see Mccain as a wham by client and prototype as well as net revenue rates not much just stay on the slide.
Main point focusing on the Blue line on the right you can see that net management fee rate for third party clients, Excluding Canada life was stable at 89 basis points.
Turning slide 39, you can see mckinney's earnings $50.1 million, we're down to 4% Q2 2022.
Primarily due to lower average EUM and the impact it had on revenue and this is partially offset by higher net investment income.
We also contain expense growth operations and support business development expenses relatively flat year over here.
540 is China and see results on the left total AUN was RMB one trillion dollars up 3.6% from last year, and 1.7 per cent quarter per quarter investment fund num, 5% in the corner and it's entirely driven by auto net sales, which is more than offset negative market returns.
The respect of earnings on the right. There are two main items that created a bit of headwinds this corner versus currency.
C N Y depreciated, 7% relative the cat and using in daily average currency had 3% negative impact on earnings more of a 1% sorry $1 million.
Second there was a fair value loss in the quarter relative to into our valued gains in other income last quarter and last year. So adjusting for these two items earnings would have been up more in line with one quarter over quarter. After Prorating Q on earnings Q.
Q1 earnings for January 12th close.
On a golf course basis Chinese he continues to maintain and grow sure in a in a growth industry and as mentioned had net sales of.
14 billion Canadian and Q2 on a total basis.
There are two items that created headwinds and a quarter and we expect to create headwinds in Q3 <unk>.
Versus the full impact on the recent currency move which will be felt and will create a million dollars tray as we move forward to Q3 <unk>.
Secondly comment that Chinese see reduced fees on active eck refinance our best estimate for.
For the short term impact via boat approximately 10 per cent reduction ign's before I can share primary earnings or about $3 million per quarter based on Q2, ohm and changes that can't come into effect at the beginning of July .
Turning to slide 41, continuing to China M C.
We have updated indicative value to 1.9 billion, which is a off our original cost and carrying value.
This does reflect a sizeable moving currency and our best estimate of the current earnings impact from management fee changes.
A tribute about 40% of that change to currency and 60%.
The fee change.
And we continue provide perspective on indicative value going for as we see significant inflection points observed.
Observed changes in the business markets and industry valuations for leading businesses with high organic growth potential like Chinese C.
I will point out.
One of the key goals of fever Foreigner commented on this is to build the quality of the investment fund industry, and it's still investor confidence and participation and we believe this will have a positive impact on the industry.
Second point on the slide it's great with slight for earnings of $14.5 million reflect analyst estimates for this quarter and a true up from Alice estimates last quarter and as a reminder, this will continue to be the case for Q3.
Third norfleet earnings of $2.5 million down from Q1.
Primarily due to incentive fee income that was earning Q1, which is seasonal as we look to the next quarter. We do expect earnings posted at this level or slightly lower as revenue catches up to some recent investments in the business.
We are reporting Rockefeller earnings for the first time Damon reviewed the key business drivers are on track.
With a strong Q2 and earnings of negative 1.9 million are in line with our expectations and supportive of approach Jeffrey.
Sure in April .
The core private wealth and family office visit Damon spoke to.
What is that right on flying, but there's a bit of headwinds and the.
That impact at this point in time, but do not expect it to be large and we'll update update you once the programs to finalize.
And finally and slide 42, we have reflected the acquisition of Rockefeller and change in China Amc's indicative value. We've also allocated long term debt raise a 300 million to IGN Mckenzie with the same methodology in the past.
And add that July 31st lowest price at 40, 109 implied multiple for <unk> wealth management and they can be based upon expected 2023 earnings is now seven eight times and with that I'll open up the lines for questions.
<unk> My question Q E <unk> than one on your telephone keypad.
Using a speaker phone please pick up your handset before pressing.
Sure try your question.
<unk> <unk> <unk>.
<unk> paused for a moment callers join the queue. Thank you for your patience.
The first question comes from to make a clean.
Cancel my kids.
Go ahead.
Okay. Thanks, I wanted to start with a question regarding the new cap on theory in China can.
Can you help us understand the regulatory environment in that jurisdiction sounds like fee rates were previously capped at 1.5 and that was lowered to 1.2.
Would you anticipate potential for further reduction over time like what what's the messaging there with respect to the rationale for the change and your read on the general stability of that new fee recap.
Great question that gets Luke.
First of all 1.5 per cent was it was industry standard it wasn't a ceiling. The CSR C has instituted a ceiling on equity imbalanced products active equity imbalanced.
And and I'd say, what you what you can expect is that the regulars in the industry itself are gonna do everything they can to really encourage continued high quality growth your industry.
So that was the the nature of what happened in in July is is that the regulator actually thought it was in the best interest in the industry to to limit the the management fees that could be charged these categories to encourage.
Trying to trying to Chinese participants to invest in mutual fund industry. So I think as far as the future. I think you can expect overtime that there may be gradually of reductions in fees, but you can expect us to be very well managed and in the context of very strong growth and that's the other part of this equation is is this is an industry that's still in infancy.
And people are focused on high quality growth for this industry over time, and really encouraging Chinese to invest in the mutual fund industry.
I understood. Okay. That's helpful and as you pointed out it it appears that net flows in that industry improved quite notably in the second quarter, what catalyze that improvement what's your read on what's happening on the ground there from an investor sentiment at the gathering perspective.
Right right now it's funnier people are moving across different asset classes. One notable asset class has obviously been <unk> been real estate and at the same time as you can see folks are really encouraging investment to financial assets and investments in mutual fund in particular, so when you look at the product categories that sold well, it's very diverse during the quarter a lot into to sign.
And technology and thematic equities a lot into income, but but is on that theme of encouraging savings and long term savings within the mutual fund industry as opposed to deposit offerings in another asset classes.
Understood. Okay. That's it for me I'll pass the line. Thank you.
And the next question <unk> with our D C capital markets.
Please go ahead.
Hi, Good morning, I, just wanted to follow up I guess on the the China regulatory side there was.
Can you contrast to have like the setup is relative to Canada in the context of.
Uhm.
Like do investors pay.
Pay their advisers, because they're kind of similar.
Trailer fee type program cause I'm I'm, just trying to get a sense as to you know how much the fees actually include sales in China or is it really if you have performance then maybe it isn't so much the fee. It's the performance they focus on.
It really good question, Jeff is Lucas speaking.
So first we have the structure you can think of China and its good context to it to assess 1.5%, 1.2% you can think of those fees being inclusive of of trailing a commissions to it to the distribution Ah much like the bundled fee arrangements that we've traditionally had in Canada. So so that's an all in there are often sales commissions as well.
And that's something that that the regulators is focused on is making sure that the the structure of fees is appropriate in the circumstances, but but this is a bundle environment and and there was a trailing commission that comes out of the fees that we've quit earlier.
Okay.
And then this is my second question is recognizing it's hard to quantify but relative to prior cycles like how much do you think.
You know high interest rates are a headwind to generating the same positive internet flows in longterm funds given investors maybe to what.
Daniel was talking about paying down debt.
Coping with the day to day expenses as well as having noninvestment find alternatives like he says in G. I see that offer like material interest rates in absolute terms.
Yeah, It's it's James I'll start into entertainment will have an important perspective, I mean, I've I've thought for some time that there's at least three kind of preconditions if you will.
To a better investing environment.
And stronger net flows for the industry, though the first I think as investors need to see peak inflation behind them I think we can check that box.
The second I think as investors need to see a pic policy right behind them.
And I think we can either check that box or were awfully darn close to checking that box I.
I think the third thing, though that I'm watching and that I think needs to happen to have that that better investing environment generally.
Is is we're just bond market volatility and and when you look at various measures. The bond market is not settled down it remains volatile.
It's something that I think needs to needs to happen as well, but.
But even when those three things happened yet I do think we need to bear in mind that Canadians are in a different position here.
Between higher interest rates and higher inflation.
They they're just not able to save as much and in some cases, they need to draw down on their investments.
Either to pay down high cost at or the support lifestyles. So you know that that very much kind of speaks to our outlook, which as we continue to believe that this.
Industry softness if you will will continue through the end of the year, but within that context.
We expect each of IGN Mckenzie to compete very well and we expect AGM financial too to continue to deliver strong results.
And I must say one of the.
One of the room positive surprises for me on the quarter was just how strong I G. In Mckenzie did.
In the context of this this operating environment. So I think the team is proving that that they can adapt to this environment, they're proving to be nimble and they're and they're generating the earnings that we've we've promised our shareholders Damon what's your perspective, yeah. So Jeff. This is it I mean this is a very real thing when you do the number.
<unk> on the industry, you can see that money's, clearly, leaving and and there's less money in the system.
Because quite frankly, it makes sense financially for Canadians to pay down somebody there that we know what what challenges we have as a nation as it relates to to that for us.
You know this is what we're all about in terms of financial planning.
This is how we build loyalty with our clients. This is how we create longterm relationships that are generally intergenerational relationships with our clients.
So for US you know, we we as James said.
It puts us in a position to be much stronger as an organization not only getting into sort of operating environment, but coming out of this operating environment. You can see a strong July from us while we're working hard to put cashed it to work, but it's gonna be it's gonna be slower quite frankly, and when we talk to our clients, they're they're indicating that that they're.
And about that they're concerned about interest rates.
And Jeff is look I'm going to violate the three three per cent answer really we usually do too but on the.
Highlights you to.
Part of your question inflation has come down it's still running at 3%. When you look at the two trillion dollars visiting a deposit a lot of its paying zero some of our sports and they are getting close to the overnight rate of five per cent, but but there's a lot of wasted firms like like Archie wealth and Mackenzie in the industry can really offer better yields than Canadians are getting on those deposits.
And so we think there was a really a real rich opportunity for us.
On our private credit offering which has had very good performance very good credit credit performance.
And is floating rate the gross yields 12% there there's a lot of really competitive yields for those who are seeking yield with preservation of capital and we're gonna keep on promoting those offerings.
But if I can maybe sneak and my last question is just on that.
Part of.
Hi, there I T well at.
Customer base or just in general what you're saying.
[laughter].
For this upset that are looking into funding day to day expenses are paying down debt is there a certain income.
Income level threshold of financial asset threshold that.
You're finding what are you seeing this happened and on the dead are you is it the non mortgage debt that they're really focus on painting or is it all set to the mortgage debt that you're seeing you know financial assets getting funneled into.
Yeah. The first part of that question I think.
The key as as you as you move up to the high network segment, you generally deal with Canadians that that that have more debt because they understand leverage in a lot of that is is levered towards their their home. So what we're seeing is that that people are trying to pay down non deductible debt.
So that obviously means that they're focused on their mortgage.
They are focused on any personal debt that they have they're focused on their home lines of credit.
That were built up over the last.
Eight to 10 years.
So that's what we're seeing and it's not going to abate until you really have interest rates start to roll over.
And inflation start to to rollover because people need to live their lives.
Okay. Thank you.
Mhm.
<unk>, how much I'm, Tom kidney with B M L capital.
Can you tell ahead.
Yeah. Thanks, very much two questions. One if you could just go over the reductions that you think are going to be for China M. C. Ernie going forward. It was at 1 million for something 3 million for something else and is that off the the current Q1.
China AMC earnings and I have a follow up thanks.
Yeah.
Yes.
Tom So the.
With the currency impact as we look more currency is today, you can think about that being about a million dollar impact of earnings as we head into Q3, and then with the.
The fee changes at <unk>, you'll have it by the impact of Parker.
Forfeiture of our earnings of about $3 million, so combined $4 million in it.
That's looking at a O M at the end of at the end of June .
So that's the expectations are moving to Q3 there.
Okay.
So we've got somewhere like 4 million off 25, right. So that's.
Yeah.
59%.
3 million call at $30 million proportionate share of earnings this quarter. So so that'd be more the number to think through and obviously there's growth in this industry in net sales and whatnot that will that'll be expected to also support earnings as we move forward in the next quarter and they are coming off of a higher <unk>.
That base as you can see at the end of at the end of the quarter.
Okay why are we doing it off 31 slide.
41 shows that we got 24.9 in China AMC earnings.
At the time, just shopping to a page slide 40.
The proportion of earnings at 27.7, so there's some currency in there as well as there were some losses in this quarter sewing and normalize for that you're you're closer to $30 million.
Hey, that's great. Thanks, the follow ups with respect to other financial planning revenue seemed to be up pretty nicely you every year.
Was there alright and quarter over quarter is there sort of an increase in mortgage activity. Here. You know does that do you expect that trend to continue.
What are the key drivers and other financial planning revenue being up 15% in accord a year over year.
Yeah. It keeps your I'll start and then I don't want a daemon.
More generally, but I think I I cross a couple of fronts. One the mortgage business had a better quarter 8 million this quarter versus last quarter I say that is.
Basically then the core driver.
Of of the change the mortgage business can be volatile with mark to market.
That we've seen over the course of the last several quarters, but.
But $8 million in the range of $68 million is probably a reasonable expectation as we move forward and we also had a solid results in the insurance business in the banking business for the quarter.
Yeah, Tom and in terms of of mortgages were still in early days with the with the nest a relationship but it's gone very very well they would tell you that we're we're probably.
Billy only shop on the street, that's up year over year in in that business, because we have a.
Significant number of our advisers, who have bought into the relationship and have referred over clients and and we continue to work on the experience and and we expect to continue to grow this business it accelerated pace.
And when did you venture into the nest O relationship.
So we signed the relationship late last year, and we went online in February of this year.
Okay great.
Thanks.
And then next question COVID-19 point like National Bank Financial can you go ahead.
Yeah. Thanks, I, just wanted to to get into some of the <unk>.
I guess.
Strategic investments in in the performance there. So first on on Rockefeller looks like really solid your date <unk> outside growth just wanted to get your perspectives on yeah. How this compares to your expectations going into that acquisition and if it is trying to better than.
Expect that in your view is that should we expect that the accretion that's too much to maybe move a little bit forward that then you have already guided.
Sure. Good morning, it's a shame it's James.
You know I'd say early days, clearly, but but we're very pleased with the with Rocco performance.
And I think at this stage of the Revolution. There's there's there's two K P is that we're keeping an eye on it I know their leadership team is laser like focused on it.
Those are recruiting and and organic growth and I think you can see from from this quarter that assets are growing very well.
Greg Fleming would describe the recruiting market in the United States is a very robust.
That are participating very actively in it.
First Republic was a primary competitor others and the recruiting market clearly is no longer and I think it's fair to say that Rockefeller has become what I would describe as the independent firm of choice in the United States and so I think the <unk>.
Friends that you see in Q1, we would expect to continue.
Leave from the very beginning we said, there's three things about that business that our special the iconic brand.
The best in class Executive management team.
And the business model that is very much designed built around and supportive of organic growth for advisers. So you know a good start we expect it to continue.
Yeah, Jamie just gone we did provide a.
Perspective.
Forecasts on a range of.
Adjusted EBITDA growth and we'd expect that I'd say that they are on track and then within that range.
We also.
In April commented that we would expect.
Some kind of 2025 that are proportionate share of earnings.
It would be at a level that would replace.
Las IPC earnings as well as the offer.
Debt financing costs for the transaction I I'd say, we're still on track for that as well.
Overall tracking within the range of of what we put forward in April .
Okay. Thanks for letting me.
Second question is just on the the wealth simple.
Growth in a way there, obviously pretty strong as well and just curious whether if you have any color on the underlying drivers up that growth is it is.
Is it primarily cash investments are you seeing maybe some other other characteristics of <unk> Bergen B I G. Walter I G Mackenzie.
Sure. It's James all start you know and I, probably have the pleasure of serving on that board and will be meeting. This afternoon to go through the go through the corner and those numbers in some detail.
What I would share with you is that I think one of the principal accomplishments of my catching a team over the past 12 to 18 months.
The extent to which they are being able to truly diversify their revenue sources.
If you'd go back 18 months ago that would have been some concentration, but if you. If you look now at their revenue sources across investing tray cash savings crypto.
It is a remarkably well balanced and well diversified revenue base on top of that I would just add the business under my leadership has made really quite significant progress financially. They have had a very very productive year.
And that's one of the reasons frankly, we look forward to having Ah Ah like in well simple presenting it or Investor day on December 5th you know alongside Rockefeller, nor police in China, AMC. So Ah Ah more ahead on that but but but but but a year of great progress really.
Okay. Good thank you.
<unk> if you have a question <unk> one one.
And next question comes from Graham fighting with Teeny security.
Please go ahead.
Good morning, maybe I can just start with the the the restructuring initiative <unk>.
Part of the the plan there is always <unk> surface. Some synergy sorry, some efficiencies from cost base streamline but you you talked about reinvesting some of those savings back into the business can you talk about sort of I guess at a high level, what you're thinking at I G wealth and what you're thinking it Mckenzie in terms of where are you.
You want to reinvest in again I'm sure with an iced sort of supporting.
Supporting growth.
Yeah, no very much so it's a chain saw start and and and I'll I'll just kind of reemphasize that we went into this exercise in these exercises are never easy.
The the.
The proposition with a simple one for each dollar we save half will go to the shareholder half will go back into the business to make your business is stronger and the organization responded and I'm proud of how the organization respond to each of damning and Luke are in the process of building list of priorities for.
For those that half of the savings that will be reinvested and we do expect to for this to be something that will appeal back to a level of detail add investor day on December 5th having said that I I I do think as we sit here today each of them and I look and can provide some early color on how their thing.
King of deploying incremental dollars payment, yes. Thanks, Graham it's David here. So in terms of of I G. There, there's two things that where we have a laser like focus on number one the quality of the advice that we're providing particularly to the high end of the market.
And then the second thing is the experience in which we provide that advice and.
And that surround our advisor and.
Client experience and they'll give you two examples.
It's a number one we have started a private company advisory business.
And this is a business where <unk>.
It's focused on smaller medium sized enterprises size between 10 and $100 million, where will will do two things number one we will help them with with financing little debt and equity.
And the second thing is we will help value and monetize that business taken to market and sell it.
And for US. This is a very very important initiative because you know small medium sized business owners are certainly high net worth.
For us and for in in the industry. So it's something that we're excited about that the advisers are are very excited about the second thing was just to work on our end of the the national partnership and make sure that you know they provide the best in class digital experience.
For those that want mortgage financing and that just on our end that it plugs into all of our systems and it's a seamless experience for our advisers and for our clients and and Thats reaping early rewards already so look forward. It talking about this and other ideas that we have that investor day in December .
Yeah, and it's look here I've got a really reinvestment will be on three themes. One is investment excellence the seconds and expanding distribution reach and the third is making sure that we've got a broad innovative and compelling suite of products and services that the one the one that.
We have announced that spoken about is really improving our investment management operations that are middle office in particular, so it's at a standard of global leading investment managers and that our people can come in everyday and do their best work and feel so engaged can satisfy as they do it but but those are the three things for me and and as you you started with some of these savings.
They actually make our company more efficient, while also improving client outcomes and and they're gonna go straight to the bottom line is Keith said.
Okay. Great. My next question is just with the the Chinese see the.
I'm sort of fair value you provided where the adjustment on that front. How often are you do you intend to sort of review that valuation and provide <unk>.
Provide a view of any potential changes.
Yes, it's Keith here I think that we are looking for you know significant inflection points and we certainly had one this quarter.
So you can think about currency.
Just a general performance of the business.
Markets in general as well as.
Where our global off the Masters training. So I think he can expect us to take a look at all those elements over the quarters to come in and we will provide an update.
You know is.
On that basis, but certainly looking for meaningful inflection points.
Okay understood and my last question just on Rockefeller When you announced the deal you did provide a view of adjusted EBITDA margin is that something that you. We'll plan on it in case I missed it I didn't I don't think that's the only thing is that something you plan to provide going forward or are you just gonna.
Give us a view of the sort of associated earnings that are flying back to Ya.
Yeah. It's Keith here, you know I think going forward, the most appropriate and measured as we track forward into the future would be R. Proportionate share of earnings that's inclusive of all you know.
Compensation equity programs and whatnot, so that'll be the core but would expect to provide an update on how we're tracking to that adjusted EBITDA grew up that we presented in April .
More likely than an annual annual basis.
Okay understood. That's it for me thank you.
Mmk conclude the question and answer session I would like to turn the conference back all thank the tile might be signing clothing remark.
Thank you Sherri and thank you everyone for joining us. This morning appreciate the attention and all of the questions sure. He we can without we can close on today's call.
Okay cool.
Phone call you may disconnect the line. Thank.
Thank you for participating and have a pregnant ball.
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