Q3 2023 IGM Financial Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the I G M financial third quarter 2023 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 Jim financials, 2023 third quarter earnings call.
Joining me on the call today are James O'sullivan, President and CEO of IGN financial Damon Murchison, President and CEO of <unk> 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 would like to draw your attention to our cautions concerning forward looking statements on slide three of the presentation.
Slides four and five summarize non <unk> financial measures and other financial measures that are used in this material.
On slide six we provide a list of documents that are available on our web site related charge in financials third quarter results I will turn it over to James.
Alright, Thank you Kyle and good morning, everyone and thank you for joining us once again.
We will start with slide eight to cover some of the highlights for the third quarter adjusted.
Adjusted EPS of <unk>, 88 up sequentially and driven by strong results in our core businesses wealth and Mackenzie.
Our operating companies M&A stood at about 253 billion at the end of September.
And when we add our proportionate share of our strategic investments.
M&A.
That was $400 billion at the end of Q3 up a full 32% year over year.
The increase was driven by organic growth at our operating companies and strategic investments as well as <unk>.
The assets added with our doubling of our equity interest in China, AMC and the acquisition of our 25% equity interest in Rockefeller capital management.
Our reported net outflows were 549 million during the quarter.
While not included in this metric we do think it's important to note the strong growth in our other businesses.
For example, north lease had one $3 billion of new commitments during the quarter.
And China AMC generated a truly remarkable.
Investment fund net flows of approximately $15 billion in Canadian dollar terms during the quarter.
Year to date growth in our operations support and business development expenses has been managed to just 0.6%.
This truly is a testament to our continued prudent expense management.
As well as.
As finding efficiencies across the organization.
Thoughtfully using these savings to fund attractive growth initiatives.
As we work through the last quarter of 2023, we are reiterating our full year expense growth guidance of no more than 2%.
Finally in about a months, we look forward to hosting the investment community at our investment at our Investor Day excuse me in downtown Toronto.
Yes.
Turning to slide nine while the first half of 2023 delivered positive client returns driven by generally strong equity and fixed income markets.
Third quarter put a halt to this momentum as economic uncertainty once again took hold.
The October markets have proven no more favorable and we expect volatility and uncertainty over the balance of the year and into the beginning of 2024.
Okay.
Turning to slide 10, the industry operating environment remained soft during the third quarter as the combined effects of recent market volatility.
Pact of higher interest rates and high inflation continued to weigh on sentiment and savings levels.
Canadians are reviewing their financial picture in light of elevated interest rates.
Paying down floating rate and other high cost debt is being prioritized by many Canadians across wealth segments.
Savings are also being consumed to support consumption during this period of higher inflation.
We expect these factors to continuous headwinds for overall industry net sales during the coming quarters.
However.
Our businesses continue to compete well through this environment, where good financial planning and financial advice is highly valued.
Slide 11 presents Itm's consolidated average M&A and earnings results, both of which I spoke to in my opening comments.
Yeah.
Slide 12 highlights earnings across our core operating companies and strategic investments.
I'd remind that our earnings pick up from China, AMC and life co.
Excuse me include the impact of the transactions that closed earlier this year.
Are we doubled our ownership position in China, AMC and decreased our stake in great West Lifeco to two 4%.
Our earnings pickup for life Coke continues to be based on consensus estimates and.
In this quarter and includes an $8 million true up for last quarter S. Life Coke continues to report after I GM financial.
Turning to slide 13, Q3, ending AUM and a at our operating companies was up 6% 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 5% over the last year in local currency. However.
However, this increase was offset by the depreciation of beyond relative to the Canadian dollar over the same time period.
Slide 14 breaks down Itm's net flows by company, along with north sleeves fundraising activity during the third quarter.
Turning to slide 15, I want to remind our stakeholders of our upcoming Investor day on December 5th in downtown Toronto.
The half day event beginning in the morning will focus on the strategy of IGN. It's.
Its core wealth and asset management companies.
Health and Mackenzie and our four strategic investment companies wealth managers, Rockefeller capital management, and while simple and asset managers, China AMC at North sleep.
We look forward to showcasing how well we are positioned for sustainable profitable growth.
Please visit <unk> Investor Relations website to register.
We look forward to your participation either in person or virtually.
With that I'll turn the call over to Damon.
Thank you James and good morning, everyone, turning to slide 17, and wealth management's third quarter highlights, including hygiene, well Rockefeller and low simple.
<unk> ended the quarter with <unk> of $114 2 billion, a decrease of two 2% driven by financial markets gross inflows of $3 1 billion represented another strong quarter net outflows were just $18 million. During the third quarter are the dynamics that we experienced last quarter continued through Q3 I will speak to this on the net.
Slide Igt's gross outflows as a percentage of average over the last 12 months remained well below the industry and ended the quarter at 10, 6%, while the industry redemption rate was 16%.
On a later slide I'll also provide an update on our two strategic invest in companies that are focused on wealth management, Rockefeller and well simple Bofors posted strong results of the ROE in the third quarter.
Turning to slide 18.
You can see <unk> Q3 flows to put our currently flows into context I'll make a few points.
Firstly, our gross inflows remained strong.
But that's really what took place in the second quarter. Many of the redemptions that we saw in Q3 were partial in nature process and proceeds from these redemptions were used by our clients to pay down debt and to fund their lifestyles, given the inflationary environment when.
When interest rates are high economic uncertainty remains it can be prudent financial strategy, you adjust leverage and reinforce financial flexibility second.
Secondly.
While the nature of redemptions remains an industry story, what sets <unk> apart is that we're not simply focused on investing our clients' money. We're focused on all aspects of their financial lives and fostering lifelong intergenerational relationships on a later slide I'll provide further example of this as I speak to our new private company advisory business.
Turning to slide 19.
At the top right you will see that our IDM solutions as a percentage of total AOA remained strong.
Client cash Gic's hiser positions continue to represent an opportunity as our advisors to execute their quiet financial plans, including dollar cost averaging back in the markets over time.
Our trailing 12 months net flows rate of 0.4% supports our continued belief that we are winning market share through new client acquisition and greater share of wallet.
Lastly, we continue to deliver strong relative investment performance with 61% of our Athens ranked four or five star by Morningstar, 92% rated three stars or higher.
Turning to slide 20.
Our client value proposition continues to resonate as demonstrated by our success with new client acquisition, particularly with clients with assets over $500000. During the third quarter, we had $493 million in gross flows from newly acquired clients with over $500000.
Which has nearly tripled over the past five years and up 20% versus Q3 last year.
Gross inflows for newly acquired clients over $1 million represented over 25% of our newly acquired clients during the quarter a significant increase of 14% during Q3 2018.
Our sales growth within the high net worth segments during the third quarter was exceptional.
But we'd like to remind everyone that while over the long term. We continue to expect solid growth in these client segments quarter over quarter growth can be lumpy and this can be seen on the chart on the right hand part of this slide.
That said, our continued progress and growth in the high net worth segment remains a testament to our strong client value proposition and our ability to execute our high net worth strategy.
Turning to slide 21, this detailed the productivity of our advisors, which continues to be very strong.
Slide 22 is further validation of our success in executing against initiatives that drive advisor productivity long term business success that are all centered around our advisor and client experience.
Once again this year <unk> posted high ratings in the investment executive dealer report card <unk>.
<unk> a net promoter score that continues to place us among the top half as it relates to the full service brokerage arms of the big five banks.
The bottom of the slide illustrates the categories, where IGT wealth rated number one position in the industry.
We believe these categories are very important.
To illustrate our focus on investing in technology.
Supporting our clients and advisors with tool that elevate our comprehensive financial planning capabilities.
Ensuring our advisors have the products and solutions to meet the needs of high net worth Canadians.
And make sure that we have ongoing business and skill development for advisers to keep them growing in front of their clients with the process skill and knowledge they need to foster long term in a generational relationships.
On slide 23 from.
And probably spend a few moments on the launch of <unk> <unk> private company advisory business.
This business is intended to provide our clients with small and medium sized businesses with strategic transaction advisory services as well as support their succession planning.
We view this type of business as a differentiator as we continue to grow and move deeper into the high net worth segment.
Having the skills and capabilities to offer these services to our clients will help to cement relationships, providing an opportunity for advisers to incorporate business evaluation and monetization into our clients' overall financial plan and open the door to further engage small and medium sized business owners across the country.
As we develop this business we see this as a great example of a real opportunity to leverage the knowledge and learnings of Rockefeller.
Turning to slide 24, I'll provide a few updates to Rockefeller progress during the quarter and year to date.
Client assets were relatively.
Flat during the quarter as strong organic and inorganic growth were offset by negative market returns.
On a year to date basis client assets have grown approximately 14%.
Youre doing your organic growth is driven $3 $1 billion in client assets or approximately $1 billion a quarter on average.
New advisor teams were added during the quarter.
The adviser team growth remains on track to reach the $120 million of acquired production targets as laid out on the April Rockefeller call.
The teams that have joined Robert for the to date are averaging a larger asset base than initially forecasted.
As we have said when we announced our investment in Rockefeller They just need to keep doing what they're doing to execute very well and the results are in line with our expectations for the quarter.
Turning to slide 25.
The third quarter was another solid quarter for wealth simple if they continue to reinforce themselves as an important part of the Canadian wealth management ecosystem.
While simple in Q3 2000 and <unk>.
Q3 events, 7% it is up 42% year over year.
The new client served is approaching $2 3 million and represents a year over year increase of over 13%.
Simple continues to deliver strong results as they execute against their strategy, which you'll hear more about at our upcoming Investor day.
With that I'll turn it over to Luke Gould.
Great. Thanks, David and good morning, everyone.
So turning to page 27, a few comments on the quarter.
And when you can see we're ending AUM was down three 6% driven primarily by investment returns.
Two investment funds experienced net redemptions of $698 million during the quarter, which is in line with the soft industry environment.
78 billion, one or $15 billion Canadian during the quarter.
This followed net sales of 61 billion, one and Q2 or 10 billion Canadian and reflects an annualized at sales rate of 40 per cent of assets.
This also represents strong market share gains representing 30% of the healthy industry net sales of 273 billion one during the quarter.
And lastly, norfleet delivered 1.3 billion in new sales committments across multiple product offerings.
And I do want to highlight norfleet averaged a consistent $1 billion in new commitments each quarter. Since we began our partnership with him 11 quarters ago.
British like 28, you can see the trended history Mckenzie net flows during.
During the quarter, we experienced don't clothes that were in line with the industry and on the right hand side of the slide you can see a continuation of the last two quarters signs of stabilization within market. The remains volatile, but we don't see improvement yet.
Our gross sales were up 17% from last year, and we are encouraged by slight gains in our share of industry gross sales.
We can see and I know there are businesses ball position, we're focused on the right things at Mckinsey to drive share gains and produce significant net flow is when the industry rebounds.
Try to page 29, you can see Mackenzie Q3 offering results.
Ah results for the quarter is mentioned were in line with the industry and in line with expectations given the environment and you can see our net sales rate in relation to the industry in the bottom left.
On this slide I do want to highlight the table in the middle which shows the composition of our overall net sales by prototype and distribution channel I.
I'd first direct you to slide for institutional or sorry, I lied for them institutional investment funds, which you can see a net sales of $7 million in the quarter ended when I comment that this reflects strong net sales from our new relationship with per Erica, which were offset by moving to safety in line with the industry elsewhere.
Also in the sixth row institutional SMA, we had good net flows into Subadvisory counts that we sell advice to China AMC that were offset by net redemptions and other products in line with the industry and.
And overall you can see we had a slight improvement in net redemptions to $692 million.
Up from $890 million last year.
Turn to page 30.
You can see our retail mutual fund num investment performance in net sales by boutique.
We continue to demonstrate the benefits of strengths of our boutique structure with the performance and broad a range of highly relative relevant investment options across operate environments.
While economic uncertainty and industry trends continue to influence our sales. We also continues the strength based on the asset weighted per cent cells and morningstar ratings across several of our parties.
In terms of boutiques, where we're gaining market share and have noteworthy net flow is relative to peers Green chip blue water global equity in income and the U S growth mandates within our sub advised are contributing.
I'd also highlight that we have strong emerging one and three year performance on in many of our boutiques and this includes our global equity boutique where are emerging markets mandates are normally talk in Canada, but also among the top in the world and the one three and five year periods.
We're actively promoting these boutiques in located in retail and also to global institutional clients.
Turn to page 31 at Highlander left that the Chinese mutual fund industry totally U M decreased by 1% for the quarter as net inflows of 128 billion, one word offset by slate market declines.
This is in contrast to trade Emcees mutual fund growth of 5%, which I highlighted earlier and will speak to on the next slide.
I do want to remark also on the right hand side of page 31, you can see China Emcees market position remains very strong is the second largest fund manager in terms of long term mutual funds.
You want a highlight market shares increased year over year from 4.6% to 5%.
Serena page 32.
China M. C continues to show its strength and ability to drive a U M group growth even within a market.
A market of uncertainty.
Through the leverage creative bites brand distribution reach and breadth of capabilities. We saw strongest sales of 78 billion, one or 15 billion Canadian the quarter and as mentioned earlier. This is an annualized net sales rate of 40 per cent of assets and also fall those 10 billion in Canadian net sales in queue to.
This drove the north worthy market share gains review and the last line and the net sales were diversified across a number of the matic product offerings.
And then turn to page 33, you can see Norfolk's EUM now stands at $26.9 billion up 11.6% year to date, driven by new commitments of 1.3 billion in the quarter and 2.8 billion year to date as mentioned new commitments have averaged $1 billion consistently over the living quarters. Since we started our partnership with north.
And flows continue to be diversified across northeast private equity infrastructure and private credit offerings.
And I'll turn the call over to keep water. Thank you Luke and good morning, everyone. On Slide 35, you can see our M&A that tried it on the left shows ending assets were down three per cent during the quarter mile average assets remained relatively flat.
Slide 36 shows are EBIT in millions of dollars on the left and a percentage of au M&A on the right of a few comments on the left chart on adjusted EBIT first the proportionate share of associate earnings and net investment income was down and.
In Q3 relative to Q2 with lower earnings from life co China emcee in North Leif, partially offset by Rockefeller <unk>.
Second wealth management fees at I G and that management cheese at Mckinsey are up in Q3 relative to Q2, and finally can see at the bottom we had a decrease in expenses from Q2, primarily from lower seasonal spend such as conferences and travel entertainment.
On the right you can see adjusted EBIT margin is up versus last quarter and in line with Q3 2022.
Turning to slide 37, we have our consolidated earnings at IGN on two operations and support and business development expenses combined increased 3.6% year over year consistent with our expectations and we are maintaining our guidance of no more than two per cent growth for the year on three as a reminder, discontinued operations.
<unk> includes Ipc's earnings and the short term financing expense for Rockefeller.
Just a couple of points here first Ipc's earnings were approximately four and a half million dollars and a quarter and a difference is just over $6 million is interest expense on the short term facility and that would be on an after tax basis.
Also as a reminder, we intend to pay down the facility with the closing of the IPC transaction, which is expected during the fourth quarter.
The key profitability drivers for I G. On page 38 are in line with our expectations and past guidance.
On slide 39, and you can see <unk> overall earnings of $113.3 million is up for $3, 4% relative to Q3 2022.
Primarily due to higher average annual M&A and the impact it had on revenue as well as slightly higher contributions from other financial planning revenue and more specifically the mortgage business. Finally, the combination of business development and operations support expense were up 3.7% year over year.
Moving to slide 40, you can see Mckenzie is <unk> by client and product pipe as well as net revenue rates I don't have much to say on this slide.
But main point focusing on the Blue line on the right you can see net Matt net management fee rate for third party clients, Excluding Canada life was 81.1 basis points and was up slightly due to having one extra day in the quarter turn revenue while trailer fees are paid based on a number of months in the year and not the number of days.
Turning to slide 41, you can see Mackenzie as earnings of $56.5 million down 3.4 per cent Q3, 2000 relative to Q3 2022 on.
<unk>, one operations and support business development expense were up 3.5% relative to 2022 and this is partly due to the lower sales link compensation expense into comparative period during 2022.
Slide 42 has China emcee results on the left totally O M. A R. M. B 1.8 trillion was up 1.3 per cent quarter per quarter Longterm investment fund Num was up 5.2 per cent quarter over quarter, driven by positive net flows which more than offset negative market returns absolute disgust.
With respect to earnings on the right. The sequential decrease as in line with our guidance provided last quarter of approximately 10% and is driven primarily from the fee adjustments and the exchange rate that I spoke to on our queue to call.
Turning to slide 43 here you can see a breakdown of earnings and fair values of our strategic investments and unallocated capital.
Three main comments on the slide first you can see light co earnings are down from Q3, 2022, which reflects our lower ownership of 2.4% in 2023 relative to 4% in 2022 and the negative true up at $8 million from last quarter at James mentioned.
Second I spoke to on the caller.
Spoke.
Last quarter.
We expected lower earnings for north leaf for the quarter due to growth oriented investments made in the business and Q3. There was also a year in tax accrual impacting results by approximately $1 million. We do expect earnings to improve in queue for you to higher revenue from invested capital and seasonally lower expenses and looking forward to Q.
Four we would expect something closer to $3 million for a proportionate share of Norfleet associate earnings after.
Noncontrolling interest.
Partially offsetting these points above that I just spoke to.
What's positive earnings contribution from Rockefeller.
Finally, and slide 44, we present, our typical some of the park's view I would remind that the equity value ascribed to discontinue operations represents the 575 million estimated sale price of IPC left the $550 million bridge financing facility as I mentioned, we expect this transaction to close during the fourth <unk>.
Quarter and with that I'll ask the operated open the line for questions.
Thank you we will begin the question and answer session.
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Our first question comes from neck, Priebe Ah CIBC capital markets. Please go ahead.
Okay. Thanks for the question.
I think you highlighted that China Amc's net sales rate on longterm funds was about 40% on an annualized basis in the quarter, that's a big number and it looks like the broader industry experienced a more moderate net sales rate than that on longterm funds. So can I just ask you to expand on what the companies.
Doing differently than its competitors like what's driving those market share gains.
Jesse Nichols of things when it's Luke.
So first deposition trying mcse as much like Mckinsey, it's very broad.
Capabilities and offerings across asset classes and across prototypes and it's also very broad is the.
<unk>.
The distribution.
So so that's the starting point right now index oriented products are selling very well across the number of the magic products. So things like technology one of their most popular funds last quarter was a gaming and animation, but these exposures are doing very well for rent for China obscene, it's really leveraging the breadth of its offering combined with the.
The breath is distribution to gain share.
Okay, maybe just stepping back for a moment you know in light of recent expense reductions that were made earlier this year, you know and the.
Continued challenging revenue environment in North America, I'm, just wondering how you're thinking about expense gross at the enterprise wide level for 2024 like should we be thinking about a similar level of growth 220 23.
Yeah, It's Keith Thanks, Nick Yeah, you know what I do at this point in time, we're really continued to be focused on you know the diligent expense management, but also making sure we're investing the company and investing those things to enhance the client value proposition and grow so I I think that I'm thinking about 2024.
Sure, we'd still be planning for some level of expense crooke, but again, we're gonna be prudent in that level.
We we typically provide specific guidance in February and we will provide an update at the upcoming an investor day.
Yeah, Okay fair enough that's it for me I'll requeue thinks.
Our next question comes from Tom Mackinnon of BMO capital. Please go ahead.
Yeah. Thanks, very much good morning here just a couple of questions. Good financial planning revenue in I G and I think it's related a mortgage was there anything unusual in the quarter. There like it doesn't look as if there's a lot of increasing kind of mortgage activity, but.
Maybe you can elaborate a little bit on that thanks, yeah.
Yeah, It's Keith here I'll I'll I'll take that yeah, you know I think it was a solid quarter across the mortgage business as well as the insurance business. So insurance you know I had a good quarter as well pump.
The mortgage banking business there were a few things going on I would say I would say that invest net interest income.
Kind of in line with expectations, but there were lots on sales there was.
Some fair value adjustments.
Created a little bit of variability in the period, you know I would say kind of on a go forward basis, we had called it a 10 million dollar contribution this quarter, you know probably something closer to $7 million I would say it would be more of a normalized.
Ah number there for Ya.
Just given the some of the fair value adjustments that we saw this quarter.
Do expect to the business, though to be volatile given the interest rate environment.
With rates kind of rising and falling over the over the coming quarters.
But but over okay solid across across the business.
And Rockefeller to how should we be thinking about that like yeah. It looks like the ending assets were the same quarter over quarter, yet last quarter. It was the lawsuits 2 million in this quarter was a gain of 1.1 so.
Any any way.
<unk>, what we should be expecting from Rockefeller going forward.
Yeah.
When you look at the ending assets during the period is actually a kind of a reverse V. So you can think about the ending of the average acids being hired this court.
[noise] drivers of growth in terms of.
Bringing on new advisors, you know continuing to to onboard and and gaining organic growth I think that's what you saw this quarter. So there was nothing special standing out there, but I would note.
As we look to the end of September and into October you know asset levels that cross all wealth and asset managers have taken a hit due to market. So expect that as we head into the fourth quarter.
That asset levels are lower than what they were so I would Tom I'd be looking at something that would be lower than a quarter just based on that the other thing I would just mentioned as we did.
You know I didn't mentioned the last call that there's an equity based compensation program being finalized.
It's not finalized yet I will update but I would look at something closer to between where they were last quarter and where they are this quarter. It as a as a reasonable estimate at this point.
Okay, and if I could just squeeze one more of the launch of the private company advisory.
Like expenses associated with that or was this sort of plan I think when you had your expense saves you were gonna put half back into the business is this one of the beneficiaries of that strategy.
Hey, Donald it's David Yes, it's definitely one of the one of the investments that we plan to make this is this is a big addition to this business and you know we believe that the business a little bit Dizzy self funding.
When it when it's up and running and it's it's full scale you know at the end of the day with this allows us to do is tap into.
The small medium sized business monetization opportunity that is present in this country right now with the ageing population you know you're looking at three quarters of the small medium sized businesses. In this country you will be sold within the next 10 years and.
And that's going to generate significant well if it's not in the system. You know the estimated over two trillion dollars. This allows us to add value to our small medium sized business clients by evaluate and monetizing their business.
And it allows us to attract new and swollen medium sized business clients that are currently in our ecosystem.
Great that's it for me thanks.
Our next question comes from Jeffrey <unk> of RBC. Please go ahead.
Yeah, maybe I'll start off just.
With Tom's question on the private company advisory sides I mean, it's just I guess another.
An example of it at the new product or service that cheap rolled out over the years just wondering if there's other uhm other products or service gaps that you'd like to be addressed going forward.
Yeah, So the way that we see the opportunity Jeff and the country is you know going forward, there's gonna be there's gonna be key drivers it'll determine the success of.
You know any type of wealth management organization and you know it starts with tax planning and optimization, just given a high tax rates in this country and in the future of tax rates number two is a retirement planning and readiness because of the age of the population.
Once again because of the same age as all of those estate planning image of intergenerational well transfer and then continuing on that world transfer theme. It is small medium sized business monetization.
Along with those things you have high net worth you know financial literacy and you'll have legacy planning.
And and philanthropy. So you know that you know when you look at when you look at those opportunities in those drivers in this country, you're going to be looking for our organization to align our services are advice lotto and our products to those opportunities going forward.
Okay Uhm just my second question was on slide forty-three, just where you show the fair value of the Street strategic investments. There was you know flat quarter Mccourt I know it's equity counted.
Just wanted to I guess better understand you know what are.
Some of the examples.
That would have.
The value of.
Individual or collectively the group value changing both up and down.
It's Keith here in jeopardy, you're referring to the Ah you're referring to the strategic investment the the portfolio. There yeah. Yeah I just wanted to take a look at the value that you <unk> you too it was largely flat corner recorder. Yeah. You know we would I mean life co was obviously, we have a market value there we.
We fair value Ci wealth simple on a on a on a quarterly basis.
And we spoke to China and see last quarter.
So every single quarter, we would look at Ah well simple the performance of the business you know public traded companies multiples in in a number of other a variety of evaluation approaches.
So that would be well simple normally if we've just maintained and used carrying value on that particular investment I spoke to last quarter, China M C, where we'd look for inflection points within the business to business growth in the industry and has commented and as you know last quarter.
We changed a fair value there.
So I would say from quarter to quarter will continue to look and assess.
You know various views of value and would update on an ongoing basis.
But with volatility from quarter to quarter, where we're not going to be in a big hurry to you know to move things around here you know with the exception of wealth simple, where we do fair value for OCI on according basis.
Okay. Thank you.
Our next question comes from Graham riding of T. D Securities. Please go ahead.
Hi, Good morning, maybe I can sort of James I'm, just thinking about sort of the industry longterm funding flows.
And obviously yourselves, what do we need to see here too.
Get things moving positive in the right direction again is it really around interest rates coming lower volatility in the markets, becoming lower as well.
Yeah, Thanks, Graham well I mean, I've I've said I think I I certainly think.
We need to see peak inflation, which we've seen peak policy rates, which I believe we've seen and we need to see the bond market settled down and.
We've seen very little evidence of of that I I I do think that some of those three create some more kind of constructive back.
Backdrop generally.
But you know the point that Damon and I made with respect to the impact of of ongoing inflation and.
Higher interest rates on Canadians is is a is a is is one that is more persistent than those first three.
Things so our our outlook here would be for another couple or few quarters of of you know challenges for the industry.
So I I think 2024 is shaping up to be a soft in the first half and stronger in the in the back half and we'll we'll we'll see where it nuts.
But I think if we just look at you know consensus economic forecasts for how.
For how rates Mike move.
Ah through 2024, I I I, certainly see the potential indeed, if not the likelihood for for a substantially better back half of 2024.
Okay, Great and would you would you expect sort of.
Fixed income maybe the outset closet retail investors start to move in first or.
But not as simple as simple as that.
Yeah I think.
You know I I, certainly think fixed income has become substantially more attractive as we as the curve has has moved as it has moved.
But you know our our advisers at I G N a D V advisors.
Mackenzie serve so it's going to be having conversations with their clients and.
You know we we we.
The large majority of the young clients served by our businesses have have balance portfolios. So we we didn't we would accept expect to see.
You know some movement and flows on both equity and fixed income.
Okay great.
Dana maybe I'll just jump to you with this private company Uhm Advisory initiatives do you know how much of your your current and U M.
Or your current high net worth AUN, we'd be household with with entrepreneur behind.
Small to medium size business.
Yeah, you know that's that's competitive intelligence right now and we'll look to kind of share more of this investor day, but I would say to you you know from a from a general perspective.
The number of clients. So we service after that one small and medium sized businesses is is not large but they make up a substantial portion of our assets.
Yeah. The other thing the other things that I'd point out as it is as a daemon succeeds as he has succeeded in moving I G more and more towards you know and into the kind of behind that were space.
You're just gonna encounter more and more business owners because it is this is this is a great country, but it's not an easy country to gain wealth and many of those with wealth owned businesses correct.
Yep, Okay cause he was about positioning.
For your current coin bitcoin base, but also trying to <unk>.
Increase your mortgage hearing that channel Yeah, I would look at them and I would look at it as a significant new client acquisition opportunity.
Okay great.
And then look just one last question if I could.
I guess you talked about your perception ranking uhm, what needs to be done and your immune to get that that ranking up to number two or number one and then is there.
And you're experiencing a strong correlation there between that ranking in the market share of industry flows.
Yeah, Great question and there there really is that correlation that again, it's there's many many participants were tied for number two last year. It's actually yeah fidelity has been a consistent number one in an edge points number two currently right now to get to get up there to the number one spot there's 43 dimensions and the study forty-three court.
Sure that measures everything that matters to a financial adviser from a proper butter and we're trying to be the very best in every one of those so for me, it's really about quality and operational excellence and how we're serving advisers at the products that were that were bringing to them.
And we're looking to be number one in all those measures everyday.
Okay.
Great that's it for me thanks.
Once again, if you have a question. Please press Star then one.
Our next question comes from Jane coin of N. B S. Please go ahead.
Yeah, that's good.
Good morning first question just on the redemption right in the <unk> business now I think I think it was reported around 10.6% still out performing the industry of course, but it is approaching your previous peaks and so I'm just curious if your.
If there's anything different going on with that with your customer than in the past and is that increase concerning Q as we look into the early part of 24, which shapes, you said might be a little bit weak a little bit more color on that please.
Yeah, Jamie it's Damon I would say that there's nothing specifically different that's going on with our points. It's really a function of the fact that there is a higher you know everything is more expensive these days.
And and Canadian have debt.
And when you do the math.
It makes sense to pay down debt versus you know invest your marginal dollar with with rates where they are.
Because we would take a planning approach to everything we do with our clients.
Naturally going to lead us to make sure that we provide the type of advice that is going to benefit them long term.
And that does mean pay down debt.
So you know with the environment. The way. It is we see this persisting for a few quarters, but at the same time.
You know when you take a look at our business with our existing clients you do see.
The redemption, increasing and obviously, that's a function of what I just talked about but you also see that there is huge demand for the advice that we provide.
You know with Canadian it's going through what they are today, they're they're looking to sit down with advisers that are gonna explain to them. You know how is this going to impact my financial future.
And the fact that you know 28 per cent of the new clients we brought in.
In Q3, where a million dollars or more should show you that.
Value proposition resonates in the marketplace. So, although it's tough environment for our existing clients. It's a great time for us to acquire decor.
Yeah, and just following up on that would you like are you in that redemption right are you seeing it more in your I don't know, let's say less wealthy clients compared to your more wealthy clients. Like is there is there any sort of differentiation along with a longer customer types. Yeah. There is differentiation I think the the the.
The lower the value of the client's portfolio the higher the redemption right.
Cause they're stung more on they need the money to to to subsidize our lifestyle.
As you move up to high net worth.
They have more disposable income, they're partially redemptions, a lotta times or just to to pay down debt.
So oh.
You're in modeling it out he wouldn't you wouldn't want a load of higher redemption rate for the lower valley.
That's good last question just on the dealer report card rating steady increases from 2019 to 2022 for the industry in yourselves.
What what would cause a decrease in 2023 I you know I can see that you are outperforming but I'm just curious as to what would have a drug that that rating lower this year. Yeah. I think any time you go back in the history of this study and look at.
A year that precedes a year, where the market drops you find advisors just.
They'll they'll right organizations tougher because the drop in the market.
Immediately impacts our compensation.
Right. So you see that that is just typical of the industry and I don't think that's going to change anytime soon.
Okay. Thank you.
Oh.
This concludes the question and answer session I would like to turn the conference back over to Kyle Martin's for any closing remarks.
Thank you Errol and thank you everyone for joining in the call. This morning, we certainly look forward to seeing many many of you at our Investor day in downtown Toronto on December 5th.
Ariel with that we can 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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