89bio Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 4 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the IGM 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 will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Kyle Martins, Treasurer and Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, Ariel, Good morning, everyone, and welcome to IGM Financial's 2023 Third Quarter Earnings Call. Joining me on the call today are James O'Sullivan, President and CEO of IGM Financial Damon Murchison, President and CEO of IG Wealth Management Luke Gould, President and CEO of Mackenzie Investments and Keith Potter, Executive Vice President and CFO of IGM Financial. Before we get started, I would like to draw your attention to our cautions concerning forward looking statements on slide 3 of the presentation. Slides 45 summarize non IFRS financial measures and other financial measures that are used in this material. On slide 6, we provide a list of documents that are available on our website related to iGen Financial's 3rd quarter results.

Speaker 1

I'll turn it over to James.

Speaker 2

All right. Thank you, Kyle. Good morning, everyone, and thank you for joining us once again. We'll start with slide 8 to cover some of the highlights for the Q3. Adjusted EPS of $0.88 up sequentially And driven by strong results in our core businesses, IG Wealth and Mackenzie.

Speaker 2

Our operating company's AU M and A Stood at about $253,000,000,000 at the end of September. Now when we add our proportionate share of our strategic investments AU M and A that was $400,000,000,000 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 through the assets added with our doubling of our equity interest in China AMC And the acquisition of our 20.5 percent equity interest in Rockefeller Capital Management. Our reported net outflows were $549,000,000 during the quarter. While not included in this metric, we do think it important To note the strong growth in our other businesses. For example, Northleaf had $1,300,000,000 of new commitments during the quarter And China AMC generated a truly remarkable investment funds Net flows of approximately $15,000,000,000 in Canadian dollar terms during the quarter.

Speaker 2

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 us finding efficiencies across the organization and 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 month, we look forward to hosting the investment community at our investment at our Investor Day, excuse me, In Downtown Toronto. Turning to slide 9.

Speaker 2

While the first half of twenty twenty three delivered Positive client returns driven by generally strong equity and fixed income markets. The 3rd 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. Turning to slide 10. The industry operating environment remained soft during the Q3 as the combined effects Recent market volatility, the impact 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.

Speaker 2

Savings are also being consumed to support consumption during this period of higher inflation. We expect these factors to continue as headwinds for overall industry net sales during the coming However, our businesses continue to compete well through this environment Where good financial planning and financial advice is highly valued. Slide 11 presents IGM's consolidated average AUM and A and earnings results, both of which I spoke to in my opening I'd remind that our earnings pickup from China AMC and Lifeco excuse me include the impact of the transactions that closed earlier this year. We doubled our ownership position in China AMC and decreased our stake And Great West Lifeco to 2.4%. Our earnings pickup for Lifeco continues to be based on consensus estimates.

Speaker 2

And this quarter includes an $8,000,000 true up for last quarter as Lifeco continues to report after IGM Financial. Turning to slide 13. Q3 ending AU M and A at our operating companies was up 6% Over the past 12 months, the growth in our proportionate share of our strategic investments AUM 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, this increase was offset by the depreciation of the yuan relative to the Canadian dollar Over the same time period.

Speaker 2

Slide 14 breaks down IDM's net flows by company along with Northleaf's Fundraising activity during the Q3. Turning to slide 15, I want to remind our stakeholders of our upcoming Investor Day on December 5 in Downtown Toronto. The half day event Beginning in the morning, we'll focus on the strategy of IGM, its core wealth and asset management companies, IG Wealth and Mackenzie And our 4 strategic investment companies wealth managers, Rockefeller Capital Management and WealthSimple and asset managers, China AMC We look forward to showcasing how well we are positioned for sustainable profitable growth. Please visit IGM's Investor Relations website to register. We look forward to your participation Either in person or virtually.

Speaker 2

With that, I'll turn the call over to Damon.

Speaker 1

Thank you, James, and good morning, everyone. Turn to slide 17 and Wealth Management's 3rd quarter highlights including IG Wealth, Rockefeller and WealthSimple. IG Wealth ended the quarter with AUA of 114 point $1,000,000,000 a decrease of 2.2 percent driven by financial markets. Gross inflows of $3,100,000,000 represent another strong quarter. Net outflows were just $18,000,000 during the Q3 and the dynamics that we experienced last quarter continued through Q3.

Speaker 1

I'll speak to this on the next slide. Hygiene's gross outflows as a percentage of average AUA over the last 12 months remain 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 2 strategic investment that are focused on Wealth Management. Rockefeller and WealthSimple. Bofors posted strong results of their own in the 3rd quarter.

Speaker 1

Turn to slide 18. You can see I. D. Wells' Q3 flows. To put our quarterly flows into context, I'll make a few points.

Speaker 1

Firstly, our gross inflows remain strong. But as with what took place in the Q2, many of the redemptions that we saw in Q3 were partial in nature. Proceeds from these redemptions were used by our clients to pay down debt and to fund their lifestyles given the inflationary environment. When interest rates are high and economic uncertainty remains, it can be prudent financial strategy to adjust leverage and reinforce financial flexibility. Secondly, While the nature of redemption remains an industry story,

Speaker 2

what sets IG apart is

Speaker 1

that we're not singly focused on investing our clients' money. We're focused on all aspects of their 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 IGM solutions as a percentage of total AUA remains strong And client cash GIC's HISA positions continue to represent an opportunity as our advisors execute their client financial plans including Dollar cost averaging backing the markets over time.

Speaker 1

Our trailing 12 month net flows rate of 0.4% supports our continued belief that we are winning market share The new client acquisition and greater share of wallet. Lastly, we continue to deliver strong relative investment performance with 61% of our assets ranked 4 or 5 star by Morningstar 92% rated 3 stars are higher. Turn 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 $500,000 During the Q3, we had $493,000,000 in gross flows from newly acquired clients with over $500,000 Which has nearly tripled over the past 5 years and up 20% versus Q3 last year. Gross inflows from newly acquired clients over $1,000,000 represented over Our sales growth within the high network segments during the Q3 was exceptional.

Speaker 1

But we'd like to remind everyone that while over the long We continue to expect solid growth in these client segments. Quarter to quarter growth can be lumpy and this can be seen on the chart on the right hand part of this slide.

Speaker 2

That said, our continued progress and growth in

Speaker 1

the high net worth segment remains a testament to our strong client value proposition and our ability to execute our high net worth strategy. Turn to slide 21. This details 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 businesses success that are all centered around our advisory and client experience. Once again this year, IG Wealth posted high ratings In the invested executive dealer report card, including 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.

Speaker 1

The bottom of the slide illustrates the categories where IG Wealth rated number 1 position in the industry. We believe these categories are very important As they illustrate our focus on investing in technology, supporting our clients and advisors with tools 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 advisors To keep them growing in front of their clients with the process, skill and knowledge they need to foster long term intergenerational relationships. On slide 23, I'm proud to spend a few moments on the launch of IG Wealth's private company advisory business. This business is intended to provide our clients who own small and medium sized businesses with strategic transactionally advisory services as well as support their succession plan. We view this type of business as a differentiator as we continue to grow and move deeper into the high net worth segment.

Speaker 1

Having the skills and capabilities to offer these services to our clients will help to cement relationships, providing an opportunity for 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 real opportunity to leverage the knowledge and learnings of Rockafell. Turn to slide 24. I'll provide a few updates to Rockapula's progress during the quarter year to date. Client assets were relatively flat during the quarter as strong organic and inorganic growth were offset by negative market returns.

Speaker 1

On a year to date basis, client assets have grown approximately 14%. Year to date organic growth has driven $3,100,000,000 in client assets or approximately $1,000,000,000 a quarter on average. 4 new advisor teams were added during the quarter. The Vodka team growth remains on track to reach the $120,000,000 acquired production target as laid out on the April Rockefeller call. The teams that have joined Rockefeller to date are averaging a larger asset base than initially forecasted.

Speaker 1

As we have said when we announced our investment in Rockefeller, They just need to keep doing what they're doing. They execute very well and the results are in line with our expectations for the quarter. Turning to slide 25. The Q3 was another solid quarter for WealthSimple as they continue to reinforce themselves as an important part of the Canadian wealth management ecosystem. Wealthsimple AUA in Q3 advanced 7% and is up 42% year over year.

Speaker 1

The new client service is approaching $2,300,000 and represents a year over year increase of over 13%. WealthSimple continues to deliver strong results as they execute against their strategy, which you will hear more about in our upcoming Investor Day. With that, I'll turn it over to Luke Gould. Great. Thanks, Damon.

Speaker 1

Good morning, everyone. So turning to page 27, a few comments on the quarter. In point 1, you consider ending AUM was down 3.6%, driven primarily by investment returns. In point 2, investment funds experienced net redemptions 698,000,000 during the quarter, which is in line with the soft industry environment. On point 3, we received the results of the annual adviser perception at the end of the quarter that was conducted during April May of this year.

Speaker 1

We're proud of the results, which continue to demonstrate our strong position as a market leader in Canadian asset management. Our overall score was 3rd and this is our 7th consecutive year ranking top 3. We also continue to rank 2nd in terms of advisor sales penetration. That's the percent of advisers actively selling our products and we have this rank across all distribution channels. And we also continue to rank number 2 in brand equity.

Speaker 1

As we continue to focus on winning in Canadian Retail, we remain committed to the success of clients and advisors. Our consistently strong scores in the advisor perception study Our function of the focus and hard work of Mackenzie team and doing our best to deliver on the 43 underlying dimensions of the study That measures what matters to financial advisors for a product provider. On point 4, as mentioned by James earlier, China AMC Long Term AUM growth was 5% in the quarter in the context of slight market declines and this was as a result of continuing Very strong net flows of KRW 78 billion or KRW 15 billion during the quarter. This followed net sales of 61,000,000,000 in Q2 or CAD10 1,000,000,000 and reflects an annualized net sales rate of 40% of assets. This also represents strong market share gains, representing 30% of the healthy industry net sales of KRW273 billion during the quarter.

Speaker 1

And lastly, Northleaf delivered $1,300,000,000 in new sales commitments across multiple product offerings. I do want to highlight Northleaf's averaged A consistent $1,000,000,000 in new commitments each quarter since we began our partnership with them 11 quarters ago. Turning to slide 28, you can see the trended history of Mackenzie's net flows. During the quarter, we experienced outflows 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 markets that remain volatile, but we don't see any improvement yet.

Speaker 1

Our gross sales were up 17% from last year and we are encouraged by slight gains in our share of industry gross sales. We continue to know that our business is well positioned. We're focused on the right things at Mackenzie to drive share gains and produce significant net flows when the industry rebounds. Turn to page 29, you can see Mackenzie's Q3 operating results. Our results for the quarter as mentioned were in line with the industry and in line with expectations given the environment You can see our net sales rate in relationship industry in the bottom left.

Speaker 1

On this slide, I do want to highlight the table in the top middle, Investment Funds, which you can see had net sales of $7,000,000 in the quarter. I did want to comment that this reflects strong net sales from our new relationship with Premerca, Which were offset by moving to safety in line with the industry elsewhere. Also in the 6th row institutional SMA, we had good net flows into sub advisory accounts That we sub advised to TriNet MC that were offset by net redemptions and other products in line with the industry. And overall, you can see we had slight improvement in net redemptions $692,000,000 up from $819,000,000 last year. Turning to page 30.

Speaker 1

You can see our retail mutual fund AUM investment performance in net sales by boutique. We continue to demonstrate the benefits and strengths of our boutique structure with performance and broad range of highly relevant investment options across operating environments. While economic uncertainty and industry Trends continue to influence our sales. We also continue to see strength based on the asset weighted percentiles and Morningstar ratings across several of our boutiques. In terms of boutiques where we're gaining market share and have noteworthy net flows relative to peers, Greenchip, Bluewater, Global Equity and Income And the U.

Speaker 1

S. Growth mandates within our sub advised are contributing. I'd also highlight that we have strong emerging 1 and 3 year performance on in many of our boutiques And this includes our Global Quant Equity boutique where our emerging markets mandates are not only top in Canada, but also among the top in the world In the 1, 3 and 5 year periods, where we're actively promoting these boutiques in both Canadian retail and also to global institutional clients. Turn to page 31. I'd highlight on the left that the Chinese mutual fund industry total AUM decreased by 1% in the quarter As net inflows of KRW 128 billion were offset by slight market declines.

Speaker 1

This is in contrast to Chinese New growth of 5%, which I highlighted earlier and we'll speak to on the next slide. I do want to remark also on the right hand side of page 31, You can see Chinese Sea's market position remains very strong as the 2nd largest fund manager in terms of long term mutual funds. And I do want to highlight market share has increased Year over year from 4.6% to 5%. Turning to page 32. China MC continues to Show its strength and ability to drive AUM growth even within a market a market of uncertainty.

Speaker 1

Through the leverage created by its brand, Distribution reach and breadth of capabilities. We saw strong net sales of KRW 78,000,000,000 or KRW 15,000,000,000 in the quarter. And as mentioned earlier, this is an annualized net sales rate of 40% of assets and also follows CAD 10,000,000,000 in Canadian net sales Q2. This drove the noteworthy market share gains we view on the last line and the net sales were diversified across a number of thematic product offerings. And then turn to page 33, you can see Northleaf AUM now stands at $26,900,000,000 up 11.6% Year to date, driven by new commitments of $1,300,000,000 in the quarter $2,800,000,000 year to date.

Speaker 1

As mentioned, new commitments have averaged $1,000,000,000 consistently We've been live in the quarter since we started our partnership with Northleaf and flows continue to be diversified across Northleaf's private equity infrastructure and private credit offerings. And I'll turn the call over to Kew Potter. Thank you, Luke, and good morning, everyone. On slide 35, you can see our AUM and A. The chart on the left shows ending We're down 3% during the quarter, while average assets remain relatively flat.

Speaker 1

Slide 36 shows our EBIT in 1,000,000 of dollars on the left A percentage of AUM and A on the right. I have a few comments on the left chart on adjusted EBIT. First, the proportionate share of associated earnings and net investment income was down In Q3 relative to Q2 with lower earnings from Lifeco, China MC and Northleaf partially offset by Rockefeller. 2nd, wealth management fees at IG and net management fees at Mackenzie are up in Q3 relative to Q2. And finally, you can see at the bottom, We had a decrease in expenses from Q2 primarily from lower seasonal spend such as conferences and travel and entertainment.

Speaker 1

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 IGM. On point 2, operations and support and business development expenses combined increased 3 point percent year over year consistent with our expectations and we are maintaining our guidance of no more than 2% growth for the year. On point 3, as a reminder, discontinued operations includes IPC's earnings and the short term financing expense for Rockefeller. Just a couple of points here.

Speaker 1

First, IPC's earnings were approximately $4,500,000 in the quarter and The difference is just over $6,000,000 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 Q4. The key profitability drivers for IG on page 38 are in line with our expectations and past guidance. On slide 39, you can see IG's overall earnings of $113,300,000 is up 3.4% relative to Q3 2022, Primarily due to higher average AU M and 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.

Speaker 1

Moving to slide 40, you can see Mackenzie's AUM by client and product type as well as net revenue rates. I don't have much to say in this slide, But main point focusing on the blue line on the right, you can see net management fee rate for 3rd party clients excluding Canada Life was 81 point 1 basis points and was up slightly due to having one extra day in the quarter to earn 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's earnings of $56,500,000 were down 3.4 percent Relative to Q3 2022, on point 1, operations and support business development expense were up 3.5% relative to 2022. This is partly due to the lower sales linked compensation expense in the comparative period during 2022. Slide 42 has China MC results.

Speaker 1

On the left, total AUM of RMB 1,800,000,000,000 was up 1.3% quarter over quarter. Long term investment fund AUM was up 5.2% quarter over quarter driven by positive net flows, which more than offset negative market returns As Luke discussed, with respect to earnings on the right, the sequential decrease is in line with our guidance provided last quarter of approximately 10% and is driven Fair values of our strategic investments and unallocated capital, I have 3 main comments on the slide. First, You can see Lifeco 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 of $8,000,000 from last quarter that James mentioned. 2nd, I spoke to on the call Spoke on the last quarter, we expected lower earnings for Northleaf for the quarter due to growth oriented investments made in the business. In Q3, there was also a year end tax accrual impacting results by approximately $1,000,000 We do expect earnings to improve in Q4 Due to higher revenue from invested capital and seasonally lower expenses and looking forward to Q4, we'd expect something closer to $3,000,000 for our proportionate share of Northeast associate earnings after non controlling interest.

Speaker 1

Partially offsetting these points above that I just Spoke to was positive earnings contribution from Rockefeller. Finally on slide 44, we present our typical sum of the parts view. I'd remind that the Equity value ascribed to discontinue operations represents a $575,000,000 estimated sale price of IPC less the $550,000,000 bridge financing facility. And as I mentioned, we expect this transaction to close during the Q4. And with that, I'll ask the operator to open the line for questions.

Operator

Thank you. We will begin the question and answer session. Our first question comes from Nik Priebe of CIBC Capital Markets. Please go ahead.

Speaker 1

Okay. Thanks for the question. I think you highlighted that China AMC's net sales rate on long term 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 long term funds. So can I just ask you to expand on what the company is doing differently Then its competitors, what's driving those market share gains?

Speaker 1

Yes. Hey Nick, I'll take this one. It's Luke. So first, I position China MC as much like Mackenzie, it's very broad in its capabilities and offerings across asset classes and across product types. And it's also very broad.

Speaker 1

It's diverse. It's in distribution. So that's kind of the starting point. Right now index oriented products are selling very well across a number of thematic products. So things like technology, one of their most popular Last quarter was in gaming and animation, but these exposures are doing very well for China Sea and it's really leveraging the breadth of its offering combined with the breadth Okay.

Speaker 1

Maybe just Stepping back for a moment, in light of recent expense reductions that were made earlier this year and the continued challenging revenue environment In North America, just wondering how you're thinking about expense growth at the enterprise wide level for 2024? Like should we be thinking about A similar level of growth to 2023? Yes. It's Keith. Thanks, Nick.

Speaker 1

Yes. At this point in time, we're really Continue to be focused on diligent expense management, but also making sure we're investing in the company and investing in those things to enhance the client Value proposition and grow. So I think that thinking about 2024, we'd still be planning for some level of Expense growth, but again we're going to be prudent in that level. We typically provide specific guidance in February And we'll provide an update at the upcoming Investor Day. Yes.

Speaker 1

Okay. Fair enough. That's it for me. I'll requeue. Thanks.

Operator

Our next question comes from Tom MacKinnon of BMO Capital. Please go ahead.

Speaker 3

Yes. Thanks very much. Good morning, Garrett. Just a couple of questions. Good Financial Planning revenue In IG and I think it's related to mortgage.

Speaker 3

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.

Speaker 1

Yes. It's Keith here. I'll take that. Yes. I think it was a solid quarter across the mortgage business as well as the insurance business.

Speaker 1

So insurance had a good quarter as well, Tom. The mortgage banking business there were a few things going on I would say. I would say net interest income is kind of in line with expectations, but there were Loss on sales, there was some fair value adjustments that created a little bit of variability in the period. I would say kind of on a go forward basis, we had call it a $10,000,000 contribution this quarter, Probably something closer to $7,000,000 I would say would be more of a normalized number there for you, just given the some of the fair value adjustments that we saw Do expect the business flow to be volatile given the interest rate environment with rates kind of rising and falling over the coming quarters. But overall, it's solid across the business.

Speaker 3

And Rockefeller too, how should we be thinking about that? It looks like the ending assets were the same quarter over quarter. Yet last quarter, it was a loss of $2,000,000 and this quarter, it was a gain of $1,100,000 So Any way of helping us gauge what we should be expecting from Rockefeller going forward?

Speaker 1

Yes. When you look at the ending assets during the period, it's actually kind of a reverse fee. So you can think about the ending the average assets being higher this quarter. Key drivers of growth in terms of bringing on new advisors, continuing to onboard And we're gaining organic growth. I think that's what you saw this quarter, so there's nothing special standing out there.

Speaker 1

But I would note As we look to the end of September and into October, assets at levels across all wealth and asset managers have taken a hit due to market. Expect that as we head into the Q4 that asset levels are lower than what they were. So I would Tom, I'd be I did mention on the last call that there's an equity based compensation program being finalized. It's not finalized yet. I will update.

Speaker 1

But I would look at something closer to between where they were last quarter and where they are this quarter as a reasonable estimate at this point.

Speaker 3

Okay. And if I could just squeeze one more. The launch of the private company advisory, like expenses associated with that? Or was this sort of planned? I think when you had your expense saved, you were going to put half back into the business.

Speaker 3

Is this one of the beneficiaries of that strategy?

Speaker 1

Hey, Don, it's Damon. Yes, it's definitely one of the investments that we plan to make. This is a big addition To this business and we believe that the business will be self funding when it's up and running And it's full scale. At the end of the day, what this allows us to do is tap into the small and medium sized business monetization opportunity that is Present in this country right now with the aging population. You're looking at 3 quarters of the small, medium sized businesses in this country will be sold within the next 10 years.

Speaker 1

And that's going to generate significant wealth. It's not in the system estimated over $2,000,000,000,000 This allows us to add value to our small, medium sized business Clients by valuing and monetizing their business and it allows us to attract new and small and medium sized business clients that are currently in our ecosystem.

Speaker 3

Great. That's it for me. Thanks.

Operator

Our next question comes from Geoffrey Kwan of RBC. Please go ahead.

Speaker 1

Yes. Maybe I'll start off just With Tom's question on the private company advisory side, I mean it's just I guess another Example of a new product or service that you've rolled out over the years. Just wondering if there's other products or service gaps that you'd Like to be addressed going forward? Yes. So the way that we see the opportunity, Jeff, in the country is going forward, there's going to be There's going to be key drivers that will determine the success of any type of wealth management organization.

Speaker 1

And it starts with Tax planning and optimization, just given the high tax rates in this country and the future of tax rates. Number 2 is retirement planning readiness Because of the age of the population, once again because of the same age, it's all about estate planning and a generational wealth transfer. And then continuing on that wealth transfer theme, it is small medium sized business monetization. Along with those things, you have high net worth Financial literacy and you have legacy planning and philanthropy. So that When you look at those opportunities and those drivers in this country, you're going to be looking for our organization to align our Services, our advice model and our products to those opportunities going forward.

Speaker 1

Okay. Just my second question was on slide 43, just where you show the fair value of the strategic investments. It was Flat quarter over quarter, I know it's equity counted, but just wanted to I guess better understand 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. Jeff, are you referring to the strategic investment, The portfolio there?

Speaker 1

Yes. Yes. Just wanted to take a look at the value that you had for Q3 versus Q2. It was largely flat quarter over quarter. Yes.

Speaker 1

We would I mean Lifeco is obviously we have a market value there. We fair value through OCI Wealthsimple On a quarterly basis, and we spoke to China MC last quarter. So every single quarter we would look at WealthSimple, the performance of the business, Public traded companies multiples and a number of other variety of evaluation approaches. So that would be well simple. Northleaf, we've just maintained and used carrying value on that particular investment.

Speaker 1

I Spoke last quarter at China MC where we'd look for inflection points within the business, the business growth and the industry. And as commented and as you know last quarter, we changed the fair value there. So I would say from quarter to quarter, we'll continue to look and assess Various views of value and would update on an ongoing basis. But with Volatility from quarter to quarter. We're not going to be in a big hurry to move things around here with the exception of WealthSimple where we Fair value through OCI on a quarterly basis.

Speaker 3

Okay. Thank you.

Operator

Our next question comes from Graham Ryding of TD Securities. Please go ahead.

Speaker 1

Hi. Good morning. Maybe I can start with James. Just thinking about sort of the industry long term fund flows And obviously yourselves. What do we need to see here to get things moving positive in the right direction again?

Speaker 1

Is it really around Interest rates coming lower and volatility in the markets becoming lower as well?

Speaker 2

Yes. Thanks, Graham. Well, I mean, as I've said, I think 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 settle down. And We've seen very little evidence of that. I do think that some of those 3 creates a more kind of constructive Backdrop generally.

Speaker 2

But the point that Damon and I made with respect to the impact of ongoing inflation and Higher interest rates on Canadians is one that is more persistent than those first three So our outlook here would be for another couple or few quarters of challenges For the industry, so I think 2024 is shaping up to be soft in the first half and stronger in the back And we'll see where it nets. But I think if we just look at the consensus economic forecast for How rates might move through 2024, I certainly see the potential indeed if not the likelihood For a substantially better back half of twenty twenty four.

Speaker 1

Okay, great. And would you expect sort of fixed income to be the asset class that retail investors start to move in 1st or Is it not as simple as

Speaker 2

that? Yes. I think I certainly think fixed income has become substantially more attractive as we as the curve has moved as it has moved. Our advisors at IG and indeed the advisors that Mackenzie serves are going to be having conversations with their clients. And We the large majority of the end clients served by our businesses have balanced portfolios.

Speaker 2

So we'd expect to see some movement and flows on both equity and fixed income.

Speaker 1

Okay, great. Dana, maybe I'll just jump to you with this private company Do you know how much of your current AUM or your current high net worth AUM would be household with entrepreneurs that's behind A small to medium sized business? Yes. That's competitive intelligence right now. And we'll look to kind of share more of this at Investor Day.

Speaker 1

But I would say to you from a general perspective that the number of clients that we service that own small and midsize businesses It's not large, but they make up a substantial portion of our asset.

Speaker 2

The other thing that I'd point out is that as Damon succeeds as he has succeeded in moving IG More and more towards and into the kind of the high net worth space, you're just going to encounter more and more business owners because So it is this is a great country, but it's not an easy country to gain wealth. Many of those with wealth owned businesses.

Speaker 1

Yes. Okay. So this is about positioning for your current client base, but also trying to Increase your market share in that channel? Yes. I would look at it as a significant new client acquisition opportunity.

Speaker 1

Okay. Great. And then, Luke, just one last question if I could. I guess you talked about your perception ranking. What needs to be done in your view to get that ranking up to number 2 or number 1?

Speaker 1

And then is there In your experience a strong correlation there between that ranking and the market share of industry flows? Yes, great question. There really is That correlation and again it's there's many, many participants. We are tied for number 2 last year. It's actually Fidelity has been a consistent number 1 and EDGE Point is number 2 currently.

Speaker 1

And right now to get up there to the number one spot, There's 43 dimensions in the study, 43 criteria that measures everything that matters to a financial advisor from a product provider 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 advisors and the products That we're bringing to them and we're looking to be number 1 in all those measures every day. Great. That's it for me. Thanks.

Operator

Our next question comes from Jaeme Gloyn of NBF. Please go ahead.

Speaker 1

Yeah, thanks. Good morning. First question just on the redemption rate in the Agi Wealth business now. I think It was reported around 10.6%. Still outperforming the industry, of course, but it is approaching your previous peaks.

Speaker 1

And so I'm just curious if you're if there's anything different going on with that with your customer than in the past? And is that increase concerning to you as we look into the early part of 2024, which James you said might be a little bit weak? A little bit more color on that please. Yeah, Jaeme, it's Damon. I would say that there's nothing specifically different that's going on with our clients.

Speaker 1

It's really a function of the fact that there's a everything is more expensive And Canadians have debt. And when you do the math, it makes sense to pay down debt versus Invest your marginal dollar with rates where they are. And because we take a planning approach to Everything we do with our clients, I mean, it's 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 with the environment the way it is, we see this persisting for a few quarters. But at the same time, when you take a look at our business With our existing clients, you do see the redemptions are increasing and obviously that's a function of what I just talked But you also see that there is huge demand for the advice that we're providing.

Speaker 1

With Canadians Going through what they are today, they're looking to sit down with advisors that are going to explain to them, how is this going to impact my financial future. And the fact that 28% of the new clients we brought in, in Q3 were $1,000,000 or more should show you that Our value proposition resonates in the marketplace. So although it's a tough environment for our existing clients, it's a great time for us to acquire new clients. Yes. Just following up on that, would you like are you in that redemption rate, are you seeing it more in your I don't know, let's say less wealthy clients compared to your more wealthy clients.

Speaker 1

Like is there any sort of differentiation along your customer types? Yes, there is differentiation. I think the lower the value of the client's portfolio, the higher the redemption rate, Because they're stung more on they need the money to subsidize their lifestyle. As you move up to high net worth, They have more disposable income. Their partial redemptions a lot of times are to pay down debt.

Speaker 1

So if you're modeling it out, you would model out a higher reduction rate for the lower value. Okay. Good. Last question just on the dealer report card rating, steady increases 2019 to 2022 for the industry and yourselves. What would cause the decrease in 2023?

Speaker 1

I see that you're outperforming, but Just curious as to what would have driven that rating lower this year? Yes. I think anytime 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 rate Organizations tougher because the drop in the markets immediately impact 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.

Speaker 1

Thank you.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Kyle Martins for any closing remarks.

Speaker 1

Thank you, Ariel, and thank you everyone for joining the call this morning. We certainly look forward to seeing many of you at our Investor Day in Downtown Toronto On December 5. And Ariel with that, we can close out today's call.

Operator

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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Earnings Conference Call
89bio Q3 2023
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