IGM Financial Earnings Call Insights: Great-West Life, Investors Group Consultants

On Friday, IGM Financial Inc. (NYSE:IGM) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Great-West Life

Scott Chan – Canaccord Genuity: Murray just as you said I guess your last point just on the seg fund assets how it’s grown. Can you remind me of the Great-West Life product I’ve seen a lot of the insurance companies because of low interest rates and high capital standards scale back that business, is that going on in the Great-West Life as well?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.: I’ll speak to our product and you would need of course to speak to Great-West about their product and their business. But our product is issued by Great-West Life as a unique set of product which involves investment in Investors Group mutual fund. So the segregated funds that we sell are Great-West seg funds which buy units from the Investors Group mutual fund. So, the asset components and so forth are very much using our funds. For us, of course this is fairly modest business. It’s a way for us to amplify our offerings to the public and we have quite a spectrum of various products with basic guarantees, with expanded principal guarantees and with the life income riders. But again, it’s a fairly modest part of our business.

Scott Chan – Canaccord Genuity: Just my last question. I know it gets asked every quarter. Just in terms of the mutual fund environment, I mean, Q4 was pretty good, Q1 was pretty good in the operating market, but the industry flow seems to be very disproportionate still in terms of income-oriented in equity. What do you think it will take for equity investing to come back? I guess, specifically, I guess, in last month equities have come down specifically the resource stocks. Is there a couple of data points that you guys are kind of looking for or how your clients moved, I guess, in the current environment?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.: I will take that, Charlie may want to add. I think if you look at the life cycle of information and impression and then sense of conviction and action, I think, you can simplify it to some degree by looking at the schedule of investment statements that are produced for clients. Now, obviously, advisors are looking at information and data on a more frequent basis, but if you go right to the client experience, on September 30th last year, right across the industry, clients got quite a surprise shall we say as the impact to the equity markets in September and August, in particular, reflected themselves in ways that we’re quite significant on the downside right across the industry and across all the markets. So, that was the impression they were left with essentially through the Christmas period, because they didn’t get their next statement until the second week of January, and although it was up modestly, and I’m speaking at an industry level and in a general fashion, but although it is up modestly it was part of their first data point that things were better after reflecting perhaps on the year and seeing maybe a year-to-date statistic on their statement that showed they were still down for the year. So, the sentiment at the client or investor level was continuing to be, I think, quite fatigue is the word that’s being used these days, if not troubled. So, this, of course, is very important work as an advisors to help clients stay with their portfolios, but when it comes to writing a check to invest further into the market there was greater hesitation. You then look at what happened in the first quarter and we are all on top of it on a day-by-day, hour-by-hour kind of basis what occurred but it really didn’t get communicated (enough) to all clients for all kinds of purposes until Easter time second week of April when they got their March 31st statement and it was little bit better but that was after all the data we are looking at here in terms of the March – the first quarter the RFP season this year and so forth. So, I don’t know if that helps to sort of lay out the issue. So, the bottom line is there is quite a lagged effect and that lagged effect is impacted by how frequently there has been huge volatility in the marketplace and of course as we all know we go back over three, four, five years and it has happened a few times. So, the longer we can get stable normal type of fluctuation as opposed to significant fluctuation in the equity markets the more normalized if you want peoples’ investing patterns will become.

Investors Group Consultants

Geoffrey Kwan – RBC Capital Markets: First question was for Murray. Just wanted to make sure that I understood in terms of the changing the investors group consultant count, so you guys were being less hiring but just given the magnitude of where it went quarter-over-quarter, there may have been some activity that you did last year in terms of dealing with maybe consultants that may not have made it at the end of the day, but also I would think that there was a reasonably higher number of those that might have got lured to say competitors, is that a fair way to look at it?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.: Let me break down the question a little bit, and as you know, we don’t release specific numbers on a number of those areas, but I’ll try and give you a flavor for it. During this particular quarter, we lost very, very few consultants to competitors with any amounts of meaningful assets. In fact, that statistic for us was much lower than it has been for some time. So, the statistics here are not being influenced by competitors stealing our people away, let me make that clear. The other areas and the dynamics that are involved here is the number of new people we recruit in any particular period of time, which again does move around seasonally, but over a period of last four or five quarters, as shown here, offset by those who it doesn’t work out for. We obviously try to select people so that we don’t get to that position, but in the type of entrepreneurial environment we’re in, obviously that occurs. This environment has been a little tougher for people in their early period to deal with in terms of volatility. We saw third quarter last year, the sense of investor fatigue. The implied sort of competitive challenges that then come with that as the tide gets a little smaller, companies become more aggressive, and so forth. So, faced with that, that’s been a little bit more difficult for our new people. So, it’s all a matter of degree. On the margin here, we were down 80 some folks in the quarter, we were up small numbers in the second, third and fourth quarter last year none of this concerns me or troubles me. We’re still on the mark of hiring a slightly less people than we would have say back in 2010-2009, but not materially less and we are seeing signs that in the earlier years, we’re keeping more people than we had previously. But it’s a matter of to what extent those numbers offset each other and on any particular quarter.

Geoffrey Kwan – RBC Capital Markets: My next question was just taking a look at the commission expense, it’s up a little bit more than you would have expected and I’m just trying to understand was it a function of just the (DSE) write-off on the redemptions in the quarter and then also maybe to a certain extent insurance commissions?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.: Actually, you got both of those right, and there is a third which is the seasonality with respect to the IPC business, where the sales in the first quarter tend to be quite strong and that’s also reflected in the number.

Geoffrey Kwan – RBC Capital Markets: Then the last question I had was for Charlie. Just when I took a look at the monthly numbers for the mutual funds on the long-terms funds, it looked like that March even though it is true that RSP season look like a reasonably good month at least relative to what you had seen over the past six months, is that indicative of anything, I mean, maybe to just get some color on that?

Charles R. Sims – Co-President and CEO IGM Financial Inc.: March always has a little bit of a bump from a seasonality standpoint because of the first 60-days advisors typically spend just gathering assets and getting cash in there is a lot of investment decisions that are made through that period. But as I’ve looked at the data and talked to our sales team and been out in the field, it really is a sales issue in our channel. Everything else that we look at remains constant, so performance generally is good across the industry specifically at Mackenzie. Redemptions are remaining in line with what we’ve seen in historic period. But it’s just the sales numbers weren’t there in the categories where we’ve traditionally seen flows. That’s what I tried to highlight in the industry slides. Last year through the season, we had C$2.4 billion of global equity positive sales, this year it was C$500 million or so negative and the dramatic move into income-oriented products that one I think C$12.5 billion this quarter. So that’s a significant change, and investors clearly are looking for income-oriented principle protected product and I don’t mean guaranteed product, but where there is a little less risk of decline in the near-term. So we’re doing what we do, we’re sticking to our knitting. You’ve seen the way our business matures with flows because of the breadth of our product lineup. So, we do have more flows going into income-oriented products and – what I would observe.