IGM Financial Earnings Call Nuggets: Distribution Platform and Institutional Flows

IGM Financial (NYSE:IGM) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Distribution Platform

Geoffrey Kwan – RBC Capital Markets: My first question was for Charlie. I know that there was the seasonally strong RSP season, but I am wondering if you kind of talk about what was driving the positive flows in the quarter from a distribution stand point? Then also, maybe specifically can you comment about how much came through at the Laurentian Bank relationship?

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Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: We’re obviously improving sales quarter over quarter by C$1.2 billion. We saw strength in many areas across the distribution platform, but I’d focus on two, the retail channel and the strategic alliances channel. So, strong flows from our partners, which would include MD Physician Services, Great-West Life Investors Group, and also Laurentian bank, but also strength in a number of products that we’ve been working on for a while. Specifically, our symmetry portfolios, which had been revamped and remarketed and re-priced and we saw nice set of flows into those numbers, and quite frankly, we just benefited from the overall lift in the industry, which was very strong in this quarter as you would’ve heard from my opening comments.

Geoffrey Kwan – RBC Capital Markets: I know you are able to say kind of a ballpark as to what came out of the Laurentian Bank relationship in the quarter.

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: We went exclusive with Laurentian Bank and we saw a nice increase and a lift in the sales there. I think, you will be able to try and relate that in another couple of months when our material comes out around the mutual funds that they sell.

Geoffrey Kwan – RBC Capital Markets: If I can maybe switch for both of you how the flows are looking like. So far obviously, it’s going to be not as good as Q1 given RSP season, but what have you seen in terms of hopefully sustaining positive net sales trends?

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Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: Its Murray, I’ll start. Again we’re not in a position to disclose that numbers. But I think from a trending point of view I would say April has been as strong if not stronger, both in terms of the growth sales activities as compared to other April. So, let me put that in perspective as you did in terms of referring to the RSP season. April tends to be a time of negative cash flows just because of the post-RSP sort of breather, shall we say in the industry, but certainly as April’s goal, I would say things are continuing on with quite a buoyant mood…

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: And from our side, Geoff, I think we continue to see strong interest in a number of our different product. The recent announcement on character conversion transactions obviously has impacted Mackenzie. We closed for new sales 12 funds while we digest what we are going to do more formally with that announcement by the CRA. And so that’s a bump in the road. But we still see pretty good interest from our strategic alliance partners, and on the retail side, I would echo Murray’s comments that a little bit of slowness, because people working so hard through the first quarter.

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Geoffrey Kwan – RBC Capital Markets: Maybe if I can just answer kind of my last question, it’s a little bit of follow-on from my previous ones. Are you able to say whether or not obviously you can’t give specific numbers, but would the net sales have been positive in April for each of IG and Mackenzie? Then my last question was for you, Charlie, on the institutional side. Were the flows better in the quarter because there just weren’t as many redemptions, or was there also good gross sales? Am I – I should have seen that from the MD&A?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: It was – sales uniformly in all categories of the business were better from a gross sales standpoint, and we experienced less redemptions as well.

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: We’re not prepared to release the precise numbers or the sign of the numbers for net sales, but I think the – again, the sense of comparing to past April has improved on both sales and redemptions.

Institutional Flows

Paul Holden – CIBC World Markets: So looks like this will be my last chance to ask some questions of Charlie, so start off with you, Charlie, and congratulations by the way. In terms of the institutional flows, we saw quite an improvement there. Was there also some seasonality built into that in terms of RSP season, or were there any large rebalances or new mandates that you won that could explain the jump in situational flows?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: As you know, lot of our institutional business is sub-advisory business into the channel. The industry, as a whole, had a good first quarter. So, really all of our partners benefited from that. You see the Investors Group numbers that we participate on some that shelf. Great-West Life had a good quarter. MD had a good quarter. So it was really almost universal across, and we didn’t see any significant rebalance activity that was large enough for us to highlight to you, is probably the best way for me to describe it.

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Paul Holden – CIBC World Markets: And then with respect to the type of funds, I assume with the pick-up in sales like Cundill, some of that was on the global and international equity side, and more broadly speaking I imagine that’s where you saw a good list in some of the other sub-brands as well?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: We saw support into our Sentinel product, Sentinel Strategic Income for example, the Symmetry portfolios. On the Cundill side interestingly enough it was actually a lot of interest in their Canadian security funds, Canadian equity funds which has had a very good track record of over one, three and five years. And it really has a portfolio that’s quite different and unique than most Canadian portfolios. So, there was some interest there. Then always just as good strong growth sales flow into Cundill value and Ivy Foreign Equity was very good. It has come off of couple of very strong years, so a lot of interest in that. Particularly, interestingly enough in the institutional channel as well within that low volatility Ivy brand and global equity product…

Paul Holden – CIBC World Markets: So, from understanding you correctly then it sounds like there is still a lot of room for upside as interest in global and U.S. equity funds pick-up over – potentially pick-up over the next couple of years? You haven’t really seen the big change in flows yet, is that true?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: I mean I highlighted it in the opening comments. We saw it up about just over C$4 billion, but it’s still really, is still really hitting levels that we have seen that would have been domestic equity and foreign equity change from the first quarter of 2012 to the first quarter of 2013. So, there was some increased flow activity in there. And I think, as individual investors, look to diversify after many years of focusing on the Canadian investment scene, and also the fixed income investment scene. There potentially are opportunities there, for sure, and we have always been confident in the product lineup that we have at Mackenzie. Murray, I don’t know you have a comment.

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Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: The only other observation I give is, if you go back to slide that Charlie spoke out that shows flows in the industry by asset mix, from everything we are hearing and seeing and interacting with people in our field organizations and so forth, it was actually a little surprising to see how strong the fixed income flows continue to be. I think they’re being dominated very much in the financial institutions, in the banks and so forth. But we’re seeing great interest in client interactions looking at extending back out and looking at equities as part of their long-term investment plan. So, our view would be that there is a reasonable upside there.

Paul Holden – CIBC World Markets: Then one final question for you, Charlie, and that’s with respect to the Singapore operation. Maybe you can give us a better sense of how that operation will be used, i.e., what kind of mandates will be managed out of Singapore and what type of clients you will be pursuing with those mandates?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: It’s a group of individuals that have been working together for a number of years. They came to us from one of the financial institutions after the closing of proprietary trading desk. It’s Asian fixed income with a macro overlay. We’re establishing a hedge fund for institutional purposes, and they will be used in all of our asset allocation strategies as a yield enhancer in those products, as well as in our global bond funds. So, feet on the ground, really knowledgeable on the Asian debt markets, and really interesting work that they’ve done on the macro overlay to hedge out some of the volatility around credit risk associated with some of those countries that they’re investing in the emerging markets…

Paul Holden – CIBC World Markets: That’s interesting. That brings a new capability to the firm that.

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Absolutely.

Paul Holden – CIBC World Markets: I wanted to ask you a little bit more about the trailer fee disclosure. So, I think we talked about it in the last conference call when it’s still theoretical question, an outlook like it’s going ahead. So, maybe you can kind of remind us again on the in terms of costs. I believe you said it shouldn’t be impactful. I want to know I guess, will the cost be run through the funds for the most part or will they be absorbed by the corporation. Lastly, what’s kind of your strategy with dealing, with the implementation, so that lands generally in front of clients, so there is no kind of sticker shock?

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Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Sure, I happy to make a few general comments. Obviously, it’s an issue that if it has been following and has past share of effect. We had it on our agenda for a number of years. Client relationship reporting is coming out. The implication is 2016, so we have a nice phase in process, It really impacts more directly the IIROC channel and the MFDA channel directly the manufacturers. While having to provide core information, we’ll have some rebuild to do, but most of the information can be provided from Mackenzie and other independent manufacturers out into the third-party distribution channel, certainly within that time frame. The cost is, I think, there is going to be some costs here and we will have to better assess that, and feel free to keep asking at the question into the future, as we get a chance to put our head around it to really understand where it’s going to go. Murray, I don’t know, whether you have anything to add.

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Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: I think the dimensions of the rule, which has been called CRM 2, relate to reporting on personal rates of return, which is something that is growing in interest and desirability at all levels. I think it will be harder for very small dealers to absorb the effort, time, cost and so forth, although I am sure there will be providers of software and so forth that emerge to (here or there) or emerge to facilitate some of that for them. Then there is the disclosure of the trail commission, which is again to be implemented by 2016, which is two or three years from now. There is a growing sentiment within the industry of offering choice between fee-based type of selling and embedded cost selling, and where you have fee-based selling, there is an awareness of what those fees are by the very nature of those structures. I think the awareness of dealing with this item, which will be simply itemized on the statement along with other details, will be probably quite absorbed by the time we get to 2016.

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