IGM Financial Earnings Call Nuggets: Equity Fund Improvements and Redemption Rate

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

Equity Fund Improvements

Geoffrey Kwan – RBC Capital Markets: Just had a question; wanted to see if you can provide some color on what you’re seeing so far for RRSPs, and then also maybe not just the dollar flows, but on the mix, are you seeing any sort of improvements towards equity funds?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: I’ll start. Certainly, in terms of absolute dollar flows, we’re seeing quite an improvement over last year, and again, I think it’s an extrapolating improvement from what we saw in the fourth quarter and well into the start of the New Year here. Certainly at Investors Group, we don’t get a lot of shift in terms of asset mix where it’s more a measure of overall volume, as we tend to have a fairly stable overall mix from time to time, but Charlie may want to add comment on that.

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Yeah, I mean I really guided to the slide that we talk about sales mix. What we are continuing to see is significant interest in Sentinel. Symmetry; our asset allocation strategy is picking up, read that as a balanced strategy with variable degrees of equity fixed income mix blend. But we are seeing – we’re just definitely seeing a lot more activity and a lot more interest in products that are outside of the traditional sales patterns we’ve seen in the last 12 months.

Geoffrey Kwan – RBC Capital Markets: And then the other question I had was for Murray. With the changes that you made over the summer in terms of pricing and the classes in particular, I’m wondering if you can provide some color and even just what amount of dollar assets have moved into the high net worth, or I think it’s the J class?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: We’re not disclosing that number specifically, but let me try to give you some color. In measuring our new sales to existing clients or new clients’ money for in excess of $500,000, we’ve seen quite a material increase in that level since July 1, and that’s an increase that continues to be strengthening through the fall and into the New Year. So, that’s very positive. We continue to have very positive reaction from our field and from case situations in terms of price no longer being an obstacle but being an asset to us in that marketplace. We see a significant increase in the activity of our consultants working through if I can call it the company store to provide them with tools and ways to communicate with the high net worth marketplace, and so we have a whole host of mechanisms, if you want that can be used to help communicate, to help package, to help work with clients and following those measures, we’re seeing quite an increase. So, certainly, the impact in interest on the high net worth side of our business, it seems to be very strong. We’ve seen quite an increase in the interest activity and applications for permanent insurance and in particular whole life insurance, which tends to lend itself very well in two dimensions, but one for sure is the high net worth market and very sophisticated at state planning. The other is actually a very good product in terms of people starting out in the world to permanent insurance and so those kinds of signals I think are helpful and hopefully helpful to you.

Geoffrey Kwan – RBC Capital Markets: I just wanted to clarify for the high net worth class that is new brand coming into the IT system as opposed to being reallocated from other?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: But we do have reallocation going on as well although it has tapered in terms of its activity. There was a lot more of that happening in the July period and then into the follow-on and so forth obviously because it was brand new and so the transfer of existing asset has slowed in terms of its pace. It continues, but of course, that’s one aspect of our strategy and then the other aspect of course was the attraction of new money, new sales.

Redemption Rate

Doug Young – TD Newcrest: Just first question, Charlie, when I look at the redemption rate on the mutual fund side, I still back out the number that you gave us in your prepared remarks. It still did jump quite a bit sequentially and year-over-year. Is there anything else or can you give us a little more color what you’re seeing on the redemption side?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Yeah. No, we’re definitely – if you go back to Slide 34, right, and I just compare, so I’m looking at net flows of $543 million to $584 million. So, that’s obviously a combination of better sales and we’re cycling through with in that particular quarter. We did have the impact of a large net outflow. But I would say what we’re starting to see and what we’ve been seeing for a number of months now is increased interest in the mutual fund product and the types of products that we’ve been managing moving forward. And as I commented, that trend has continued into January. So, we see a sequential improvement. And if we can get rid of the noise and I don’t know that we have our will because we always seem to be talking about institutional rebalancing or particular large institutional client win or closure of an account, it does seem to be getting a little more positive for flow activity for Mackenzie. But when you look at the absolute numbers, I know that they’re still some concern at the absolute levels, but we were $1 billion versus a $1.3 billion last year, so that’s an improvement in my view with a lot of noise in this quarter.

Doug Young – TD Newcrest: So, this quarter on the redemption side, it sounds like you’re seeing there’s lot more noise that you would expect going forward. Is that…?

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Yeah, absolutely. I mean, as I commented there is about $170 million of net outflows in the quarter that were resulted on the mutual fund side related to rebalancing activity. So, we isolated that out and then we have got the relationship with our partner in the U.S. which is a single fund mandate which is out of favor right now. And so that’s impacting us negatively. But if you act those that activity out, we are actually seeing some positive trends from many of our relationships both on the retail side and within the platform side.

Doug Young – TD Newcrest: And that you are going to ask a question everybody is wondering and that’s what are your net flow positive in January and if you want to answer that, that would be great. But I guess another way to kind of think of it from what you saw in December, what you are seeing so far in January. You do give that slide that shows net inflows by the different category between advice, deposit takers. Based upon what you see today would you be surprised if that chart was different and the advised channel started to show which obviously Mackenzie what just group is in. We start to be a net inflow territory.

Charles R. Sims – Co-President and CEO, IGM Financial Inc.; President and CEO, Mackenzie Financial Corporation: Yes, again it’s hard to predict what’s going on in January and February, because we have on the independent side you have the 10% free phenomenon and you have the units that are rolling off of redemptions charge securities over a year and because this purely a traditionally has been the high sales cycle for us. There is interesting redemption activity that falls out. What I think we are seeing and our flow are clearly stronger. And I think we are hearing that from anyone we are talking to in the industry. And there seems to just be a lot more interest this year. So, let’s watch over the next couple of months and see and we look forward to chatting with you in April, May about all of that activity.

Doug Young – TD Newcrest: Well, I had to try. The last question; just on the dividend, obviously, you’ve got quite a bit of cash on the balance sheet and it sounds like the environment is improving. Can you talk a bit about what you and the Board talk about or consider when you’re looking at raising the dividend, because obviously, you have consistently in the past done it; I think every year, just if you can walk through that that would be helpful?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: I’ll give you some color; perhaps not the fulsome answer you are looking for. Where we go on the dividend; there is some relation, of course, to our in-quarter earnings and net income, and I would simply say without providing thresholds or benchmarks or limits that at the current time we would want to see that level higher before we would recommend or get approval for a higher dividend; so that’s relatively speaking. However, I would also point out that enhancing shareholder value comes in a number of forms and we have been very active in share buybacks, and in fact, did more of that in 2012 than the prior year, and so, using the cash that we do have in a very constructive way to enhance value for our shareholders has been expressed in that fashion, notwithstanding the fact that we haven’t increased the dividend over the last number of quarters, and, of course, that’s reflected in seeing our EPS numbers grow faster than our net income numbers and I would just draw your attention to that.

Doug Young – TD Newcrest: So, there is no payout ratio that you typically look at or consider?

Murray J. Taylor – Co-President and CEO, IGM Financial Inc.; President and CEO, Investors Group Inc.: I would call it ranges and I would say at the moment, we’re a little on the high side of the range.