IGM Financial Inc.

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial second 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. 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 Margins, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, Cherie, and good morning, and thank you everyone for joining our call this morning. Joining me on the call today, we have James O'Sullivan, President and CEO of iGEM Financial. Damon Murchison, President and CEO of IG Wealth Management. Luke Gould, President and CEO of McKenzie Investments. And Keith Potter, Executive Vice President and CFO of IGEM Financial. Before we get started, I would like to draw your attention to our cautions concerning four liquid statements on slide three of the presentation. Slides four and five summarize non-FRS financial measures and other financial measures used in our material. And on slide six, we provide a list of our documents that are available on our website related to iGEM Financial's second quarter results. I'll now turn it over to James.

Good. Well, thank you, Kyle, and good morning, everyone. I'll start on slide eight and cover some of the highlights for the second quarter. Adjusted EPS of 86 cents. Another strong result, I think, in the current environment. Reported EPS of 58 cents. That includes a restructuring charge we took during the quarter, as well as two adjustments related to Great West Lifeco's adoption of IFRS 17. Our operating company's AUM&A stood at $261 billion at the end of June, and our reported net outflows were $821 million during the quarter. While not included in this calculation, we do think it is important to note the strong growth in our other businesses. For example, Northleaf had $700 million of new commitments during the quarter. And China AMC generated investment fund net sales of approximately $14 billion in Canadian dollar terms. That's $14 billion in Canadian dollar terms. I think these are very important examples of the growth that exists outside of our consolidated financial statements. In this presentation, along with our MD&A, we are now highlighting IGM's consolidated AUM&A, including our proportionate share of our strategic investments, which at the end of the second quarter stood at $403 billion. Each of these companies' primary business is in wealth management and asset management. This includes Rockefeller Capital Management and Wealthsimple, two businesses focused on wealth management, as well as asset managers China AMC and Northleaf Capital Markets. Along with IG Wealth and McKinsey Investments, each of these businesses are leaders in their respective markets with compelling strategies to drive long-term profitable growth and value for IGM Financial. At the investor day in December, we will share more about the opportunities ahead for each of these businesses. Turning to slide nine, financial markets during the second quarter were mixed, with most equity markets posting positive returns, while the Canadian fixed income market was relatively flat. The Chinese equity markets had a soft Q2, erasing gains realized in the first quarter, and the Chinese currency depreciated approximately 7% relative to the Canadian dollar. During July, equity markets were positive across major markets, a strong start, I think, to the third quarter. Turning to slide 10, the industry operating environment remained soft during the second quarter, as the combined effects of recent market volatility, the impact of higher interest rates and high inflation continued to weigh on investor 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 high inflation. We expect these factors to continue as headwinds for the overall industry net sales during the second half of the year. However, our businesses will continue to compete well and will be positioned very well when sentiment improves and industry net sales accelerate. Slide 11 presents IGM's consolidated average AUM&A and earnings results. Q2 2023 adjusted EPS of 86 cents was down one cent relative to the same quarter last year. As I mentioned, reported EPS of 58 cents includes a restructuring charge and two adjustments relating to our investment in Great West Life Co. Slide 12 highlights earnings across our core operating companies and strategic investments. I'd remind that our earnings pickup from China AMC and LIFCO include the impact of the transactions that closed earlier this year, increasing our ownership position in China AMC to 27.8% and decreasing our stake in LIFCO to 2.4%. Turning to slide 13, while Q2 average AUM&A at our core operating companies was relatively unchanged from last year, ending AUM&A is up 8% over the past 12 months. The growth in our proportionate share of our strategic investments AUM&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 4% over the past year in local currency. However, this increase was offset by the depreciation of the currency relative to the Canadian dollar over the same time period. Slide 14 breaks down IGM's net flows by company, along with Northleaf's fundraising activity during the second quarter. Before turning the call over, I'm going to end my remarks by touching on the June 29th announcement where we shared via press release the high-level details of an important exercise that our management team has been very focused on over the past 12 months. First, I'd remind that IGM Financial has been on a journey since 2017 when our digital transformation was launched and we committed to thoughtfully manage expense growth while positioning our businesses for long-term success. I believe we have delivered on these promises and then some. In addition to successfully executing on an ambitious digital transformation that elevated our employee, advisor, and client experiences, we have tactically managed expenses year after year. This initiative is different. We conducted a comprehensive strategic review of our businesses and carefully considered how we were matching our efforts against business priorities. This strategic exercise uncovered meaningful opportunities to stop doing some things, change how we were doing some other things, and start doing some things that we had not done previously. Roughly half of the savings from this exercise will result in a structural reduction to our cost base over the next two years. This is important as it reflects our commitment to grow earnings. The other half of the cost savings will be reinvested in IG Wealth and McKenzie to drive revenue growth. As a result of this work, our businesses are better positioned for the future. Finally, We have been active allocating capital in recent quarters, including reinventing our mortgage business in partnership with Nesto, closing the additional stake in China AMC, the second largest fund company in China, purchasing a strategic stake in Rockefeller Capital Management, the leading independent wealth management firm of choice for advisors in the United States, and selling IPC to Canada Life. In short, we believe we have positioned IGM for growth. Growth through incremental investment and growth through intelligent capital allocation. And we look forward to sharing all of this in detail with you at our Investor Day on December 5th. I'll turn it over to Damon.

Thanks, James, and good morning, everyone. Turn to slide 17 in Wealth Management's first quarter highlights, including IG Wealth, Rockefeller Capital Management, and Wealthsimple. With respect to IG Wealth, we ended the quarter with AUA of $116.8 billion, an increase of 0.8% during the quarter. Gross inflows of $2.8 billion represented another solid quarter. Net outflows were $424 million during the second quarter. During the month of July, we experienced net inflows of $196 million and net sales into our investment solutions of $66 million, which represented a strong month. IG's gross outflows as a percentage of average AUA over the last 12 months remained well below the industry, and ended the quarter at 10.1%, while industry redemption rate was 15.5. IG wealth continues to see strong new client acquisition in high net worth and mass-influenced client segments, with inflows from newly acquired clients over $500,000, totaling $406 million in Q2. IG's investment performance continues to be strong, with 62% of our assets ranked four or five stars by Morningstar and 89% ranked three stars or higher. The continued strength of our products week makes it that much easier for our advisors to work with their clients to dollar average cost back into these volatile markets. On later slides, I'll also provide an update on our two strategic investments that are focused on wealth management, Rockefeller Capital Management and Wealthsimple. Both firms posted strong results in Q2. Turn to slide 18, you can see IG Wells Q2 flows. To put into context our quarterly flows, I'll make a few points. Firstly, much of the redemptions that we saw were partial in nature. Proceeds from these redemptions were used by clients to pay down debt and fund their lifestyle given the high inflationary environment. This is a core component to financial planning. When interest rates are high and economic uncertainty remains, it can be proven to adjust leverage, pay down debt, and reinforce financial flexibility. Secondly, this is not just IG. This is a reality across our industry. What sets IG apart is that we're not singularly focused on investing our clients' money. We're also focused on all aspects of their financial lives. In doing so, our advisors have expertise in navigating these types of markets and cycles through the building and monitoring and execution of our clients' financial plans. We're happy to report that July net inflows and net sales were $196 million and $66 million respectively, with net sales exhibiting an improvement relative to last year. We continue to work closely with our clients to advise on all financial decisions and position them well for the current environment. Turn to slide 19. At the top right, you will see that IGM solutions as a percentage of total AUA remain strong, and client cash, GITs, and HISA positions continue to represent an opportunity as advisors execute their clients' financial plans, including dollar average costing, back into the market. Our trailing 12-month net flows rate of 0.8% supports our continued belief that we are winning market share through new client acquisition and greater share of wallets. Turn to slide 20. We demonstrate our success in new client acquisition, particularly with clients with assets over $500,000. We had $406 million in gross inflows from newly acquired clients over $500,000, which nearly doubled over the last five years. Of note again this quarter, gross inflows from new acquired clients over $1 million represented approximately 25% of newly acquired clients during the quarter, a significant increase of 15% during Q2 2018. This remains a testament to our client value proposition, our ability to execute our high network strategy, especially during the current operating environment. Turning to slide 21, this represents the productivity of our advisors. Both our newer advisors and more experienced advisor practices are continuing to deliver strong productivity numbers as measured here by growth inflows per advisor. We've undertaken several initiatives in the past five years that drive productivity gains that continue to position us well for future growth, particularly in this operating environment. Turning to slide 22, I will provide a few updates on Rockefeller's progress during the quarter and year-to-date. Client assets grew by approximately 6.6% during the quarter, and as of June 30th, we're up approximately 14.4% year-to-date, driven by both organic and inorganic growth. Year-to-date organic growth drove $2.8 billion in client assets. Advisor team growth remains on track with Rockefeller adding 12 new teams year-to-date. As we said when we announced our investment in Rockefeller, they just need to keep on doing what they're doing. They executed very well, and the results are in line with our expectations for the quarter. Turn to slide 23. Wealthsimple continues to put up solid results that reinforce its growth trajectory as an important player in the Canadian wealth management arena. Wealthsimple AUA and Q2 advanced 10% and is up 38% year-over-year. Client-served increased to just under 2.2 million, representing year-over-year growth of 10%. With that, I'll turn the call over to Luke Gould.

Great. Thanks, Damon. Good morning, everyone. So, turning to page 25, a few comments on the quarter. First, our ending AUM remained relatively unchanged versus last quarter as overall investment returns for our clients was just over 1% of the quarter. As reviewed by James and Damon, in spite of double-digit investment returns to clients during the last 12 months, end of June 3rd of 2023, investor confidence has not yet returned to industry flows. In point 2, McKenzie had investment fund net redemptions of $616 million during the quarter, in line with industry trends, and we experienced, including SMA net sales, overall net redemptions of $313 million. Similar to Q1, last 12-month trailing gross sales, redemption rates, and net sales were relatively stable, and we saw slight improvements relative to Q2 2022. Importantly, We experienced improvement in our share of industry gross sales in the period, as we saw improved gross sales of long-term funds in the context of declines for industry peers. Point three, you can see that McKenzie launched four new funds during Q2. The Pramerica True U.S. Dollar U.S. Core Fund and the Shariah Global Equity Fund demonstrate the growing value and depth of our relationship with Pramerica and their advisors. The Shariah Global Equity Fund is among the first Shariah-compliant products in the market, and we're pleased to make this available to this community. The launch of our U.S. Dollar Global Dividend Fund expands our TrueUSD product offering within one of our most popular mandates. And on last quarter's call, we reviewed the McKinsey Corporate Knights Global Most Sustainable Companies Mutual Funded ETF, or as we call it, CKG100. This mandate tracks the 100 most sustainable companies in the world based upon Corporate Knights methodology. We remain incredibly proud of this partnership with Corporate Knights and the potential that this product offers. It is a core global equity holding. It tracks the MSCI all-cap world index very well. It has a strong track record over 18 years, and it's a very clear investment thesis that responsibly run businesses are consistent with shareholder value creation. In point four, and as commented on by James, China MC long-term fund year-over-year AUM growth continues to impress with 5% growth, exceeding industry AUM growth rates, and gaining market share. I'll review China EMC in a few slides and will highlight the significant net sales, once again, that James commented on, as well as the strong industry environment in China. And lastly, Northleaf delivered $700 million in new commitments, another strong quarter. Turning to slide 26, you can see trended McKinsey net flows. On the left in the middle, you can see we had slight improvement in overall growth and net sales in the quarter, and a noticeable improvement at the top in the month of June. On the right-hand side, you can see continued stabilization of flows with a slight uptick in the second quarter. As emphasized earlier, we're not yet seeing evidence of an improved industry environment at this point in Q3, but we're focused on market share, and we're focused on the broad roster of compelling solutions that are relevant to the current environment. I'd also remind there's $2 trillion of cash on the sidelines, and we have many products that enhance yield while preserving capital, and we're actively emphasizing them. Turn to page 27. In the bottom left, you can see that our net sales rate and the overall industry has continued to indicate stabilization. In the table in the middle, I first highlight the fourth row down, institutional investment fund net sales of $94 million. This reflects our private label fund family relationship with Pramerica, and we continue to build relationships and earn the support of Pramerica's advisors. We saw our share of gross sales improve again with Pramerica in the quarter, and we're pleased with the track record that we've delivered on our private label fund shelf as it reached its one-year anniversary during the second quarter. I'd also highlight the institutional SMA line, with net sales of $273 million, which reflects a win of a sub-advisory mandate to SCI in the United States by our global quant equity team. I'd highlight that this Boston-based boutique of ours celebrated its fifth anniversary with us in May and is currently managing just under $10 billion, so it's at a very good scale. This team's emerging market mandates just hit their five-year return milestone, And the performance has been just exceptional, ranking among the top in the world within the investment database. And we're excited as we market the team's broad quant capabilities. Looking at the bottom right is our share of assets in four and five star funds. And you can see the percent of assets with four and five star ratings has increased to 45% during the quarter. Turning to page 28, we have our retail mutual fund AUM, investment performance and net sales by boutique. I'll call out Green Chip, our sustainable focused boutique, which once again posted very strong net sales. As we often say, we're portfolio managers, we believe in diversification. We have compelling performance across many of our boutiques and product categories. Turning to page 28, or sorry, 29, I'm going to talk a little bit about China. I'd highlight on the left, the Chinese mutual fund industry total AUM increased 4% in the quarter, with total net flows of 1.2 trillion yuan, or 230 billion, the strongest quarterly flows in over a year. The industry, you can see, had 735 billion yuan, or $140 billion in net sales of long-term funds in the quarter. Growth has been very robust throughout the last three years, and we expect this to continue as China continues to emphasize growth in their retirement system and make improvements to the environment for mutual fund sales. On the right, China MC's position remains very strong as the second largest fund manager in terms of long-term mutual funds. China MC was the leader in industry long-term mutual fund net sales in the quarter with $61 billion or $12 billion in net sales. This drove an increase in market share from 4.6% to 4.8% in the quarter. I'd also highlight that the last 12-month trailing net sales rate for the industry is 5%, and it was 14% for China MC. If you annualize the quarterly net sales rate, It gives you a number of 18% for the industry and 24% for China MC, so very healthy growth being put on. On page 30, you can see that China MC's AUM increased by 2% overall to 1.8 trillion yuan during the quarter. As mentioned, this was a result of strong net sales, and you can also see the very strong growth in long-term mutual fund assets of 6% in the quarter. I do want to highlight some regulatory developments that occurred in the Chinese mutual fund industry during July. On July 8th, the CSRC, the Chinese security regulator, initiated mutual fund fee reforms intended to continue to encourage the high quality development of the mutual fund industry. They provided specific guidance that their intention was that active equity and balanced products would have management fees no higher than 1.2% down from industry standard rates of 1.5%. Following this guidance, China MC and substantively all the industry enacted these new fee rates for equity and balanced active funds We're behind these efforts to encourage the continued high-quality development of this important industry in China, and we're very confident in China EMC's ability to compete and provide great service to our clients. As a consequence of the diversity of China EMC's AUM and scale, these fee adjustments affected about 20% of long-term fund assets and 8% of total AUM. The result is a reduction in run rate revenue of about 6% and a reduction in run rate earnings of 10%. As our CFO, Keith Potter, will walk through, we're reducing the indicative value of our 28% stake in China MC by about 17% to reflect the impact of these fee changes, as well as the 7% decline in the value of the yuan relative to the Canadian dollar during that period. Noteworthy, as I mentioned earlier, China MC has a net sales rate well in excess of 10% of assets. Should this continue, it would offset the 6% decline in revenue from the fee reductions in the very near term, and we would expect to amend our indicative value upwards accordingly. Moving to page 31, you can see Northleaf's AUM now stands at $25 billion, up 4.6% year-to-date, strengthened by 700 million new commitments during Q2. Fundraising continues to be diversified across private equity, private credit, and infrastructure offerings, and it's averaged about $1 billion a quarter since our partnership began two and a half years ago. We're very pleased for this ongoing success of Northleaf. I'll now turn the call over to Keith Potter.

Thank you, Luke, and good morning, everyone. On slide 33, you can see our AUM&A. The chart on the left shows ending assets were up 0.3% during the quarter, driven by investment returns. As of June 30th, our investment return rate on a last 12-month trailing basis was over 10%, so we've seen solid market performance, but still a cautious environment for investors. Slide 34 shows quarterly EBIT and millions of dollars on the left and percentage of AUM&A on the right. I have a few comments for the left chart on adjusted EBIT. First, net wealth and asset management fee revenues were up in Q2 relative to Q1, primarily from higher wealth management revenues at IG Wealth. And second, we had a small decrease in expenses from Q1. And on the right, you can see the adjusted EBIT margin is up versus last quarter and aligned with Q2 2022. Turning to slide 35, we have our consolidated earnings at IGM. We had another quarter of higher net investment income and other of $8.1 million, which is driven mostly by interest income earned on cash. Second, we had a decrease in proportionate share of associate earnings year over year. This is driven by a lower contribution from LIFCO, primarily due to the Q1 estimated earnings true-up, the inclusion of Rockefeller and slightly lower Northleaf earnings. On point three, operations and This is due to some savings on the compensation front, as well as deferral of certain brand spend in the second half of this year, which is typically more seasonal in Q2. The savings from restructuring, we've reduced our full year expense growth guidance to 2% from 3% relative to 2022. Another notable point is that interest expense is up relative to last year, reflecting $300 million in debenture issuance in May to finance Rockefeller. the close of IPC has been allocated to discontinued operations. Last, there are two main adjustments to quarterly net earnings. First, the increase in life goal carrying value and the decrease in the gain reported in Q1 related to the change in estimate with the adoption of IFRS 17. And the second related to the restructuring charge that James referenced. Turning to slide 36, you can see a summary of IG Wells AUA. and key revenue and expense rates. On the top right, our advisory fee rate is down 0.6 basis points quarter over quarter, primarily driven by a mixed shift in client fee rate bands in Q2. Spread in client cash was relatively stable this period, and we did not see the type of upward pressure on the rate as we have in the past several quarters. And going forward, continue to expect downward pressure of about 0.5 basis points per quarter from a mixed shift as we acquire high net worth clients. The rate will also be impacted by a mixed shift in client cash balances, spread on cash balances, as well as other products where full advisory fee rates aren't charged, such as money market funds. The asset-based compensation rate is stable in the quarter. Upward pressure for maturing DSC was offset by general decrease in rate. You can see IG's overall earnings of $112.8 million is up 6.7% relative to Q2 2022. It's primarily due to higher average AUM&A and the impact that had on revenue as well as $4.8 million higher Moving to slide 38, you can see McKinsey's AUM by client and product type, as well as net revenue rates. Not much to say in this slide, but the main point focusing on the blue line on the right, you can see that net management fee rate for third-party clients excluding Canada Life was stable at 80.9 basis points. Turning to slide 39, you can see McKinsey's earnings of $50.1 million were down 2.4% from Q2 2022. primarily due to lower average AUM and the impact it had on revenue, and this is partially offset by higher net investment income. We also contain expense growth with operations and support business development expenses relatively flat year over year. Slide 40 has China NC results. On the left, total AUM was RMB $1.8 trillion, up 3.6% from last year and 1.7% quarter record. With respect to earnings on the right, there are two main items that created a bit of headwind this quarter. The first is currency. So from point to point, CNY depreciated 7% relative to CAD, and using a daily average, currency had a 3% negative impact on earnings, or about $1 million. Second, there was a fair value loss in the quarter relative to fair value gains and other income last quarter and last year. So adjusting for these two items, earnings would have been up more in line with AUM quarter over quarter after prorating the Q1 earnings for January 12th close. On a go-forward basis, China MC continues to maintain and grow, share in a growth industry, and as mentioned, had net sales of $14 billion Canadian in Q2 on a total basis. However, there are two items that created headwinds in the quarter, and we expect a This is a full impact on the recent currency move, which will be felt and will create about a million-dollar trade as we move forward to Q3. And second, as Luke commented, Chinese see reduced fees on active equity funds. Our best estimate for the short-term impact would be about approximately 10% reduction to IGM's proportionate share of run rate earnings, or about $3 million per quarter based on Q2 AUM and changes that have come into effect at the beginning of July. Turning to slide 41, continuing with China EMC, we have updated the indicative value to $1.9 billion, which is above our original cost and carrying value. And this does reflect a sizable move in currency and our best estimate of the current earnings impact from management fee changes. We would attribute about 40% of the change to currency and 60% to the fee change. We continue to provide perspective on indicative value going forward. observed changes in the business, markets, and industry valuations for leading businesses with high organic growth potential, like China MC. I will point out that one of the key goals of fee reform, and Luke commented on this, is to build up quality of the investment fund industry and instill investor confidence and participation, and we believe this will have a positive impact on the industry. Second point on the slide, it's great. and a true up from alice estimates last quarter and as a reminder this will continue to be the case for q3 third north lead earnings of 2.5 million are down from q1 and it's primarily due to incentive fee income that was earning q1 which is seasonal as we look to the next quarter we do expect earnings closer to this level or slightly lower as revenue catches up to some recent investments in the business we are reporting rockefeller earnings for the first time as damon revealed with a strong Q2 and earnings of negative 1.9 million are in line with their expectations and supportive of the growth trajectory that we shared in April. The core of private wealth and family office business Damon spoke to was right on plan but there's a bit of headwinds in the strategic advisory business with a lower deal flow which is an industry-wide challenge. I'd also note that RCM is reviewing an equity compensation program that we will pick up earnings in the coming quarter. The plan is still being worked on. We don't have exact impact at this point in time, but do not expect it to be large. And we'll update you once the program is finalized. And finally, on slide 42, we've reflected the acquisition of Rockefeller and change in China AMC's indicative value. We've also allocated long-term debt raise of 300 million to IG and McKinsey with the same methodology in the past. And as at July 31st, close price of 4,109 implied P multiple for IG Wealth Management and McKinsey based upon expected 2023 earnings is now 7.8 times. And with that, I'll open up the line for questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing any queue. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Thank you for your patience. The first question comes from Nick Creed with CIPC Capital Markets. Steve, go ahead.

Okay, thanks. I wanted to start with a question regarding the new cap on fee rates in China. Can you help us understand the regulatory environment in that jurisdiction? It sounds like fee rates were previously capped at 1.5 and that was lowered to 1.2. Would you anticipate potential for a further reduction over time? Like, what's the messaging there with respect to the rationale for the change and your read on the general stability of that new fee rate cap?

Great question, Nick. It's Luke. First, the 1.5% was industry standard. It wasn't a ceiling. The CSRC has instituted a ceiling on equity and balanced products, active equity and balanced. And I think what you can expect is that the regulars and the industry itself are going to do everything they can to really encourage continued high-quality growth in the industry. And so that was the nature of what happened in July, is that the regulator actually thought it was in the best interest in the industry to limit the management fees that could be charged in these categories to encourage Chinese participants to invest in the mutual fund industry. So I think as far as the future, I think you can expect over time that there may be gradual reductions in fees, but you can expect this to be very well managed and in the context of very strong growth. And that's the other part of this equation is this is an industry that's still in infancy and people are focused on high quality growth for this industry over time and really encouraging Chinese to invest in the mutual fund industry.

Understood. Okay, that's helpful. And as you pointed out, it appears that net flows in that industry improved quite notably in the second quarter. What catalyzed that improvement? What's your read on what's happening on the ground there from an investor sentiment and asset gathering perspective?

Right now, it's funny, people are moving across different asset classes. One notable asset class has obviously been real estate. And at the same time, as you can see, folks are really encouraging investment in financial assets and investments in mutual fund in particular. So when you look at the product categories that sold well, it's very diverse during the quarter, a lot into science and technology and thematic equities, a lot into income. But it is on that theme of encouraging savings and long-term savings within the mutual fund industry as opposed to in deposit offerings and in other asset classes.

Understood. Okay, that's it for me. I'll pass the line. Thank you.

The next question comes from Jeff Kwan with RBC Capital Markets. Please go ahead.

Hi, good morning. I just wanted to follow up, I guess, on the China regulatory side there was can you contrast how the setup is relative to Canada in the context of like do investors pay their advisors? Is there kind of similar trailer fee type program? I'm just trying to get a sense as to how much do fees actually include sales in China or is it Really, if you have performance, then maybe it isn't so much the fee, it's the performance they focus on.

Yeah, really good question, Jeff. It's Lucas speaking. So first on the structure, you can think of China, and it's good context to assess 1.5%, 1.2%. You can think of those fees being inclusive of trailing commissions to the distribution, much like the bundled fee arrangements that we've traditionally had in Canada. So that's an all-in. There are opt-in sales commissions, as well, and that's something that the regulators is focused on, is making sure that the structure of fees is appropriate in the circumstances. But this is a bundle environment, and there is a trailing commission that comes out of the fees that we've quoted earlier.

Okay. And then just my second question is, you know, recognizing it's hard to quantify, but relative to prior cycles, like how much do you think – You know, high interest rates are a headwind to generating the same positive, you know, net flows in long-term funds, given investors may be to what, you know, I think Damon was talking about, paying down debts, coping with the day-to-day expenses, as well as having non-investment fund alternatives like KESAs and GIC that offer material interest rates in absolute terms.

Yeah, Jeff, it's James. I'll start, and Damon will have an important perspective. I mean, I've thought for some time that there's at least three kind of preconditions, if you will, to a better investing environment and stronger net flows for the industry. The first, I think, is investors need to see peak inflation behind them. I think we can check that box. The second, I think, is investors need to see peak policy rates behind them. And I think we can either check that box or we're awfully darn close to checking that box. I think the third thing, though, that I'm watching and that I think needs to happen to have that better investing environment generally is reduced bond market volatility. And when you look at various measures, the bond market has not settled down. It remains volatile. That's something that I think needs to happen as well. But even when those three things happen, Jeff, I do think we need to bear in mind that Canadians are in a different position here. Between higher interest rates and higher inflation, they're just not able to save as much, and in some cases they need to draw down on their investments, either to pay down high-cost debt or to support lifestyles. So, you know, that very much kind of speaks to our outlook, which is we continue to believe that this industry softness, if you will, will continue through the end of the year. But within that context, we expect each of IG and McKenzie to compete very well, and we expect IGM Financial to continue to deliver strong results. And I must say, one of the real problems positive surprises for me on the quarter was just how strong IG and McKenzie did in the context of this operating environment. So I think the team is proving that they can adapt to this environment, they're proving to be nimble, and they're generating the earnings that we've promised our shareholders. Damon, what's your perspective?

Yeah. So, Jeff, this is a very real thing. When you do the numbers on the industry, you can see that money is clearly leaving and there's less money in the system because, quite frankly, it makes sense financially for Canadians to pay down some of their debt. We know what challenges we have as a nation as it relates to debt. And for us, this is what we're all about in terms of financial planning. This is how we build loyalty with our clients. This is how we create long-term relationships that are generally intergenerational relationships with our clients. So for us, as James said, it puts us in a position to be much stronger as an organization, not only in this operating environment, but coming out of this operating environment. You can see a strong July from us. We're working hard to put cash to work, but it's going to be slower. quite frankly. And when we talk to our clients, they're indicating that they're concerned about debt, they're concerned about interest rates.

And Jeff, it's Luke. I'm going to violate the three-person answer rule. We usually do two, but on the... I would highlight part of your question. Inflation's come down. It's still running at 3%. When you look at the $2 trillion that's sitting in deposits, a lot of it's paying zero. Some are as fortunate, and they are getting close to the overnight rate of 5%. But there's a lot of ways that firms like IG Wealth and McKinsey and the industry can really offer better yields than Canadians are getting on those deposits. And so we think there is a real rich opportunity for us. On our private credit offering, which has had very good performance, very good credit performance, and is floating rate, the gross yield is 12%. There's a lot of really competitive yields for those who are seeking yield with preservation of capital, and we're going to keep on promoting those offerings.

But if I can maybe sneak in one last question, it's just on that part of either IG wealth customer base or just, you know, in general, what you're seeing is for the subset that are looking at funding day-to-day expenses or paying down debt, is there a certain income level threshold or financial asset threshold that you're finding where you're seeing this happen? And on the debt, is it the non-mortgage debt that they're really focused on paying debt, or is it also to the mortgage debt that you're seeing financial assets getting funneled into?

Yeah, on the first part of that question, I think the key is as you move up to the high net worth segment, you generally deal with Canadians that have more debt because they understand leverage, and a lot of that is leverage towards their home. So what we're seeing is that people are trying to pay down non-deductible debt. So that obviously means that they're focused on their mortgage. They're focused on any personal debt that they have. They're focused on their home lines of credit that were built up over the last eight to 10 years. So that's what we're seeing. And it's not going to abate until you really have interest rates start to roll over and inflation start to roll over because people need to live their lives. Thank you.

The next question comes from Tom McKinnon with BMO Capital. Please go ahead.

Yeah, thanks very much. Two questions. One, if you could just go over the reductions that you think are going to be for China AMC earnings going forward. Was it $1 million for something, $3 million for something else? And is that off the... the current Q1 China AMC earnings. And then I have a follow-up, thanks.

Go ahead, Keith. Yeah, Tom, so with the currency impact, as we look where currency is today, you can think about that being about a million-dollar impact to earnings as we head into Q3. And then with the fee changes at China AMC, you'll have about an impact of proportion share of our earnings of about $3 million, so combined $4 million. And that's looking at AUM at the end of June. So that's the expectation as we move into Q3 there.

Okay. So we've got somewhere like $4 million off 25, right? So that's... Yeah, yeah.

So $30 million, you know, call it $30 million proportionate share of earnings this quarter. So that would be more the number. to think through. And obviously, there's growth in this industry and net sales and whatnot that we expect to also support earnings as we move forward in the next quarter. And they are coming off of a higher asset base, as you can see at the end of the quarter.

Okay, why are we doing it off 30 when slide 41 shows that you've got 24.9 in China AMC earnings?

So Tom, just jumping to page, slide 40. Proportion share of earnings at 27.7. So there's some currency in there as well as there were some losses in this quarter. So when you normalize for that, you're closer to $30 million.

Okay, that's great. Thanks. The follow-ups with respect to other financial planning revenue seem to be up pretty nicely year over year. Was there... and quarter over quarter, is there sort of an increase in mortgage activity here? Do you expect that trend to continue? What are the key drivers in other financial planning revenue being up 15% in the quarter year over year?

Yeah, Keith, I'll start and then I'll head over to Damon more generally. But I think across a couple of fronts, one, the mortgage business had a better quarter. $8 million this quarter versus last quarter, I'd say that is basically the core driver of the change. The mortgage business can be volatile with the market that we've seen over the course of the last several quarters, but $8 million in the range of $6 to $8 million is probably a reasonable expectation as we move forward. And we also had solid results in the insurance business and the banking business for the quarter.

Yeah, Tom, in terms of mortgages, we're still in early days with the Nesto relationship, but it's gone very, very well. They would tell you that we're probably the only shop on the street that's up year over year in that business. We have a significant number of our advisors who have bought into the relationship and have referred over clients, and we continue to work on the experience, and we expect to continue to grow this business at an accelerated pace.

And when did you venture into the Nesto relationship?

So we signed the relationship late last year, and we went online in February of this year.

Okay, great.

Thanks. The next question comes from Jane Goyne with National Bank Financial. Please go ahead.

Yeah, thanks. I just wanted to dig into some of the, I guess, strategic investments and the performance there. So first on Rockefeller, it looks like really solid year-to-date client asset growth. Just wanted to get your perspectives on how this compares to your expectations going into that acquisition. And if it is trending better than expected, and your view is that, should we expect that accretion estimates to maybe move a little bit forward than you have already guided?

Sure. Good morning. It's James. You know, I'd say early days clearly, but we're very pleased with Rockefeller's performance. And I think at this stage of their evolution, there's two KPIs that we're keeping an eye on, and I know their leadership team is laser-like focused on, and those are recruiting and organic growth. And I think you can see from this quarter that assets are growing very well. Greg Fleming would describe the recruiting market in the United States as very robust, and they're participating very actively in it. First Republic was a primary competitor of theirs in the recruiting market and clearly is no longer. And I think it's fair to say that Rockefeller has become what I would describe as the independent firm of choice in the United States. And so I think the trends that you see in Q1 we would expect to continue. From the very beginning, we said there's three things about that business that are special. The iconic brand, the best-in-class executive management team, and the business model that is very much designed, built around, and supportive of organic growth for advisors. So, you know, a good start. We expect it to continue. Keith?

Yeah, Jamin, just on, you know, we did provide a perspective and a, you know, cold forecast on a range of adjusted EBITDA growth that we'd expect, and I'd say that they're on track and within that range. You know, we also, you know, in April, you know, commented that we'd expect, you know, sometime in 2025 that our proportionate share of earnings would be at a level that would replace, you know, lost IPC earnings as well. overall tracking within the range of what we put forward in April.

Okay, thanks. And then the second question is just on the Wealthsimple growth in AUA there. Obviously pretty strong as well. And just curious whether if you have any color on the underlying drivers of that growth. Is it... Is it primarily cash investments, or are you seeing maybe some other characteristics in that growth compared to the IG Wealth or IG McKenzie?

Sure. It's James Allstart, and I have the pleasure of serving on that board, and we'll be meeting this afternoon to go through the quarter and those numbers in some detail. What I would share with you is that I think one of the – principal accomplishments of Mike Ketchin and team over the past 12 to 18 months is the extent to which they've been able to truly diversify their revenue sources. If you go back 18 months ago, there would have been some concentrations. But if you look now at their revenue sources across investing, trade, cash, savings, crypto, it is a remarkably well-balanced and well-diversified revenue base. On top of that, I would just add the business under Mike's leadership has made really quite significant progress financially. They have had a very, very productive year, and that's one of the reasons, frankly, we so look forward to having Mike and Wealthsimple presenting at our Investor Day on December 5th, you know, alongside Rockefeller, Northleaf, and China AMC. So more ahead on that, but a year of great progress, really.

Okay, good. Thank you.

Once again, if you have a question, please press star, then 1. The next question comes from Graham Writing with TD Securities. Please go ahead.

Hi, good morning. Maybe I could just start with the restructuring initiative. Part of the plan there is obviously to surface some synergy, sorry, some efficiencies from a cost base or streamline, but you talked about reinvesting some of those savings back into the business. Can you talk about sort of, I guess, at a high level, what you're thinking at IG Wealth and what you're thinking at McKinsey in terms of where you want to reinvest? And I'm sure with an eye to sort of supporting supporting growth?

Yeah, I know very much so. It's James. I'll start and I'll just kind of reemphasize that we went into this exercise and these exercises are never easy. The proposition was a simple one. For each dollar we save, half will go to the shareholder, half will go back into the business to make your businesses stronger. And the organization responded and I'm proud of how the organization responded. Each of Damon and Luke are in the process of building lists of priorities for that half of the savings that will be reinvested. And we do expect for this to be something that will peel back to a level of detail at Investor Day on December 5th. Having said that, I do think as we sit here today, each of Damon and Luke can provide some early color on how they're thinking of deploying incremental dollars. Damon?

Yeah, thanks, Graham. It's Damon here. So in terms of IG, there's two things that we have a laser-like focus on. Number one, the quality of the advice that we're providing, particularly to the high end of the market. And then the second thing is the experience in which we provide that advice. And that's around our advisor and on our client experience. And I'll give you two examples. So number one, we've started a private company advisory business. And this is a business where, uh, it's focused on small and medium sized enterprises, uh, size between 10 and a hundred million dollars where we'll, we'll do two things. Number one, we'll help them with, uh, with financing, both debt and equity. And the second thing is we will help, um, value and monetize that business, take it to market and sell it. And for us, this is a very, very important initiative because, um, you know, small and medium-sized business owners are certainly high net worth clients for us and in the industry. So it's something that we're excited about, that the advisors are very excited about. The second thing was just to work on our end of the NESTO partnership and make sure that they provide a best-in-class digital experience for those that want mortgage financing and that just on our end that it plugs into all of our systems and it's a seamless experience for our advisors and for our clients. And that's reaping early rewards already. So I look forward to talking about this and other ideas that we have at Investor Day in December.

Again, it's Luke here. I've got to say, really, reinvestment will be on three themes. One is investment excellence. The second is expanding distribution reach. And the third is making sure that we've got a broad, innovative, and compelling suite of products and services. The one that we have announced and spoken about is really improving our investment management operations at our middle office in particular. So it's at a standard of global leading investment managers and that our people can come in every day and do their best work and feel so engaged and satisfied as they do it. But those are the three things for me. And as you started with some of these savings, they actually make our company more efficient while also improving client outcomes and they're gonna go straight to the bottom line as Keith said.

Okay, great. My next question is just with the China AMC, the sort of fair value you provided or the adjustment on that front, how often do you intend to sort of review that valuation and provide a view of any potential changes?

Yeah, it's Keith here. I think that we're looking for significant inflection points, and we certainly had one this quarter. So you can think about currency, just the general performance of the business, markets in general as well as, you know, where are global asset managers trading. So I think you can expect us to take a look at all those elements over the, you know, quarters to come and we'll provide an update, you know, as, you know, on that basis. But certainly looking for, you know, meaningful inflection points.

Okay, understood. My last question just on Rockefeller. When you announced the deal, you did provide a view of adjusted EBITDA and margins. Is that something that you will plan on, in case I missed it? I don't think I saw anything. Is that something you plan to provide going forward, or are you just going to give us a view of the sort of associated earnings that are flowing back to you?

Yeah, it's a key theory. You know, I think going forward, the most appropriate measure as we track forward into the future would be our proportionate share of earnings. It's inclusive of all you know, compensation equity programs and whatnot. So that'll be the core, but would expect to provide an update on how we're tracking to that adjusted EBITDA growth that we presented in April, but more likely on an annual basis.

Okay, understood. That's it for me.

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

Thank you, Cherie, and thank you, everyone, for joining us this morning. Appreciate the attention and all of the questions. Cherie, with that, we can close out today's call.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.