IGM Financial Inc.

Welcome to the IGM Financial 3rd 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'll be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I would now like to turn the conference over to Kyle Martins, Treasurer and Head of Investor Relations. Please go ahead.

Thank you, Ariel, and good morning, everyone, and welcome to IGEM Financial's 2023 third quarter earnings call. Joining me on the call today are James O'Sullivan, President and CEO of IGEM Financial, Damon Murchison, President and CEO of IG Wealth Management, Luke Gould, President and CEO of McKinsey Investments, Financial. Before we get started, I would like to draw your attention to our cautions concerning four looking statements on slide three of the presentation. Slides four and five summarize non-IFRS financial measures and other financial measures that are used in this material. On slide six, we provide a list of documents that are available on our website related to iGEM Financial's third quarter results. I'll turn it over to James.

All right, thank you, Kyle. Good morning, everyone, and thank you for joining us once again. We'll start with slide eight to cover some of the highlights for the third quarter. Adjusted EPS of 88 cents, up sequentially, and driven by strong results in our core businesses, IG Wealth and McKenzie. Our operating companies, AUM&A, stood at about 253 billion at the end of September, Now when we add our proportionate share of our strategic investments AUM&A, that was $400 billion 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% equity interest in Rockefeller Capital Management. Our reported net outflows were $549 million 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 $1.3 billion of new commitments during the quarter, and China AMC generated a truly remarkable investment fund's net flows of approximately $15 billion in Canadian dollar terms during the quarter. 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 of 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 investor day in downtown Toronto. Turning to slide nine, while the first half of 2023 delivered positive client returns driven by generally strong equity and fixed income markets, the third 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 third quarter. As the combined effects of recent marked 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. 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 quarters. 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&A and earnings results, both of which I spoke to in my opening comments. Slide 12 highlights earnings across our core operating companies and strategic investments. I'd remind that our earnings pickup from China AMC and LIFCO, excuse me, include the impact of the transactions that closed earlier this year, where we doubled our ownership position in China AMC and decreased our stake in Great West LIFCO to 2.4%. Our earnings pickup for LifeCo continues to be based on consensus estimates, and this quarter includes an $8 million true-up for last quarter as LifeCo continues to report after IGM Financial. Turning to slide 13, Q3 ending AUM&A at our operating companies was up 6% 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 5% over the last year in local currency. However, this increase was offset by the depreciation of the 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 third quarter. Turning to slide 15, I want to remind our stakeholders of our upcoming Investor Day on December 5th 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 McKinsey, and our four strategic investment companies, Wealth Managers Rockefeller Capital Management and Wealthsimple, and Asset Managers China AMC and Northleaf. 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. With that, I'll turn the call over to Damon.

Thank you, James, and good morning, everyone. Turn to slide 17 in Wealth Management's third quarter highlights, including IG Wealth, Rockefeller, and Wealthsimple. IG Wealth ended the quarter with AUA of $114.2 billion, a decrease of 2.2%, driven by financial markets. Growth inflows of $3.1 billion represent another strong quarter. Net outflows were just $18 million during the third quarter, and the dynamics that we experienced last quarter continued through Q3. I'll speak to this on the next slide. IQ's growth 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 two strategic investment companies that are focused on wealth management, Rockefeller, and Wells Simple. Both firms posted strong results of their own in the third quarter. Turn to slide 18. You can see IG Wells Q3 flows. To put our quarterly flows into context, I'll make a few points. Firstly, our gross inflows remain strong, but as with what took place in the second quarter, 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, what sets IG apart is that we're not simply focused on investing our clients' money. We're focused on all aspects of their financial lives and fostering lifelong intergenerational relationships. On a later slide, I'll provide a further example of this as I speak to our new private company advisory business. Turn to slide 19. At the top right, you will see that our IGM solutions as a percentage of total AUA remain strong, and client cash, GIC's highs of positions continue to represent an opportunity as our advisors execute their clients' financial plans, including dollar cost averaging back in the markets over time. Our quarterly 12-month net flows rate of 0.4% supports our continued belief that we are winning market share through new client acquisition and greater share of wallet. Lastly, we continue to deliver strong relative investment performance with 61% of our assets ranked four or five star by Morningstar and 92% rated three stars or higher. Turning 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 third quarter, we had $493 million in gross flows from newly acquired clients with over $500,000, which has nearly tripled over the past five years and up 20% versus Q3 last year. Gross inflows from newly acquired clients over $1 million represented over 25% of our newly acquired clients during the quarter, a significant increase of 14% during Q3 2018. Our sales growth within the high net worth segments during the third quarter was exceptional. But we'd like to remind everyone that while over the long term 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. That said, our continued progress and growth in 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. By 22, it's further validation of our success and executing against initiatives that drive advisor productivity, long-term business success that are all centered around our advisor 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. The bottom of the slide illustrates the categories where IG Wealth rated number one 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 Wells' private company advisory business. This business is intended to provide our clients who own small and medium-sized businesses with strategic transaction advisory services as well as support their succession planning. We view this type of business as a differentiator as we continue to grow and move deeper into the high net worth segments. Having the skills and capabilities to offer these services to our clients will help to cement relationships, providing an opportunity for our advisors to incorporate 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 a real opportunity to leverage the knowledge and learnings of Rockefeller. Turning to slide 24, I'll provide a few updates to Rockefeller's progress during the quarter and year-to-date. Client assets were relatively flat during the quarter, as strong organic and inorganic growth were offset by negative market returns. On a year-to-date basis, client assets have grown approximately 14%. Year-to-date organic growth has driven $3.1 billion in client assets or approximately $1 billion a quarter on average. Four new advisor teams were added during the quarter. Advisor team growth remains on track to reach the $120 million 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 forecast. 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. Turn this by 25. The third quarter 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. The new client service is approaching 2.3 million 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. Good morning, everyone. So, trying to page 27, a few comments on the quarter. In point one, you can see our ending AUM was down 3.6%, driven primarily by investment returns. Point two, investment funds experienced net redemptions of $698 million during the quarter, which is in line with the soft industry environment. On point three, we received the result of the annual advisor perception study at the end of the quarter that was conducted during April and May of this year. 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 third, and this is our seventh consecutive year ranking top three. We also continue to rank second in terms of advisor sales penetration. That's the percent of advisors actively selling our products. And we have this rank across all distribution channels. And we also continue to rank number two in brand equity. 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 are a function of the focus and hard work of the McKinsey team and doing our best to deliver on the 43 underlying dimensions of this study that measures what matters to financial advisors from a product provider. On point four, as mentioned by James earlier, China AMC long-term fund 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 78 billion yuan, or $15 billion Canadian, during the quarter. This followed net sales of 61 billion won in Q2, or 10 billion Canadian, 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 273 billion won during the quarter. And lastly, Northleaf delivered 1.3 billion in new sales commitments across multiple product offerings. And I do want to highlight Northleaf's averaged a consistent $1 billion in new commitments each quarter since we began our partnership with them 11 quarters ago. During the slide 28, you can see the trended history of McKenzie'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 improvement yet. Our gross sales were up 17% from last year, and we were 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 McKenzie to drive share gains and produce significant net flows from the industry rebounds. Turning to page 29, you can see McKenzie's Q3 offering results. Our results for the quarter, as mentioned, were in line with the industry and in line with expectations given the environment, and you can see our net sales rate in relation to the industry in the bottom left. On this slide, I do want to highlight the table in the top middle, which shows the composition of our overall net sales by product type and distribution channel. I'd first direct you to slide four, line four, institutional investment funds, which you can see had net sales of $7 million in the quarter. I did want to comment that this reflects strong net sales from our new relationship with Praerica, which were offset by movement to safety in line with the industry elsewhere. Also in the sixth row, institutional SMA, we had good net flows into sub-advisory accounts that we sub-advised to China 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 to $692 million, up from $819 million last year. Turning to page 30, you can see our retail mutual fund AUM investment performance and net sales by critique. We continue to demonstrate the benefits and strengths of our boutique structure with the 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 flow as relative to peers, Green Chip, Blue Water, Global Equity and Income, and the U.S. growth mandates within our subadvised are contributing. I'd also highlight that we have strong emerging one- and three-year performance 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 one-, three-, and five-year periods. 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 128 billion yuan were offset by slight market declines. This is in contrast to China MC's mutual fund growth of 5%, which I highlighted earlier and will speak to on the next slide. I do want to remark also on the right-hand side of page 31, you can see China MC's market position remains very strong as the second largest fund manager in terms of long-term mutual funds. And I do want to highlight market shares 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 of uncertainty. Through the leverage created by its brand, distribution reach, and breadth of capabilities, we saw strong net sales of $78.1 billion, or $15 billion Canadian in the quarter. And as mentioned earlier, this is an annualized net sales rate of 40% of assets and also follows $10 billion in Canadian net sales in Q2. This drove the noteworthy market share gains review in the last slide, and the net sales were diversified across a number of thematic product offerings. And then turn to page 33, you can see Northleaf's AUM now stands at $26.9 billion, up 11.6% year-to-date, driven by new commitments of $1.3 billion in the quarter and $2.8 billion year-to-date. As mentioned, new commitments have averaged $1 billion consistently over the 11 quarters 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 Keith Potter.

Thank you, Luke, and good morning, everyone. On slide 35, you can see our AUM&A. The chart on the left shows ending assets were down 3% during the quarter, while average assets remain relatively flat. Slide 36 shows our EBIT in millions of dollars on the left and a percentage of AUM&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 LIFCO China MC and Northleaf partially offset by Rockefeller. Second, wealth management fees at IG and net management fees at McKinsey 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. 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 two, operations and support and development expenses combined increased 3.6% year-over-year, consistent with our expectations, and we are maintaining our guidance of no more than 2% growth for the year. On point three, as a reminder, discontinued operations includes IPC's earnings and the short-term financing expense for Rockefeller. Just a couple of points here. First, IPC's earnings for approximately $4.5 million in the quarter, and the difference is just over $6 million 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 fourth quarter. 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 $113.3 million is up 3.4% relative to Q3 2022, primarily due to higher average AUM&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. Moving to slide 40, you can see McKenzie's AUM by client and product type, as well as net revenue rates. I don't have much to say on this slide, but main point focusing on the blue line on the right, you can see net management fee rate for third-party clients excluding Canada Life was 81.1 basis points. It was up slightly due to having one extra day in the quarter to earn revenue while trailer fees are paid based on the number of months in the year and not the number of days. Turning to slide 41, you can see McKinsey's earnings of $56.5 million were down 3.4% relative to Q3 2022. On point one, operations and support business development expense were up 3.5% relative to 2022. And this is partly due to the lower sales link compensation expense in the comparative period during 2022. Slide 42 has China EMC results. On the left, total AUM. of RMB $1.8 trillion was up 1.3% quarter-per-quarter. Long-term investment fund AUM was up 5.2% quarter-per-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 primarily from the fee adjustments and the exchange rate that I spoke to on our Q2 call. Turning to slide 43, here you can see a breakdown of earnings and fair values of our strategic investments and unallocated capital. I have three main comments on the slide. First, you can see light core 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 million from last quarter that James mentioned. Second, I 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 million. 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 million for our proportionate share of Northeast associate earnings after non-controlling interest. Partially offsetting these points 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 discontinued operations represents the $575 million estimated sale price of IPC, less the $550 million bridge financing facility. And as I mentioned, we expect this transaction to close during the fourth quarter. And with that, I'll ask the operator to open the line for questions.

Thank you. We will 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 hands up before pressing any keys. 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. Our first question comes from Nick Preeb of CIBC Capital Markets. Please go ahead.

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 than its competitors? What's driving those market share gains?

Can I say, Nick? I'll say this one. It's Luke. So first, I position China MC as much like McKinsey. It's very broad in its capabilities and offerings across asset classes and across product types. And it's also very broad in its diverse 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 funds last quarter was gaming and animation. But these exposures are doing very well for China MC and it's really leveraging the breadth of its offering combined with the breadth of distribution to gain share.

Okay. 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. I'm just wondering how you're thinking about expense growth at the enterprise-wide level for 2024. Should we be thinking about a similar level of growth to 2023? Yes, Keith.

Thanks, Nick. At this point in time, we're really continuing 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, you know, thinking about 2024, we'd still be planning for, you know, some level of expense growth. But again, we're going to be, you know, prudent in that level. We typically provide specific guidance in February. And, you know, we'll provide an update the upcoming investor day.

Yeah, okay, fair enough. That's it for me. I'll recue. Thanks.

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

Yeah, thanks very much. Good morning here. Just a couple questions. Good financial planning revenue in IG, and I think it's related to mortgage. 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.

Yeah, it's Keith here. I'll take that. Yeah, you know, I think it was a solid quarter across the mortgage business as well as the insurance business. So insurance, you know, 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, you know, was kind of in line with expectations, but there were, you know, loss on sales. There was some fair value adjustments that created a little bit of variability in the period. You know, I would say kind of on a go-forward basis, we had, you know, call it a $10 million contribution this quarter. You know, probably something closer to $7 million, I would say, would be more of a normalized number there for you, just given some of the fair value adjustments that we saw this quarter. Do expect the business, though, to be volatile, given the interest rate environment, with rates kind of rising and falling, you know, over the coming quarters. But overall, it's solid across the business.

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 million, and this quarter it was a gain of $1.1 million. So any way of helping us gauge what we should be expecting from Rockefeller going forward?

Yeah, you know, when you look at the ending assets during the period, it's actually kind of a reverse V, so you can think about the average assets being, you know, higher this quarter. Key drivers of growth in terms of bringing on new advisors, you know, continuing to onboard and gaining organic growth. I think that's what you saw this quarter, so there's nothing special standing out there. But I would note, as we look to the end of September and into October, you know, asset levels, you know, across all wealth and asset managers have taken a hit due to markets. So, you know, expect that as we head into the fourth quarter that asset levels are lower than what they were. So I would, you know, Tom, I'd be looking at something that would be, you know, lower than this quarter just based on that. The other thing I would just mention is we did, you know, 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. 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.

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. Is this one of the – beneficiaries of that strategy.

Hey, Tom, 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 You know, the small and medium-sized business monetization opportunity that is present in this country right now with the aging population, you know, you're looking at three-quarters of the small and medium-sized businesses in this country will be sold within the next 10 years. And that's going to generate significant wealth that's not in the system, you know, estimated over $2 trillion. This allows us to add value to our small and medium-sized business clients by valuing and monetizing their business. and it allows us to attract new small and medium-sized business clients that are currently in our ecosystem.

Great. That's it for me. Thanks.

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

Yeah. 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.

Yeah, so the way that we see the opportunity, Jeff, in the country is, you know, going forward, there's going to be key drivers that will determine the success of, you know, any type of wealth management organization. And, you know, it starts with tax planning and optimization. just given the high tax rates in this country and the future of tax rates. Number two is retirement planning and readiness because of the age of the population. Once again, because of the same age, it's all about estate planning and intergenerational 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. 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.

Okay. Just my second question was on slide 43, just where you show the fair value of the strategic investments. It was flat quarter per quarter. I know it's equity counted, but Just wanted to, I guess, better understand, you know, what are some of the examples that would have the value of, you know, 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?

Yeah. Yeah, just wanted to take a look at the value that you had for Q3 versus Q2. It was largely flat quarter per quarter.

Yeah, you know, 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, you know, the performance of the business. You know, public traded companies, multiples, and a number of other variety of valuation approaches. So that would be, you know, well simple. Northleaf, we've just maintained and used carrying value on that particular investment. I spoke to last quarter, 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 do fair value through OCI on a quarterly basis.

Okay, thank you. Our next question comes from Graham Riding of TD Securities. Please go ahead.

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

Yeah, thanks, Graham. Well, I mean, as I've said, 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 the sum of those three creates a more constructive backdrop generally. 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 things. 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 half, and we'll see where it nets. But I think if we just look at consensus economic forecasts for how rates might move through 2024, I certainly see the potential, indeed, if not the likelihood for a substantially better back half of 2024.

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

Yeah, I think... You know, I certainly think fixed income has become substantially more attractive as the curve has moved, as it has moved. But, you know, our advisors at IG and, indeed, the advisors that McKinsey serves are going to be having conversations with their clients and, you know, the large majority of the end clients served by our businesses have balanced portfolios. So we'd expect to see some movement and flows on both equity and fixed income.

Okay, great. Damon, maybe I'll just jump to you with this private company advisory initiative. Do you know how much of your current AUM or your current high net worth AUM would be household with entrepreneurs, you know, that's behind a small to medium-sized business?

Yeah, you know, that's competitive intelligence right now, and we'll look to kind of share more of this at Investor Day, but I would say to you, you know, from a general perspective, that the number of clients that we service that own small and medium-sized businesses is not large, but they make up a substantial portion of our asset.

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

Yeah, okay. So this is about positioning for your current client base, but also trying to increase your market share in that channel.

Yeah, I would look at it as a significant new client acquisition opportunity.

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 two or number one? And then is there, in your experience, a strong correlation there between that ranking and the market share of industry flows?

Yeah, great question. There really is that correlation. And again, there's many, many participants. We were tied for number two last year. It's actually Fidelity has been a consistent number one and Edgepoint's number two currently. 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 prop 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 one in all those measures every day.

Great. That's it for me. Thanks.

Once again, if you have a question, please press star, then one. Our next question comes from James Goyne of NBS. Please go ahead.

Yeah, thanks. Good morning. First question, just on the redemption rate in the IG wealth business. Now, I think it was reported around 10.6%. Still outperforming the industry, of course, but it is approaching your previous peaks. And so I'm just curious if you're... If there's anything different going on with your customer than in the past, and is that increase concerning to you as we look into the early part of 24, which James, you said might be a little bit weak. A little bit more color on that, please.

Yeah, James, it's Damon. I would say that there's nothing specifically different that's going on with our clients. It's really a function of the fact that everything is more expensive these days, 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, 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, you know, 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 about. But you also see that there is huge demand for the advice that we're providing. You know, with Canadians going through what they are today, they're looking to sit down with advisors that are going to explain to them, you know, how is this going to impact my financial future? And the fact that, you know, 28% of the new clients we brought in in Q3 where a million dollars 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.

Yeah, and just following up on that, 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? Is there any sort of differentiation along your customer types?

Yeah, 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. So, you know, if you're modeling it out, you would model out a higher reduction rate for the lower values.

Okay, good. Last question, just on the dealer report card rating, steady increases from 2019 to 2022 for the industry and yourselves. What would cause the decrease in 2023? I see that you're outperforming, but I'm just curious as to what would have driven that rating lower this year.

Yeah, 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 impacts our competition right so you see that that is just typical of the industry and I don't think that's going to change any time soon okay thank you this concludes the question and answer session I would like to turn the conference back over to Kyle Martin's for any closing remarks

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 5th. And, Ariel, with that, we can close out today's call.

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