Welcome back to the Scotia Financial Conference, held virtually this year. I'm here this afternoon with IGM Financial. I've got with me, Barry McInerney, CEO of Mackenzie Investments, and Luke Gould, IGM's Chief Financial Officer. Barry, Luke, thank you, and welcome.
Thank you. Our pleasure to be here.
All right.
Thank you.
I think over the past five years, IGM's gone through a fairly significant transformation across the organization. Maybe Luke can start off and give us an update as to what inning we're now sitting in with respect to the change and what you see as your key strategic priorities over the next 12-24 months.
Well, I'll start on Mackenzie, if that's okay, and Luke will jump in for the rest of the operating companies at IGM. As you know, we have very sustainable, strong momentum at Mackenzie, quarter in, quarter out, with very strong, robust inflows, mutual funds, ETFs, retail, and now institutional. We're very, very pleased where we are today, heading down, executing on our strategy, and momentum continues to really... It's our fourth year now, we're seeing very sustainable upward accelerating momentum. So our priorities will be as follows. Number one, in addition to obviously continue to gain market share in the big, deep asset classes, balanced global and Canadian equities and fixed income, we're working on five growth catalysts that are really driving our industry, both in Canada for the future and globally.
That being ETFs, alternatives, socially responsible or sustainable responsible investing, retirement vehicles, and China. So those are our five focuses. We have, we have teams and leaders dedicated to each of those five growth catalysts within Mackenzie. I think we're well, well-positioned to really grow those future catalysts while we continue to obviously penetrate the deep, deep pools that currently exist in Canada. Number two, we again, of those five growth catalysts, like the alts, is just we think the democratization of alts is going to happen with the individual investor retail. Just seeing everyone trying to position ourselves well, so we're really focused on liquid, and we're exploring ways to bring direct alternative investments to our clients, advisors, and, and investors in Canada. And really continuing to move the league table on ETFs and really drive SRI.
Secondly, we really are excited by the GLC acquisition from Canada Life, and that just gives us, when it closes end of the year, CAD 40 billion of more scale. We'll be approaching CAD 200 billion at that point in assets under management. GLC is important. Really strengthens our channel on the group pension, group retirement plans in Canada, which we really have very little presence in. Obviously, really keeping two huge anchor clients happy, and IG Wealth and Canada Life's wealth businesses. So really focused on making that successful. And China. Like, our China AMC relationship, partnership, and ownership stake is really taking off. And I think we highlighted that during our last analyst call that Luke and I led, and with Jeff Carney advising.
So that growth is becoming extremely exponential, and we knew it was going to happen, and we're very pleased to have a strong minority interest in one of the preeminent Chinese asset management companies. So that's our... Those will be our focus for the coming 12-24 months, Phil. Thank you.
All right.
Hey, thanks, Barry. I'll make a few comments on IG and then IGM. So, first on IG, thanks, Phil, on your question on where we at in innings, and I'm not good at baseball analogies, but I think we're in the final, so let's call it seventh to eighth inning on change. Our focus right now is on executing our vision. As everyone knows, our advantage is financial planning. We believe we're the best at what we do, and our focus is on serving a mass affluent and high net worth Canadians. I'd highlight that for us, high net worth means CAD 1 million-CAD 10 million in financial assets for households. So, physicians, retirees, professionals, small business owners, that's our target market.
And right now, I'd say with the changes we implemented, we're seeing some very strong early momentum with net flows up year-over-year, about CAD 1 billion, and continued new client acquisition in those categories. And that's happening during a pandemic, and I think the pandemic is a headwind, not a tailwind. So we're very pleased with the early successes we're seeing. As far as the priorities, we've got three I'd highlight today. One is technology to enhance the advisor and client experience. And I'm going to mention two. One is our rollout of advisor portal with Salesforce that we had earlier this year. That's our CRM tool. We believe it's leading, and we believe it's going to enhance the productivity of our financial planners. The second one, announced in July, is a special one called Conquest.
We've invested in the company. We are going to be the first to launch the software in North America. It is financial planning software, and we believe this, it is bar none, the best financial planning software that has been developed to date. We are rolling out to our field in Q4, and we believe it provides a, you know, a very compelling client to advisor experience and a very remote, a remote experience as well, where you can do stress testing, scenario testing, and really populate the plan in a compelling way, working with the client remotely. So that's another important technology launch that we're excited about. The second theme we have is on the product offering. And as everybody knows, we've moved to a 100% sub-advice model.
We focus on managed solutions, where portfolio construction is done by the house, with the financial planners focusing on financial planning. And I, I'd make two comments on the product offering. One, since we've outsourced all the investment management and focused on managed solutions, we're now at a place where our performance is an advantage, and we've started actively advertising it, and this is new, for IG Wealth. And so that's been one important change. The other change that's coming is an expansion of privates within our portfolio solutions. And so for IG, with our integrated financial planning offering focused on managed solutions. We believe we're in a really unique position to bring privates to retail.
We have about 40 years of experience in real property within our client portfolios, and over the coming months and quarters, we will be adding other asset classes in privates, and we think it will enhance the client's investment returns and really will help, you know, make our platform much more competitive in serving high net worth and mass affluent Canadians. The third priority I'd highlight is recruiting. And what's new with the changes we made in the last three years is we view, for those financial advisors focused on financial planning, IG as a destination of choice for experienced financial advisors.
So to date, we've recruited and trained new advisors to the industry, but with our current offering, we believe we have a very compelling proposition to recruit experienced advisors from other dealers, and that's something we're having early success on, and we think will be a really good catalyst for growth going forward. Moving to IGM, I'd highlight that we are in an operations transformation that was highlighted as being five years. We're now three years in. We planted flags earlier this year on outsourcing funds services to CIBC Mellon, and that's resulted in CAD 20 million of annual savings, as well as improving time to market and a lot of our capabilities. This transformation program, everyone will remember, is focused on digitization, automation, and outsourcing.
And so we're 60% through our journey, and in the coming months, we have a number of other important changes that we're bringing to bear and will be announcing. So, so really good progress on the transformation front, and those have been our areas of focus.
Interesting. It's great color. I want to shift gears a bit and talk about the industry. And maybe get your view, is what you see, if any, as the longer term implications stemming from the pandemic for the wealth and asset management industries, and maybe what that opportunity—what opportunities that might bring for IGM?
Well, I think it's a great question because, I'll start on the asset management side. We believe there's a number of trends that we were all acting on for the next 5, 10, 15 years, where the COVID has accelerated those to even today. I mentioned our growth catalysts that we're acting on, just big retirement products will be continued to... We think savings rates will go up, will be good for the overall wealth and asset management business. We're seeing that. Another reminder, of all of us, we need to save more and longer. SRI, for instance, is here to stay because that seems to have, the COVID has put an increased focus on the SRIs. Not just an alignment of, personal beliefs with investment beliefs, but actually a way to provide, higher risk-adjusted returns, to investors as well.
But obviously, the one that's most visible is the increased digital and virtual interaction between advisors and their clients and the managers and the advisors. And so that's here to stay. It will probably be more hybrid as we hopefully come out of this COVID, but that interaction can be more productive, can be more efficient. Advice will never be more important going forward as well, and you're able to have more touch points virtually than you did before.
So we are fortunate at Mackenzie that probably two, two, three years before the COVID, we had been working on enhancing our digital interactions with advisors, also giving them more technology and tools, precision tool we gave them, and other tools, using big data more to segment and understand and anticipate better the needs of advisors in building really optimal portfolios for their clients. And so that has just come to us in 10 years today. And so we're. We feel we're in a very strong competitive positioning. We think it's an inflection point for the industry, that again, it is an opportunity for those to build upon their competitive advantages, which we intend to do.
Others, they might struggle because this is the new norm, and if you're able to quickly adapt to a hybrid approach, technology in person, and have all the tools you need and the horsepower to do so, then you could continue to increase your momentum at this inflection point or not. And so, b ut it is, it is certainly, you're right, this is, this is a change, a change point for the industry, and we've identified that, and we're working on that very hard to react to it as quickly as we can.
All right.
And Phil, I'd build on Barry's comments. So at IG Wealth, I just highlight we've never been a bricks-and-mortar business. We've always gone where our clients, you know, want us to go, whether it be their home or whether it be in our office. So with the current environment we're in, as everybody's heard, we've rolled out to our 5,000 advisors and their support staff, Microsoft Teams. So we already had the benefit of a lot of electronic tools to process business, and this has actually been quite game changing, where we've had the tools before, but what's new is the client receptivity to actually being served remotely.
And we think this is going to endure, and you can imagine us having advanced financial planners located in Winnipeg and Toronto and elsewhere, and being able to bring these people and specialists into our clients' home using very engaging tools like this. We think it's here to stay. The other thing I would highlight during periods like this of extreme market volatility, our focus on financial planning really solidifies relationship and really makes a difference in people's lives. And so I think to Barry's early comments, this period where we have been through quite a ride, our clients have now made money year to date, but we're not through the volatility at all. It really has reinforced the value that we bring through our financial planning, particularly for small business people.
And we're very proud of what we've stood up to be able to help them navigate this environment, and we believe it really has reinforced the value of what we provide in a really noteworthy way.
All right. Listen, IGM has demonstrated strong operating momentum, I think, relative to its peer group in respect to investment performance, flows, and market share gains... You know, we talked about some key catalysts for flows. What do we see for key catalysts for IGM to really translate this into sustainable earnings growth and leverage, really, to have this performance better reflected in the stock price?
Yeah, two good parts to your question, Phil. So, first on the first piece on earnings growth. Everyone's heard from me before, this is a double-digit earnings growth story here at IGM for a long, long time, and the math to us is very simple. We expect Canadians to contribute to savings at about 2%-3% of assets per year. That's what Investor Economics expects, that's the consensus. So that, to us, is maintained market share, a net sales rate of about 2%-3% of assets. We're targeting for 4%-5% as representing modest market share gains. We're trying to exceed that, but that's what modest market share gains means. So that's 4%-5% in net contributions to Mackenzie and IG.
On top of that, there's the investment returns we generate for our clients, and let's call that 5% per year. Adding those two pieces together brings you to AUM growth or AUA growth of about 10%. To the extent that we can manage expenses, and we believe right now we've got the resources we need to compete and win, there's a lot of operating leverage inherent in the business. Even as the composition of the clientele changes and the composition of asset mix changes and creates some changes in fee rates over time, that operating leverage creates double-digit earnings growth. That brings us to the next piece, is how do we get that translated? We're working very hard on enhancing our disclosures. IG traditionally has been lumped in as an asset manager because our revenues are generated from mutual fund management fees.
We've now migrated our business model, so a majority of our fees are advisory fees for financial planning services. Along with that, we're enhancing our disclosure to present IG and IPC as wealth managers, which have very distinctive business models in relation to asset managers like Mackenzie. So our hope, obviously, is as we enhance our disclosure and highlight not just our wealth management businesses and our asset management businesses, as well as China Asset Management and other strategic investments, it will help investors really get the right peer groups for us, where we believe our wealth management businesses could be assessed compared to others like us, like St. James's Place, Ameriprise, or other firms. Whereas Mackenzie would be compared against traditional asset managers like a T. Rowe Price or others who are growing at the level that Mackenzie is growing currently.
All right. I think you recently announced a pair of transactions that include the acquisition of GLC Asset Management. I think you brought that up in the introduction. Can you talk a little bit about those deals, and kind of how that plays into the strategy, but maybe kind of bigger picture, you know, what you think, the outlook for M&A and what kind of role that plays in IGM's growth outlook?
Well, as I mentioned, yeah, the GLC and, you know, we mentioned on last analyst call, too, we're very excited by that. So again, scale, better distribution, Mackenzie, it really consolidates our positioning in Canada as probably one of the largest asset managers in Canada. I think we've been fairly transparent over time in terms of what we might look for at the IGM level, and Luke can jump in here. We're always looking for additional investment capabilities that we currently don't have, that we can distribute Mackenzie throughout the IGM channels and Canada Life channels and the Power at large. So obviously, direct alts, as we mentioned, direct alternative investments is probably the missing piece in our portfolio.
As democratization alternatives, we strongly believe, as I mentioned, will take hold in the retail and high-net-worth areas. So that's something that we continue to explore. China Asset Management , as we mentioned, we're very pleased with that investment and, but we do have an opportunity, obviously to, potentially, take, Power's, share to consolidate into IGM. And there's also another 10% piece of ChinaAMC available, outside of the parent company that is securities ownership, that we have an opportunity to. And always looking for ways to enhance our distribution. You know, we will add, though, that, you know, we do have access to the Power affiliates. We do collaborate. And so, take the U.S. wealth.
Obviously, our sister company just got bigger two years ago in Power through their acquisition of MassMutual. So, we have opportunities there, and they also, as you know, just acquired Personal Capital that we at IGM know very well. So there are opportunities for us, simply as a manufacturer, to collaborate more so with our sibling businesses, which are substantive, and Power is the number two 401(k) keeper in the United States. To collaborate with them further for us to get distribution with pre-existing, preeminent wealth platforms within the Power enterprise outside of Canada. So, but yeah, I mean, investment capabilities, distribution, and China is something I think on our forefront. Luke, have I missed anything or?
No, you hit it very... Expanding distribution reach and anything that enhances the capabilities of our core businesses. And I think you made great examples.
Thank you.
If I can kind of group back into the... I mean, you made a comment about outside of Canada. So when you think about IGM, is it likely to remain a domestically focused story, or is there more significant aspirations to, or vision to expand more globally?
Luke, do you want to take that?
Well, I think I'd start with our investment in China. It's a small part of what we are. We made the investment about 3 years ago now. We are the largest foreign investor in the domestic Chinese investment management industry. So, this is a very important secular investment for IGM. It's a really unique way for investors to get exposure to that market. And of course, China Asset Management is as advertised. It's a national champion. It's a leader in China. It's already got over CAD 250 billion in AUM. It's growing at 30% per year in terms of AUM, revenue, and earnings.
That was a very important investment for us, and was the result of, you know, decades and decades of hard work by the Power group to build relationships and opportunity for this group of companies in China. Outside of China, I'd say in the United States, as Barry alluded to, Mackenzie aspires to be and is a global asset manager. We have operations outside of Canada in terms of our investment capabilities, but we also distribute abroad, and we will continue to harness our relationship with our sister company, who, as Barry said, has a very noteworthy footprint in the United States, being the second largest retirement service platform in the country.
Outside of that, I would reinforce IG is a national player, and we have a lot of opportunity for growth in our core market, and that's where we'll continue to play with IG Wealth.
Okay. Listen, IGM's balance sheet is solid, and cash flow generation continues to be strong. So, as I look at my watch and look at the time rundown here, maybe we can wrap up the conversation, maybe talking about the near to midterm capital priorities.
Yeah, good question, Phil. So I, I'll give about three. So one, we're here to grow our earnings and here to grow our dividends. So we've been given guidance on dividend payout rate, and so that's, that's commitment one for capital. Number two, maintain financial flexibility to capitalize on opportunities, and that would bring me to number three, M&A, that is, that is selective and purposeful. And, and so anything to enhance our capabilities in our core business or expand distribution reach is exciting to us. And what you can expect from us is things like, our investment capabilities, whether it be privates or alts, we'll be, we'll be interested. Expanding distribution reach into institutional, and Barry just, expanded into group with, with a very strong position.
That's exciting to us, but those are our priorities for capital right now, is investing in the business through purposeful acquisition or otherwise, to create a very robust growth profile for the group.
All right. Well, listen, on behalf of Scotiabank Global Banking and Markets, I'd like to thank both of you, Barry and Luke, and the team at IGM Financial, for your participation and support in this year's event. Thank you.
Thank you, Phil. Thanks, everybody.