Good afternoon, and welcome to the IGM Financial first quarter 2020 earnings results call for Friday, May 8, 2020. Your host for today will be Mr. Keith Potter. Please go ahead, Mr. Potter.
Thank you, Patrick, and good afternoon, and welcome everyone to IGM Financial's 2021 first quarter earnings call. I'm Keith Potter, Treasurer and Head of Investor Relations. I hope everyone has been staying safe and adjusting well to our new environments. Joining me on the call today are Jeff Carney, President and CEO of IG Wealth Management, and President and CEO of IGM Financial. We also have Barry McInerney, President and CEO of Mackenzie Investments. Luke Gould, Executive Vice President and CFO of IGM Financial. We also have on today's call Mark Kinzel, Executive Vice President of Financial Services and Head of IG Distribution Network, who will provide a perspective on how the organization has and continues to transition its model in the current environment.
Before we get started, I'd like to draw your attention to the cautions concerning forward-looking statements on slide 3 of the presentation. Slide 4 summarizes non-IFRS financial measures used in this material. On slide 5, we've provided a list of documents that are available to the public on our website related to the first quarter results for IGM Financial. With that, I'll turn it over to Jeff Carney, who will begin his remarks on slide 7.
Thank you. A lot has happened since our last call, and I first want to express my hope that you and your families are doing well and staying safe. I'll start the call by providing you with an update on how IGM has responded during COVID-19 pandemic. First and foremost, we prioritize the safety of our employees and our advisors by quickly moving people into a remote work environment. To alleviate financial uncertainty for our employees, we have committed to no job losses related to COVID-19 in 2020, and have supplemented income for added costs working for this environment. We've also implemented flexible work schedules and resources to support mental and physical well-being. Looking at clients, we have significantly increased communications across our companies to ensure clients remain committed to their plans and investment solutions.
In some instances, clients are experiencing financial hardship, and we're helping them access available government and internal programs, such as the mortgage payment deferrals at IG. We also continue to support our communities through financial contributions and ongoing volunteer work of employees and advisors. Some of the programs are specifically addressing national food banks, needs of vulnerable people, and pressures faced by small businesses. We're fortunate to be in a business that can be conducted remotely and providing services that are extremely relevant to Canadians during periods like this. Turning to slide 8 for Q1 2020 highlights. Total AUM and AUA were both down approximately 11.5% during the quarter. We've seen a bounce back in April, with AUM up 8.1%, reflecting strong net sales and positive client investment returns.
Investment fund net sales of CAD 306 million are up from last year. This is a solid result relative to the advice channel long-term net redemptions of CAD 3.9 billion, which marks the worst first quarter net sales on record for the industry. IGM's Q1 2020 earnings per share of CAD 0.68 compares to CAD 0.70 last year. With market volatility and the change in our environment, we're modifying our non-commission expense growth guidance from a 3% increase to a 2% decrease in 2020. Luke will speak more to this in his review of financials. Finally, we're truly in an environment where financial planning and active management shine.
I'm proud to see IG Wealth Management continue to have positive net client inflows during the COVID pandemic, and at the same time, Mackenzie has posted its best performance in a decade, measured by Morningstar 4 and 5 stars. Slide 9 highlights the performance of major equity and fixed income indices. Q1 2020 saw equity market declines in major indices of around 20%, one of the steepest market declines in history. Financial markets improved meaningfully in April. IGM's average client returns are -6.2% year to date. Diversification of our clients' portfolios has helped mitigate this extreme market volatility. Turning to Slide 10, the industry experienced long-term net redemptions of CAD 1 billion during Q1 2020. It was really a quarter of two tails. First, January and February had momentum building from Q4, with long-term net sales of CAD 13 billion.
Then there was the COVID-19 impact in March, where net redemptions reached CAD 14 billion, the worst month on record. Industry advice channel experienced long-term mutual fund net redemptions of CAD 3.9 billion during Q1. Turning to slide 11, on our results for the first quarter, average AUM was CAD 163.3 billion, and it increased 4.7% year-over-year. Investment fund net sales of CAD 306 million during Q1 2020 were an improvement over net sales of CAD 260 million last year. As I mentioned, IGM's Q1 2020 reported earnings per share were CAD 0.68. Slide 12 contains the breakdown of IGM's quarterly results across our segments. I'd highlight that earnings at IG Wealth Management were up in the quarter relative to Q1 2019.
Luke will speak to some consultant compensation changes that came into effect in January 2020. The corporate and other segment is down year-over-year, driven by a CAD 14.3 million decrease in Great-West Lifeco's earnings and lower net investment income. This was partially offset by an increase in ChinaAMC's earnings. Note that IG Wealth Management's net client flows were positive CAD 381 million for Q1 2020, up CAD 319 million year-over-year. Mackenzie experienced strong investment net sales growth of CAD 147 million year-over-year. Turning to operating highlights. As a reminder, assets under administration has become a key driver to understand our business as clients migrate to a fee-based IG advisory account. In addition to starting in 2020, consultant compensation is now based on new client asset flows to the firm.
AUA at the end of March was CAD 86 billion, down 11.6% during the quarter. As of April thirtieth, AUA is now at CAD 91.6 billion, down only 5.8% year to date. IG's Q1 gross client inflows of CAD 3 billion represents a 21.8% increase from last year and is a record high for the company. We also experienced net client inflows of CAD 381 million, which was up CAD 62 million in Q1 2019. It's been an incredibly busy quarter as we transition our distribution organization out of the offices and launched a campaign to contact all of our clients. And Mark will speak more to this in a moment, but I'll say it's all gone very well, and we're in a very strong position for our future. Slide 15 highlights client flows and AUA.
These metrics incorporate our internal funds and third-party investments, such as high interest savings accounts, cash, third-party funds, and stocks and bonds. As I mentioned, gross client inflows to IG Wealth Management hit a record high of CAD 3 billion in the quarter, and net client flows were CAD 381 million, up from CAD 319 million year-over-year. You can see the client net flows include net redemptions of CAD 50 million from IG Funds and net inflows of CAD 431 million to high interest savings accounts, cash, and other. On slide 16, you can see on the top left chart that net client inflows were solid in Q1 relative to the past periods, despite the challenging industry sales environment.
You can see the bottom left chart, we experienced client net outflows of CAD 36 million in April, which is also a strong, strong result for what is typically a slow month for us. While we all continue to operate in certain times, we're maintaining our optimism for continued improvement in net flows for the rest of 2020, as our consultants continue to remotely work with their existing clients and prospects for new clients. Slide 17 highlights the long-term mutual fund redemption rate for the industry and the client outflow rate for IG. Historically, the IG financial planning model has created stability during periods of market volatility. Q1 2020 was consistent with our past experience, and we are now seeing gross client outflows decrease since early April. Slide 18 includes some additional perspectives on Q1 2020 gross sales.
Sales into our high net worth solutions increased 18% to CAD 1.3 billion. Similar to recent quarters, we continue to make progress acquiring new high net worth households, with Q1 2020 levels exceeding Q1 2019. We also saw heightened contributions from existing high net worth households during the period. Better data also remains a focus, with our managed solutions representing 81% of our long-term growth sales over the last 12 months. Turning to slide 19. The productivity of our consultant network continued to increase during the quarter, with a 22% increase in consultant practice productivity relative to Q1 2019. As we discussed on prior calls, we've been attracting a higher portion of experienced advisors and have included this group within the consultant practices category, which was stable during the quarter.
I'll now turn it over to Mark Kinzel to discuss how we've been rapidly transitioning our distribution network to work remotely with clients and prospects.
Thank you very much, Jeff, and further to your comments, the strong momentum and energy in our consultant network has continued through the first quarter and into April. This is clearly displayed in our results. I'll first of all turn you to slide 20, and starting on the left-hand side, I'll draw your attention to the following key components. Now, first of all, within days of moving all of our network home, over 5,000 people, we had a fully functioning remote access program. We're able to communicate effectively using Microsoft Teams, transact seamlessly with DocuSign and e-signatures, and prospect with virtual seminars. We've also successfully implemented dashboards to track individual practices and also provide assistance where required in incorporating our remote technology. Finally, we are also effective at planning remotely with our clients.
In the second column, we've expanded training, and that's being used to deliver successful use of the programs that we provided. Between webinars, digital tools, and updates, we've had thousands of consultants and teams educate themselves. The best practices are shared regularly, with overall skills continuing to be enhanced. At the same time, in the third column, you'll note that we are also continuing to be focused on building our network. And while in the near term, actual appointments are slowing, our prospect pipeline has never been stronger, with the number of candidates up by 30% this time versus last year.... In addition, the assets with experienced recruits who have established client relationships that can be transferred to IG is up 60%. Responsiveness to inquiries has risen to record levels as the story of how we are operating is resonating with prospects.
As we continue to ramp up our use of social media and initiatives such as virtual national career fairs, we anticipate strong results for recruits, and in particular, industry recruits, as we move into the third and fourth quarters of this year. Finally, from the onset of the COVID-19 environment, we adopted a mantra to connect with or call every client. This program has been widely supported, with the level of client contact reaching record levels. Combined with virtual meetings, daily updates, weekly idea sharing, and responses to situations where financial hardships have impacted certain clients, all of this has been very well received. Overall, I would say we've effectively enhanced our model to better operate remotely so that our consultants can confidently work in the new environment that we find ourselves in.
This is proving very effective and is attractive to work either exclusively in this model or in conjunction with the more traditional bricks-and-mortar offices. I'll now turn things over to Barry to speak on Mackenzie.
Thank you, Mark, and good afternoon, everyone. Before I begin my prepared remarks on slide 22, I'd like to thank you all for taking the time to join us on today's call. As Jeff mentioned, we're hoping everyone is healthy and safe in these difficult times. The first quarter financial market declines that Jeff spoke to earlier caused Mackenzie's total AUM to decrease 10.1% to CAD 63.1 billion. April was a better month, and we saw Mackenzie's AUM increase 11%, reflecting strong market returns, continued investment fund net sales, and CAD 2.6 billion of sub-advisory and institutional mandates that funded during the month. We continue to engage deeply with our advisors, strategic partners, and clients through these market disruptions, supporting each of them where we can in achieving their goals.
We continue to gain market share with continued strength in retail and notable traction in the strategic alliance and institutional channels as well. In terms of gross sales, we broke new record highs for both retail and total mutual fund sales. Investment fund net sales were CAD 437 million, excluding investments made by IG and IPC mutual funds into Mackenzie ETFs. Our retail investment fund net sales were positive CAD 229 million in the quarter as we marked the 14th and 16th consecutive quarter of positive retail net flows for mutual funds and ETFs, respectively. Mackenzie's investment performance relative to peers reached levels we haven't seen in over a decade during the first quarter, with our proportion of assets and top-rated funds increasing meaningfully over the past quarter, which was already strong.
I'm really pleased to see that during times like these, strong, disciplined, active management shines bright. Slide 23 highlights Mackenzie's operating results. Record high mutual fund gross sales of CAD 3.7 billion increased 46% year-over-year, which included strength in retail, as well as a CAD 200 million global equity mandate win on a third-party strategic alliance platform during January. Mackenzie's long-term investment funds net sales rate was 3.2% during the twelve months ended April 2020. On slide 24, you can see in the top left chart that investment fund net flows in Q1 of CAD 437 million is the second-best result in the past decade during fund allocation, including fund allocation changes.
The chart on the right-hand side of the page shows the small decline in net sales experienced in the month of March, followed by a return to net sales momentum in April. Investment fund net flows of CAD 201 million in April is very solid, even considering the fund allocation change of CAD 109 million included in the figure. And finally, while our sub-advisory and institutional channel experienced net redemptions of just under CAD 200 million in Q1, we were pleased to see that a number of mandates were onboarded during the month of April, totaling CAD 2.6 billion. This is incremental to the investment fund net sales figures presented in the charts. These wins were spread across a diverse range of investment strategies, including global equity, US equity, fixed income, and currency overlay strategies.
Approximately half of the CAD 2.6 billion related to the currency overlay strategy, which we have developed a very strong and competitive capability. As you'd expect, the currency overlay strategy typically has lower sub-advisory fee rates. Our retail results are highlighted on slide 25. Mackenzie's Q1 2020 retail gross sales increased 23.7% relative to the same period last year, driven by large increases in the balanced and equity fund categories. Mutual funds and ETFs both attracted positive retail net flows during the quarter. On slide 26, positive net creations drove Mackenzie's ETF AUM up 10.7% during the quarter to CAD 5.3 billion. Net creations included CAD 933 million from IG, IPC, and Mackenzie Mutual Fund Investments into Mackenzie ETFs. On slide 27, you'll see that Mackenzie's investment performance had a terrific quarter.
During Q1, Mackenzie had 80% of its mutual fund assets in the first or second quartile for all series types and 90% for Series F. Turning to the medium- and long-term metrics presented on the slide, at the end of March, 77% of Mackenzie's mutual fund assets were above median for all series over the past twelve months, 69% of assets were in the first or second quartile over the three- and five-year periods, and 74% over the ten-year period. Looking at Morningstar ratings, Mackenzie has 59% of fund assets in four- or five-star rated funds, which is the best in over a decade. Out of our 20 largest funds, 19 are rated four or five stars for Series F, and 13 of those are rated five-star.
Truly an exceptional result, considering the diversity of asset classes and investment styles employed by our investment boutiques. Turning to slide 28, you can see the strong Morningstar ratings across a number of our investment teams, including the growth, Blue water, resources, global equity and income, and fixed income boutiques. These teams and others delivered strong short-term performance, measured by 6-month and 1-year asset-weighted percentiles. The Ivy team, global quantitative equity team, and the multi-asset strategies team all had strong performance in recent months. Looking to the future, it's impossible to say with certainty where things will travel over the coming months. Though we have seen signs of stabilizing redemption trends during the latter part of April, which is very encouraging. We will continue to capitalize on the strong market position Mackenzie enjoys today. I'll now turn over to Luke to review IGM's financial results.
Thanks, Barry. Good afternoon, everyone. Just turning to page 30, as Jeff mentioned today, we're reporting EPS of $0.68, down slightly from $0.70 last year. As you can see in the first bullet, including our results, is our 4% share of earnings in Great-West Life Co., which they reported yesterday. Primarily as a result of COVID-19 related market impacts, our share in Great-West Life earnings declined by CAD 14.3 million relative to Q1 2019 and CAD 15.6 million relative to Q4. Also included in our results are CAD 6.1 million in negative fair value adjustments on seed capital, as well as CAD 2.7 million in negative fair value adjustments related to our mortgage hedging activities.
Excluding net investment income, our proportionate share in affiliates, as well as the favorable impact of accounting change I'll discuss below, our earnings increased from last year in line with the 5.7% increase in average invested fund assets. On point 2, you can see that we introduced new IG consultant compensation changes that went into effect on January 1, 2020. This had an impact on several line items. I'm going to review this in detail in a few slides. As you can see in the bullet point, these changes are focused on ensuring proper alignment with client outcomes and a great client experience, while also rewarding that business growth.
Third, importantly, we're announcing today that as one of our responses taken in relation to the COVID-19 pandemic, we're also re-revising our expense guidance for 2020 based upon a plan we put in place to ensure prudent expense management. Specifically, we're revising our guidance downwards by CAD 50 million to a level of approximately CAD 1.02 billion, as you can see on this slide. This is a reduction from 2019 of approximately 2% compared to our earlier guidance of an increase of no more than 3%. As you've heard us say many times before, it's in environments like this one, where we solidify client relationships and ensure rich communication and a focus on financial planning. You can see we've listed the four guiding principles that we have had in approaching expense management at this time.
This includes ensuring we're focused on nurturing client relationships and delivering on our Gamma promise. It includes doing right by our people, and as Jeff said, we've made public commitments to no layoffs during this period. It includes delivering on our strategic priorities, and we have a lot of work on transformation continuing, but we've also embraced every opportunity to curtail discretionary spending at this time. The particular places where we're reining in spending includes things directly impacted by the pandemic, including travel and conferences, as well as prioritization of projects and purposeful reduction in certain elements of advertising and promotion.
I'd also remind you that we have a business transformation program that's underway, that we're nearly halfway through, and we're going to have more initiatives completed in the coming quarters that we'll announce, that will provide enduring benefits added to those that we announced in 2019. I'd also note we haven't yet provided expense guidance beyond 2020, and we do intend to do this during the coming quarters. At this time, our guidance would be that the reductions announced today are temporary, and we would expect to be closer to our 2020 guidance in 2021, absent any new announcements. We do look forward to providing updates on our transformation program in the coming quarters.
Moving to page 31, before we continue to review the financials, we want to ensure we highlight a few accolades from Q4 and Q1 that build on Jeff and Mark's earlier comments around responsible management and corporate citizenship. Many of you have seen these before. On the left, during Q4, IGM was given a rating of A by the Carbon Disclosure Project for the second consecutive year as a result of our efforts on environmental performance and disclosures. We're very proud of this rating, as we're one of only 180 firms out of over 8,000 participants to receive this top rating. This year, IGM was the only Canadian company to receive this accolade. Looking at the bottom, you can see that this rating partners well with the Task Force on Climate-Related Disclosures, or TCFD, to which IGM is a signatory.
In the second column, you can also see during the first quarter, we are recognized by Corporate Knights as one of the 100 most sustainable companies in the world for 2020. This is a rating on corporate citizenship broadly and sustainability, and there were over 7,000 corporations considered globally. Again, we're very proud to have this recognition around how we treat our people, our clients, our communities, and the environment. And you can see we're one of 12 Canadian firms to make the top 100. We've also listed our inclusion in the FTSE4 Good and Jantzi Social Indices, as well as our commitments to responsible investing in women's empowerment.
In page 32, the only comment I'd have to make on this slide is to remind that while financial markets are very volatile, at April 30th, our AUM was down around 6% year to date, to CAD 159.4 billion, which is a level not that dissimilar to our average asset level in Q1 2020, as well as full year 2019, as you can see on the chart on the right. You've also heard from Jeff, Mark, and Barry emphasize the upwards trajectory of net flows at both companies during a tougher operating environment. Going to page 33.
On the left side highlights that this chart illustrates my earlier comments on net investment income and our share of associates' earnings, which you can see were CAD 29.5 million in Q1, down from CAD 53.9 million in Q4, as a result of financial market-related decline, excluding this and a favorable accounting change I'll describe in a second, EBIT was up in line with the 5.7% increase in average assets from Q1 2019. On the right, I'd highlight that our net revenue rate is at 119 basis points and is in line with Q1 2019, and you'll also see the EBIT margin of 51 basis points improve from the same period last year as a result of unit cost improvements.
Turning to page 34, you can see our consolidated income statement, and this time around, I only have 3 things I'd highlight here to help folks understand our results. First, you can see we've put a 1 beside net investment income of CAD 9.4 million, which is down CAD 11.9 million from Q4 and CAD 10.8 million from last year. This amount includes negative fair value adjustments on seed capital of CAD 6.1 million, as I mentioned, as well as negative fair value adjustments on mortgage-related hedges of CAD 2.7 million. Second, you can see we've highlighted our share of Great-West Lifeco earnings, down CAD 15.6 million from Q4 and CAD 14.3 million from Q1, largely as a result of COVID-19 market-related impacts.
Third, we haven't labeled it here, but I would highlight our share of results from Personal Capital and China Asset Management are up, and I would highlight that China Asset Management for a quick second. You can see our share of China Asset Management's earnings of CAD 8.9 million are up 20% from Q4 and 20% from Q1 of 2019. I'd guide you that ChinaAMC's business has been performing very well. We only disclose AUM on a semi-annual basis, but I'll make a few remarks now. First, over the last year, average assets, revenue, and earnings are all up approximately 20%.
I note that the company did adopt remote working conditions prior to us reporting to in February, and throughout the pandemic, they continued to actively launch new products and saw good growth across product categories and distribution channels. They have now implemented return to work a couple of weeks ago, and we do look forward to updating you next quarter, and we'll continue to work to provide disclosure enhancements to provide business metrics to you on a more frequent basis to help understand the business as it grows and becomes a more meaningful part of IGM's results. Turning to page 35, I have a few comments on consultant compensation changes to walk you through, as well as some comments on disclosure more broadly.
First, along with our transition of all of our clientele at IG to fee-based accounts and unbundled pricing, we had anticipated launching our new segment of disclosures in Q1 to present IG and IPC as wealth managers versus asset managers, and to draw out advisory fees, which is the largest share of our, of our revenues and is driven by AUA, as opposed to AUM. As a result of COVID-19 and the consequent changes in volatility in May lines, we've deferred this launch to a time when you'll have more time to digest the disclosure changes. Using our traditional disclosure, there are still a few changes to programs that we need to now get you through. First, in point one, we've changed the basis for payment of sales commissions to be based upon gross inflows of AUA into client accounts, subject to certain eligibility requirements.
You'll remember that previously, as a result of being characterized as fulfilling an existing contract with a mutual fund, commissions that we paid on bundled mutual fund products have been expensed as incurred. As a result of this change we've made January first to drive commissions based upon new client acquisition and contributions to accounts of all asset types, these commissions are now properly capitalized and amortized over the expected life. I'd highlight that this had a favorable impact on our Q1 results of approximately CAD 10 million pre-tax. We've also enhanced our disclosure in our supplemental info to provide a monthly history of our AUA continuity, including gross inflows and gross outflows, going back to the beginning of 2018.
Second, we discontinued certain IG consultant benefit entitlements that had previously been recorded within our non-commissioned expenses, and this value is now reflected within their asset-based compensation rates. So what this means is the amounts have not changed, they've. It's just the geography that has. You can see in this table, in the second row, that this amount was worth CAD 15.6 million in 2019, or roughly CAD 4 million per quarter. When we talk about our expense guidance and give you guidance for the rest of the year, we're retroactively restating non-commissioned expenses for this adjustment, and you should be anchoring to a 2019 result of roughly CAD 1.038 billion or CAD 259 million in non-commissioned expenses versus a reported number of CAD 1.054 billion.
As we provided a few slides earlier, our expense guidance is that we'll be no greater than CAD 1.02 billion in non-commissioned expenses for the year. This has also obviously created an increase in our asset-based compensation rates of approximately two basis points or CAD 4 million per quarter. Third, and effective by January 1, 2020 as well, we've enacted what we've called our enhanced grid, and we've talked to many of you about over time. And this grid did come into play based upon achievement of targets that were set and achieved during 2019. Under this framework, consultants who meet targets based upon client engagement, financial planning proficiency, and a high net worth client acquisition earn enhanced compensation rates on all business that they conduct.
Due to the level of qualifiers during 2019, asset-based compensation rates have increased by approximately 1.5 basis points. I would also guide you that you can expect this to endure throughout 2020, but qualifying achievement levels are reset every year, and we expect as we continue to build the business and enhance our proposition, the bar will get higher and higher. Moving to page 36, a few more comments on IG. First, you can see the annualized management and admin fee rate of 195.1 basis points. You'll see in our financial statements and other documents, we've relabeled this line Management and Advisory Fee, and I'd remind you that a majority of our clientele have now been transferred to fee-based accounts in our nominee platform, and the remainder will be transferred over the coming months.
I'd also remind, approximately 60% of this fee rate of 195 basis points is in respect to advisory fees, and those advisory fees are applied to AUA, not AUM. Second, as you can see in point one, our asset-based compensation rate increased to 55.9 basis points, up from 52.7 basis points last year for the reasons described in the prior slide. I'd remind as well that the rate's higher in Q1 as a result of paying a quarter of an annualized rate when it comes to asset-based comp, where we take our revenues based upon the number of calendar days in the quarter. So the right comparison is to a Q1 of 2019 as opposed to Q4 2019.
On the right, you can see the cash commission paid on gross client inflows of CAD 3 billion during Q1 was 110 basis points. This is the rate and driver that should be used going forward, and I guide that this rate does go down slightly once again in 2021. Turning to page 37, you can see IG's results from operations of CAD 173.4 million. I'd have a few quick comments. First, we've highlighted net investment income of CAD 8.7 million, which includes seed capital negative fair value adjustments of CAD 2.6 million, and also included the negative fair value adjustments of mortgage-related hedges of CAD 2.7 million referenced earlier.
Second, you can see midway down the page that sales-based commissions expense is paid, has a zero entry for Q1 2020, as described earlier, as all commissions are now being capitalized and amortized. And as I mentioned earlier, the result of this is a favorable CAD 10 million pre-tax to our earnings per period. I'd remind that the commission rate paid declined noticeably in 2020, as previously announced and reviewed earlier. Lastly, I'd highlight non-interest expenses and would note that within this CAD 165.4 million, there was roughly CAD 2 million, CAD 2 million in extraordinary costs relating to COVID-19 related activities, like getting everybody working remote, which we have been at 100% for weeks and weeks now, as well as conference cancellation fees.
As noted earlier, we have an expense management plan to reduce full year 2020 expenses by CAD 50 million for IGM Financial relative to our earlier guidance. Turning to page 38, I don't have many comments from Mackenzie this quarter. I'd remind that Mackenzie's net revenue rate is impacted by the same treatment of trailing commissions that I mentioned in respect of IG, with one quarter of the annualized rate paid in the quarter, while we take a calendar day proportion of the management and other fees. And so, what I'm saying is the comparative period for this rate is actually Q1 of 2019, and you can see it is down very slightly. I'd also highlight that there was a slight shift in the share of fixed income assets within the weighting as a result of equity market declines during the quarter.
And then lastly, on page 39, Mackenzie's EBIT, the only noteworthy item I have is to highlight the -CAD 2.8 million in net investment income. As discussed earlier, this is Mackenzie's share of the negative mark to market on seed capital during the period. That concludes my comments. I'll turn it over to Patrick to take any questions.
Thank you. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel the question, you may press the pound sign. Please press star one at this time, if you have, if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Gary Ho, from Desjardins Capital Markets. Please go ahead.
Thanks. Good afternoon, Luke, let me start off, quick question just on the new, guidance on non-commission expense here. So which area is that mostly coming out of? You did mention that couple there, travel expenses, was mentioned in conferences. Were some of that related to the transformation efforts? Are you deferring some of that? And, and I guess as a related question, you know, so should we see similar decreases, that -2%, across both IG and Mackenzie?
Yeah, good question, Gary. So yeah, you should expect it equally at IG and Mackenzie, and you can see our principles. We're working so hard to keep everything in the transformation program rolling. It provides great benefits, and we're looking forward to give the results of continued initiatives coming to life over the coming quarters. So we really did look to everything in it that we could do, where we had discretion and could just rein in spending without affecting the ongoing momentum of the business and without affecting client relationships and our commitment to providing great gamma.
So travel, conferences, anything that was volume related, and we have, as I mentioned, reduced the advertising spend purposely and prioritized certain initiatives that weren't as important to bring to life in the near term.
Okay, and then maybe related to that as well. So that would indicate a pretty sizable drop from Q1 levels. You know, should we begin to see that in Q2? How should we think about that in terms of timing, particularly for IG? I think you highlighted, you know, the 165-ish was pretty high. You know, that was a significant bump up in non-commission expense in the quarter.
Yeah, good question, Gary. So interestingly, we have incremental expenses primarily in Q1, and you can expect the reduced, the reduction required to bring us to CAD 50 million down full year to be evenly over the next three quarters. And I'd guide you to past seasonality to help understand the quarterly timing of that.
Okay. And then, Barry, one for you. Some institutional wins in April, that's good to see. Can you provide a bit more color, which mandates did those come in or pertain to? And if you can, comment a little bit on the pipeline as well.
Sure. Thanks, Gary. So we started to mention probably the last three or four calls some of the traction that we're gaining on the institutional side, and we've working very hard to you know focused that it is but very hard to start to gain some traction and get some wins in the door. Because we think it's important to have a robust institutional business alongside of our you know very robust and large retail business in Canada. So some of those wins we have announced in prior calls, and then you're probably familiar with the institutional cadences that they're long sales cycle, they're lumpy.
And then when you win, then sometimes it's, you know, a quarter or so for the money to be onboarded as our client gets readied for us to take the money from them. So, it was quite a, it wasn't by design, by the way, but, we had a number of our wins all onboarded during April, CAD 2.6 billion. As I mentioned, previously, we were happy that it was also across four different strategies. Global dividend equity with our Darren McKiernan, a boutique team. It was US equities with our quant team in Boston. It was fixed income with our team in Toronto.
The one that was interesting out of those, also maybe a little out of the ordinary, was the active currency overlay mandate, which was about CAD 1.3 billion in terms of AUM size. What we like about these wins is that they, you know, they really validate what we're doing on the retail side and vice versa. So, you know, we've been doing currency overlay for many, many years on our retail multi-asset products, and we've been tracking the performance of that. We've actually been doing very for a long time dynamic asset allocation overlay, also, for instance, over all of our multi-asset products at Mackenzie. The team we have doing that is just tremendous CPPIB, World Bank, IMF pedigree. So they've been doing this for many, many, many, many years.
We took that retail capability, and we started to sell it institutionally. So we picked up a very large sophisticated pension plan in Canada that now is hiring us for that. I would say we can't expect CAD 2.6 billion every month. I think we're very happy they came in, but suffice to say, the pipeline's growing nicely. We're out there in Canada, US, Europe, and China, looking for opportunities, very focused. We've got a couple more small wins that we just announced, which we'll announce next quarter. But again, takes a while for them to be onboarded. So you should look to see continued success from us in that area. We're very pleased to have it happen.
By the way, we had, if I remember correctly, it was five wins just came in, and one in January and four in April, and they were in Canada and U.S. And then late last year, we had one that was onboarded from Europe. So geographic diversification by boutique and strategy diversification, and pretty lumpy sizes, too. So they'll be all over the map. Sometimes we'll win CAD 20 million, CAD 30 million. Sometimes we'll win, as you know, CAD 600 billion. Sometimes we win CAD 1.5 billion. So we can't really predict the size of it. The pipeline has a variety of by country and by strategy and by size. And, you know, the fees are lower for institutional, but they're usually larger mandates.
And also, the money just gets onboarded onto our platform with no increased costs, right? So it's all accretive to the bottom line. And we're not extending or expending any more manufacturing capabilities to handle these mandates. We're just using the same teams to handle our retail assets institutional. So didn't want to carry on a little bit too much. We're very excited that it happened. You'll see more coming. They're lumpy and long sales cycles, so it's difficult to predict, you know, with any accuracy, the level and timing. But they're coming in, and we're very pleased.
Great. Thanks for, thanks for the color. And then just lastly, maybe a numbers question again for, for Luke. Just going back to slide 36. The 55.9 for the asset-based comp and the hundred and ten basis points for the sales-based compensation commission, should those be relatively stable throughout 2020?
Yeah, they will be, Gary. Yeah.
Okay.
And then, once again, we'll see another drop in sales-based comp in 2021.
Okay, great. That's for me. Thank you very much.
Thank you. The next question is from Geoffrey Kwan from RBC Capital Markets. Please go ahead.
Hi, good afternoon. I know you talked a little bit about it earlier, but just wondering if there's more details you can talk about on the IG Wealth side, the strategy of getting new clients, just in light of, you know, COVID-19, working from home. And especially given you're primarily targeting these high net worth investors that, you know, may or may not be willing to look money, sorry, move money in this environment, and how people are interacting, if they're comfortable with that.
Sure, I can take that. Can you hear me?
Yep.
Great. Thanks for the question. Yeah, so, I think you've seen that we've been able to... Like, when I came to this organization, early on, what I discovered was, you know, the commitment to CFPs, and then our whole strategy turned to, well, why don't we serve the sophisticated clients and move up? And so that's what we've been doing from there. And we've been building out with Mike Dibden, all the infrastructure and, and capabilities to give the client a modern experience, and give our consultants a modern experience. And we've spent so much in effort to get to there. And, you know, our sales force is almost implemented, so that we'll have more scale and capabilities and, and capabilities for Mark's team.
And then we've got new tools coming that we're investing in and other opportunities as well. And so, you know, it's an exciting time for our company, and I don't know if the industry really understands the momentum that we have. And-
... you know, we got more coming. And the quality of the new recruits that are coming in are excellent. The new people that are coming from, you know, mostly from the banks, but others that are coming to us, love our culture and are excited to be here. And, you know, we can hire a lot of people from the banks for a long time, and they won't even notice it, but it's so it's an exciting time. And you know, we think we've got a lot of runway ahead of us, and we're still investing in our infrastructure, as you know, with all the stuff that Mike's doing. And so there's still lots of efficiency coming.
So we're, you know, our plan to become a modern, you know, massive affluent, high net worth company serving Canadians is coming to fruition. You know, it's exciting. I've put a lot of hard sweat and tears into this with my team here, and we're really proud of where we are. We can compete with anybody. And it's you know and then we're distributed in every community in the country. We reach everyone. And so, you know, as our confidence goes up and we win more and more bigger mandates, it's gonna go, you know, even go faster.
Jeff, it's Mark here. I can add a little bit to what Jeff just mentioned as well. You know, specific to the COVID environment, it's interesting. As we mentioned, I think Jeff and I both talked about this, we adopted a plan to really get out and ring the phones. Our belief was, while certainly you can do a lot of contacting, you know, through emails and so on, there's nothing like a call. What we've experienced is, we've been working very intently at that, and that is leading to referrals.
Because when people share and compare, what they're finding is that the connectivity from our folks has been superior in terms of reaching out, being in touch with them, and that relationship building. They're telling other people about it. So we have stories continuously coming in about referrals, which is interesting because people are home, and they're answering the phone, and we're calling them. The second part is that-
Just to jump in on that, Mark, when Mark and I, when we ran into the volatility, we both looked at each other and said, "We gotta call every client." And we've been on the phones ever since, and it creates opportunities. You know, it brings in funds and everything else, but we did it because we want our clients to know that we care about them. And we put the effort in it, and Mark's team did an amazing job.
Well, it's working. The other thing I would say is something that we have very quickly moved forward with is this concept about really marketing from a virtual perspective. So using webinars, seminars, inviting people, doing it by different targets. This is happening across the country. People are home. They're watching their screens, they're engaged, and this is... We're starting to develop a lot of expertise in a very short time period. One of the strengths we have is that the network are sharing, so coast to coast, people are doing things, sharing the ideas, and then they're being utilized and really refined as we go on.
So I would say those are two core drivers, heavy contact driving referrals, and then going online with virtual programs such as webinars, and combined together, it's leading to new clients. So it's certainly something new in this environment, but it's working.
Okay. Thank you for that. Just my second question for Barry. You know, you've pointed out performance has been good, flows have been good, and I don't want to look like I'm nitpicking here. But when you take a look at Cundill, the systemic strategies and maybe to a lesser extent the multi-asset strategies, are there things that can be done to try and improve the performance out of those silos?
Yeah. Thanks, Jeff. Good question. You know, we still firmly believe that it's important for investors to have a good balance between growth and value. And we've been mentioning this for the last couple of years now, just from a risk diversification perspective, that probably with the run-up in growth stocks and the high concentration of the stock markets overall, particularly in the U.S. market, that there could be, you know, obviously a quite pronounced overweight to growth stocks and portfolios. So it's difficult, obviously, to rotate or balance that a little bit towards value, because value has had a real just the style, not just Cundill, but the style itself, since the financial crisis, has been consistently underperforming growth for over a decade now.
Over 75 years, they both have produced roughly the same returns, growth and value. But you have periods like we have, where growth continues to perform. And interesting enough, when we had this significant downturn in the marketplace, from the COVID crisis, there was a flight to quality and therefore a flight to growth. So value is still has underperformed. So, we're steadfast in having a strong boutique focused entirely on value, as Cundill does. We do believe going forward that there will be at some point, can ever time a rotation towards value, but you wouldn't want to time that. More importantly, have a nice, well-constructed portfolio that's well-balanced across styles and asset classes. So, we're comfortable with them remaining true to the value style.
There are very few managers probably left in Canada that focus entirely on value, and we're very proud of them. The quant team coming along nicely. Quant, as you probably know, a lot of quant managers were struggling probably the last 12-18 months. And so that's just the style again, not necessarily the team's execution per se. So I want them just to keep doing what they're doing. It's important that our boutiques are adaptive, though.
and so, I’m really pleased with the results of our performance, as you’ve probably seen across the enterprise, in that these active managers, they’ve seen opportunities the last 7, 8 weeks, to review their portfolio holdings and identify what companies and sectors will outperform in the new norm and what would underperform and making changes. So, that’s why, you know, some of our our boutiques, like Phil Taller’s Mid Cap Growth and Bluewater, have just continued to power ahead of performance, which has been exemplary for 5 or 6 years now, and they didn’t sit on their hands. They’re making moves. So same with our quant teams. But so the quant’s been a little bit of a headwind, but as a style, but that’s coming along nicely.
Multi-asset, they're the performance is turning nicely. And again, you know, the numbers, you see some of the short-term numbers with, you know, with 90% of our assets in first, second quartile, it's, there's not a lot out. Value is the one that stands out. We- in fact, not to, you know, kind of beat our chest a bit, but, if you look at the F series, 24 of our largest 25 F series mutual funds are four- or five-star. So, with the exception of Cundill, which I explained the reasons why. So the multi-assets right there, they've come back nicely, making some good moves.
Probably right now more focused on being neutral-ish across the asset classes as we try to continue to analyze and figure out, you know, the sort of long-term shifts in sentiment with the new norm in terms of asset classes and sectors and styles. But, you know, and I'll give you one example of our monthly income funds, which actually are designed a number of reasons why our performance is even strengthened in 2020, some, which some of our strategies are designed for downside risk protection. So our monthly income is designed with downside risk capture, protective puts in it, as well as our unconstrained bond products, which again, both did very well. But the monthly income, which is multi-asset as well, has performed well.
So anyways, you know, I can go on and on, but you know, we are very proud of the performance we have. We'll work hard to keep it. It is pretty, pretty high, particularly if you again look at how we're structured at Mackenzie with a lot of different boutiques and different styles and different asset classes. But hopefully that answers your question, Jeff, on the three specific boutiques.
No, that's perfect. Thank you.
Okay, you're welcome.
Thank you. The next question is from Tom MacKinnon from BMO Capital. Please go ahead.
Yeah, thanks very much. A question just with... Two questions. The first is with respect to the $50 million reduction in non-commission expenses. How much was realized in the first quarter of that?
Yeah, none, Tom. Yeah, none. In the first quarter, we actually had incremental COVID-related item.
Okay.
We had conference translation fees. We had incremental work from home costs. So it's all coming in the next three.
Okay. And then with the change in the sales-based commissions at IG, being now amortized, instead of expensed as paid, it seems like that was a $10 million benefit in the first quarter. How should we be thinking about... Would this just be, would this be a reduction to, or an increase in expenses going forward? How should we be thinking about modeling that?
Yeah, so we'll, we'll help you on that, Tom. It's, it, basically, given the history on all of the, all the cash commissions that are gonna be amortized, and they're being amortized over, over 84 months. And so you can build a model to just, to just know what the cash commissions are in every period, and, and to know how they're gonna be amortized over, over time. So they'll be very, very predictable going forward with the expenses.
So, net effect, we should probably be increasing those expenses, but remove them as paid, but then increasing the amortization. And is that-
Yeah, right, right on. So all the cash commissions that have been expensed and incurred, that will be removed, and then those will be capitalized and amortized.
Would that impact then be? Well, I guess it all depends on what kind of expenses we would have had paid in Q2, Q3, Q4. But is your thinking that this is gonna be a boost to earnings in the second, third, and the fourth quarter as a result of this change?
Yeah. Yeah. I'd say two things, Tom. One, just remember, it's just cosmetic. So, it's just timing.
Yeah.
It's all gonna hit the P&L sometime. So, so one, it's cosmetic. Two, yeah, it, it will certainly amplify earnings this period, because you can think of amounts that would've been included in period, albeit not large amounts, are now gonna be amortized over 20 quar- 28 quarters.
Okay. Thanks very much for that.
Yeah, you're welcome.
Thank you. The next question is from Scott Chan from Canaccord. Please go ahead.
Good afternoon. Maybe I just want to follow up on Jeff's question with Barry on Mackenzie. With the investment boutiques, you give a very detailed rundown of net sales, but I'm just wondering, over the last two months, you know, with COVID-19, where have people been putting the growth sales? Like, has it been on the growth platform because it has been in net sales, or has it had been more defensive and kind of more fixed income products? I'm just trying to see kind of where are clients or advisors putting their clients during this obviously difficult time period?
Yeah, it's a good question. Thank you. And it has been pretty broad-based.
You know, obviously, the slide 28, which is Q1, and but that includes March, as you know, where you know, we saw the industry redemptions occur.
...So, I would say that we saw the overall some redemptions on the fixed income side when the crisis hit, you know, last, you know, last little bit of February into March. And then, well, we saw some weakness also coming into April. Probably the first two, three weeks of April was still a little weak, but there was—the redemptions firmed up. The gross sales overall were quite a bit lower than they had been, obviously, the first six weeks of 2020. And then that started to pick up towards the latter part of April, and now we see that into May. So, back into equities and multi-asset actually, we're seeing the flows.
In the fixed income as well, but I think, I think, there's been flows coming to equities, in that, you know, we, we don't know if we reached the, only the first bottom or not, but we certainly was quite the pronounced bottom in the markets in end of February. And so, yeah, we saw some money come back into equities, pretty broad-based. But of course, the ones you can see on 28, those patterns continue to slide 28, where the, our growth manager, Phil Taller, the Bluewater, came in nicely. Our global equity income, nice flows, since the recovery that we've had last month or so, on the equity side.
Fixed income has come in, because some of the exits that we saw during the tough times in March has come back. In the multi-asset though, too, we've seen the balance products. So it's been pretty broad-based, but I would say that our stalwarts, the growth Bluewater Global Equity on the equity side, have been continuing to power the flows coming in, and obviously their performance are all five stars, so good for them. There's confidence by the advisors that they'll continue to add value for them. Does that... Is any- is that okay? I can give you more in- more detail, but I thought-
No. No, no, no, that's great. That's great, Barry. And maybe, Jeff, on the IG side, how is the recruitment process getting impacted as we go through COVID-19? Is it stalled or is there some sort of process still in place?
I didn't, I didn't hear your question very well.
Oh, sorry. My daughter's in the background. Just for Investors Group, just in terms of the recruitment process, has it been stalled during COVID-19 as people are more isolated? Or is there still, you know, kind of a process going on where you're trying to recruit new IG consultants?
Yeah, no, we're still, and Mark said, I think talked about this a little bit, but, we're recruiting constantly. You know, we've historically, as you know, we, we were ones that built, people from starting out in their careers and build it up, and we do that still now. But now we have more capabilities where we can recruit from the banks, and so we've been doing a lot of that recently, and we're getting some great talent. They love our culture. They love the resources that we have. They love the product shelf. They love the entrepreneurial spirit of the company. And our company and our culture is a sharing culture, like, so it's not that our internal people compete against each other.
They're really going out and trying to win market share for them. So I think people just really wanna be at our company. And Mark Kinzel, who's on this call, has built a great culture and a great leadership team. And they’re really driving it. But right now, they're really confident when they go out and look at recruits, and they're landing them. But I'll let Mark talk about this as well.
Sure. Thanks, thanks, Jeff and Scott. Thanks for the question. You know, it's interesting. Right now, the activity, and we track it very carefully in terms of not just recruits, but our pipeline and where folks are in the pipeline. And as I mentioned earlier, our pipeline is up over 30% at the same point in time last year. So our actual recruits in the first quarter were very close to last year's recruit numbers, even though clearly we had onboarding impacts, you know, towards the latter part of March. But our pipeline's up significantly. And what's also interesting is the assets represented by that pipeline, so particularly those who are industry prospects, that's up almost by 60% over the same number of assets at this point last year.
We're finding that the response rate is up dramatically. People are, they're paying attention, they are responding to our inquiries. And, I think the other thing that's taking place is the success we've had in really getting people into a legitimate mobile option in terms of running your business, that's being viewed very positively, and people in the industry are wanting to know more information. So, we have never been stronger in terms of the pipeline as to where we are right now. And so I anticipate going into the last half of the year, that as this sort of sorts it out... And, clearly, I understand why someone is not gonna move today in the midst of this with their clients.
The depth of conversations, the engagement, we have never seen it this strong. I feel very good about where we're going with our pipeline.
Maybe just lastly, I don't think I caught it, the seed capital impact in the quarter, was it quantified at all?
Yeah, it was $6.4 million. It looks lacking. Yeah, and obviously you can expect recovery of a lot of that in April, given the market improvement, but $6.4 million. I also highlighted mortgage warehouse hedges, which is a timing-related one. That was also another $2.7 million in the period due to interest rate changes.
How big is that cedar marketable securities portfolio?
Yeah, it's, it's CAD 60 million. CAD 60 million.
... CAD 60 million. Okay, that makes sense. So about 10%.
Okay, perfect. Thank you very much, guys.
Yeah, you're welcome.
Bye.
Thank you. As a reminder, you may press star one if you have a question. The next question is from Graham Ryding from TD Securities. Please go ahead.
Yeah, maybe I'll just start at the IG consultant level. Given what you're seeing, it sounds like you're pretty positive with the remote setup for your consultants. Is there an opportunity down the road to maybe have an increasing number of consultants working remotely and perhaps having a smaller bricks and mortar footprint for IG overall?
Sure.
Yeah, go ahead, Mark.
Thanks, Jeff. Sure, it's Mark here. You know, it's interesting, we're working our way through that right now, and I think what's happened, when you look at the effectiveness, people are starting to feel their way and realizing that they can run a very effective business. When I'm using a Teams conference call, I can clearly be in touch with more clients during the course of the day than in person. I can bring specialists remotely into those calls for the high net worth side of things, so I could bring a lawyer or an accountant to join the conversation. You, as a client, can be sitting home with your spouse or partner. I'm very agile in what I'm doing, and my assistant team, support team, they can be in different areas.
They're starting to experience this. We're actively engaged right now. We're actually talking to all of our network. We're running surveys to get a sense as to how they see themselves going forward. From what I'm seeing right now, I think you're gonna see a combination. I believe there's gonna be a group of consultants who are going to quite strongly move to a more remote model on almost a full-time basis. There's going to be a group who like the bricks and mortar, and there's gonna be sort of a middle group, who maybe it was nine to five, five days a week, and now it's gonna be in the office three days a week. But I think there's going to be a change in the demands on space.
The other thing that's working for us is the receptiveness of the public. I think all of us, right? I mean, you're at home, we're ordering stuff, we're doing more things online. There is a receptiveness, and it is regardless of age, seniors as well, who typically command a higher percentage in terms of assets, are very receptive to having a dialogue in the comfort of their home, virtually. The systems now, where you just send a link, no one's downloading anything, they're clicking on the link. So yeah, I'm pretty excited about this. I think this creates a real strong alternative model that you can either go fully remote or you can go sort of part and part. So I think this is really, really exciting stuff.
The efficiency this drives, if I think about me running a practice and having people coming in and queuing up and driving and parking, and then I go to how many people I can actually connect with during the course of the day, that's significant. I'll, I'll give you one example. I was talking to a client, a high net worth client of ours, said, "You know, on a historically, three times a year, I'm in person with my consultant. I now see that going to once a year because I've experienced this virtual side of it for me and my spouse, and it's fantastic." So I think that's really what's gonna happen. Will we get rid of in-person? Absolutely not.
But the amount of in-person, I think, is gonna change, and that's gonna make us more efficient, and that's gonna drive up effectiveness, and that's gonna drive up business.
The other one, Mark, you and I have both visited, but is Personal Capital. They have this exact model. So they're distributed, they all work out of their homes, and it's virtual. So it's, you know, they didn't miss a beat when anything happened. They just kept going because it's all digital, and they didn't have any problems.
You're absolutely right, Jeff, and I think the thing that we're working right now is really effectively driving the planning component. So if you think about me as a practitioner, number one, can I communicate remotely? Yes, I can. Teams is very positive. Number two, can I transact remotely? Yes, I can. I can use DocuSign, all my digital forms, which we have all in place. Number three, can I prospect remotely? And as you mentioned earlier, we're starting to really drive down that path with virtual seminars and webinars and a lot of creative things that are taking place. So when you add those up, then you put number four on, Can I do plans remotely? Which we can do. I can now effectively run a remote business far more efficient than in person.
Great. Thanks for the color. The number of consultants in that greater than four years, it was flat quarter-over-quarter, but I think the historical numbers changed a little bit. Was there a change in methodology or what was driving that?
Yeah, I'll speak to that. It's. Luke, we've done a restatement for the last eight quarters for the people Mark referenced, who are experienced recruits, so meaning the people that we recruited in, who came in with more than four years experience. If you compare it relative to previous reporting, you'll get a sense of the number of people that we've brought in with those criteria. And as Mark said earlier, we see that as being a much larger component of our recruits going forward, those people who have an experienced business with an existing practice.
Okay, that makes sense. So if you've got more than four years experience and you join IG, you'll fall into that, that bucket?
Yep, right on.
Okay. Just on the, Luke, on the expense side, the non-cash expense, just I wanna make sure I'm getting the message right. It sounds like there's some, like, travel and conferences and stuff. There's some expenses here that are dropping off just because we are in a COVID-19 remote environment. Is the CAD 50 million guidance of expense reduction a permanent reduction in your expense base, or is some of this you know, just a result of the environment we're in this year, and they come back next year?
Yeah, great, great question. So right now, we're declaring the CAD 50 million is temporary as a result of COVID-19, and not just the activity that's declined as a result, but the measures we put in place. Separate and distinct from that, we want to make sure we remind you that we have a transformation program going on, and over coming quarters, we will be declaring more of the initiatives come to life, like the fund services outsourcing with the CIBC Mellon that we announced in Q4. And so we want to make sure that you have that in the back of your mind. We haven't given 2021 guidance yet, nor beyond. So the highest guidance we give is this CAD 50 million coming back online in 2021.
But we are working very hard on bringing further transformation initiatives to life.
Okay. That's, that's important. That's helpful. And then my last question is just on the, on the ETF side, Barry. It looks like, there's some, you know, momentum and more emphasis perhaps on the, on the beta ETFs versus, you know, historically it was a bit, bit more mixed between, you know, your TOBAM and your Smart Beta. Can you just talk about maybe some color on the ETF side and what is the... I guess, what's the strategy and what, what seems to be in demand or resonating?
Yeah. No, thank you. Good question. So, you know, you know, obviously, we offer active and Smart Beta and passive. And, sometimes, you know, some do better than others, depending on the quarter or the month. But, they're all, you know, selling well, actually. The Smart Beta, sort of Smart Beta, is principally powered by TOBAM, really encouraged by TOBAM. They, being a quant manager, though, and, you know, their approach and style, they were hindered a bit, their performance, based on more concentrated markets. But they've come back very, very nicely, this year. So you'll probably start to see more flows coming into the Smart Beta. The active is principally fixed income.
It's a great lineup, and again, it mirrors the lineup we have on the mutual fund side. But we have, you know, we, we've got a big fixed income business on ETF. About two-thirds of our ETFs are fixed income. As I mentioned, a good prior question, ETFs, you don't just ask a lot of ETF providers, not just, not just sort of a lot of fixed income providers, not just ETFs, but mutual funds. There were some outflows here in Canada and the U.S. as well. So that's coming back very nicely, though, just the last few weeks in terms of the active fixed income being more bolstered. The floating rate was the one that probably sold very well about 2.5-3 years ago.
But the last year, year and a half, given the interest rates, environment going forward, that's saw some leakages. But the constrained bonds selling very well, and the other high yield numbers are selling very well. The passive, yeah, the passive are just building blocks, right? And they're used a lot by our internal managers at Mackenzie that manage, as you know, the Mackenzie Mutual Funds, as well as otherwise, a significant amount of the IG mutual funds. And so they're used for exposures, and you know, they're priced well, and they attract the indices well. And so we're very pleased that we have that as well.
It's only been about a couple of years now we launched them, and we did them to round out our building block approach so that the portfolio managers can use them, feel comfortable, and so they can use all three anytime they want. So what you'll see from us going forward is equal support of all three. It's multi-channel now, IIROC and MFDA, institutional. So we're starting to see nice traction in MFDA and institutional, whereas the first couple of years we were focusing more on IIROC, which continues to be very strong for us. And we're gonna launch quite a few this year, which I think is gonna show a sign of strength. As Mark was saying, others, we're working very well remotely.
It's remarkable how well we're operating this business for eight weeks now, completely remotely, and everyone's working very, very well together. And so that won't stop our momentum in terms of product launches, both mutual funds and ETFs. So look to see some nice launches from Mackenzie the rest of the year and across the whole entire spectrum of ETFs. Thanks for your question.
That's it for me. Thank you.
Thank you. We are done for the questions at this time. I would like to turn the meeting back over to Mr. Potter.
Thank you, Patrick. Yeah, sorry, we ran a little overtime today, but obviously lots to talk about. Thank you for everyone joining the call, and hope you have a great weekend. With that, I will now end the call.
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.