Good afternoon, and welcome to the IGM Financial Second Quarter 2018 Earnings Results Call for Thursday, August 2, 2018. Your host for today will be Mr. Keith Potter. Please go ahead, Mr. Potter.
Thank you. Good afternoon. I'm Keith Potter, Treasurer and Head of Investor Relations, and welcome everyone to IGM Financial's 2018 second quarter earnings call. Joining me on the call today are Jeff Carney, President and CEO of Investors Group, and President and CEO of IGM Financial. We have Barry McInerney, President and CEO of Mackenzie Investments. Luke Gould, Executive Vice President and CFO of IGM Financial, and Rhonda Goldberg, Senior Vice President, Client and Regulatory Affairs, and she's joining us today to provide perspective on the latest regulatory notices published on June 21. Before we get started, I would like to draw your attention to our cautions concerning forward-looking statements on slide 3 of the presentation. Slide 4 summarizes non-IFRS financial measures that we have used in this material.
Finally, on slide five, we provide a list of documents that are available to the public on our website related to the second quarter results for IGM Financial. With that, I'll turn it over to Jeff Carney, who will review IGM's second quarter results, starting on slide seven.
Thank you. Good afternoon, everyone. Total AUM reached a record high of CAD 159.1 billion at the end of the quarter, primarily driven by investment returns. Q2 markets was the seventh consecutive quarter of advice channel market share gains for IGM Financial, with investment fund net sales of CAD 171 million. Q2 was quite tough on the industry from a net sales perspective, with industry long-term mutual fund net redemptions of CAD 3 billion, down close to CAD 13 billion from last year. For some context, this was the worst second quarter for the industry in over two decades. Industry ETF net creations also felt the effect and were down CAD 7 billion relative to 2017. Similar to last year, we continue to focus on expense management, with expense growth of 2.5% relative to Q2's 2017.
As I mentioned on the last call, we do have some backloading of expenses, including the upcoming brand relaunch for Investors Group, and we continue to guide to non-commission expense growth of no more than 5% for 2018. IGM Financial's adjusted net earnings per share were CAD 0.85 for the quarter, up 10.4% from last year, and the highest second quarter in the company's history. Luke will speak more to this in his remarks. Slide 8 provides a context of the broader industry operating environment. Following negative returns and market volatility in Q1, the second quarter saw positive equity market returns in most geographies, led by the S&P/TSX, which was up 5.9%. Our clients benefited from stronger Q2 markets, with client returns of 2.1% on assets managed across all of our operating companies.
While second quarter industry long-term mutual fund net sales declined by nearly CAD 13 billion year-over-year, positive returns in the second quarter should contribute to an improving net sales outlook going forward. Turning to slide nine on financial results for the second quarter, adjusted net earnings were CAD 203.7 million, ex- and which exceeded our previous quarter, CAD 185.9 million in Q2 of last year. As I mentioned, Q2 adjusted earnings per share were $0.85, up year-over-year at a record high Q2. Investment fund net sales were CAD 171 million, down from the same period last year. We have just released IGM's investments fund net sales of CAD 232 million, and they do look to be improving relative to Q2. On slide ten, we show the segmented results.
You can see IGM's EBIT increase is driven by all three segments, including corporate and other, which includes our share of China Asset Management earnings in 2018. You can also see segmented investment fund net sales across the bottom of the slide. Let's turn to the Investors Group section. So turning to Investors Group, quarterly highlights on the slide 12, you can see that AUM reached a record quarter-en d high, driven by positive investment returns of 2% for the quarter. Investors Group continued to capture market share within an industry that experienced its worst net sales in over two decades. I'll speak more to this in a moment. We continue to focus on our high net worth solutions, and they would now represent almost 44% of our gross sales.
And finally, we continue to experience solid asset retention with long-term trailing twelve-month redemption rates that remains very low at 8.6%, which is flat year-over-year. Turning to slide 13 on operating results, Investors Group experienced net redemptions of CAD 110 million for the quarter. You can see the trailing twelve-month net sales rate for Investors Group of 1.5% is ahead of the overall industry at 1% and the advice channel at 0.5%. You can also see the noticeable dip for us and the industry overall. While we gained share in a tough market, we're not satisfied with that because for the overall results, and we're working hard to accelerate our net sales momentum. We reached an inflection point on sales momentum during July, with gross sales increasing 4.5% relative to 2017.
Net sales of CAD 53 million and positive investment returns drove Investors Group's AUM to a new record high of almost CAD 90 billion. We continue to see large opportunity to leverage Investors Group's strong value proposition in the high net worth space, and we are executing against our strategy to compete in this market. On slide 14, you can see sales to high net worth, and managed solutions continues to be a key area of emphasis. Our high net worth sales as a percentage of total sales is now at 44%, and our unbundled fee structures, where the client pays the advice fee directly, now have CAD 24.2 billion in AUM and account for 74% of high net worth sales. Slide 15 highlights our client rate of return and historical redemption rate experience.
Despite market volatility in Q1, our clients have experienced positive returns over a 1-, 3-, and 5-year period. Investors Group's trailing twelve-month long-term redemption rate of 8.6% is unchanged from Q2 2017, and remains well below the industry average of 16.5%. I'll stop here and turn it over to Barry McInerney to take us through Mackenzie's results.
Thank you, Jeff, and good morning, everyone, and good afternoon, I guess. On slide 17, I'll provide an overview of Mackenzie's strong Q2 results. Investment fund AUM reached an all-time record high, up 3% during the second quarter and increasing 3.8% year to date. We continue to gain market share with adjusted investment fund net sales of CAD 580 million during the second quarter. Mackenzie's second quarter ETF net creations of CAD 570 million ranked second in the industry. In the context of an industry experiencing significant declines in net sales, Mackenzie's second quarter retail mutual fund net sales were on par with 2017. Offsetting strength in these areas was net redemptions in the institutional channels, which experienced declines more in line with the industry.
Slide 18 highlights Mackenzie's operating results for the second quarter of this year. Mutual fund gross sales of CAD 2.4 billion were up 7.5% year-over-year. These figures are adjusted to exclude the impact of fund allocation changes during the period. Total adjusted net sales of CAD 483 million compared to CAD 543 million last year. Mackenzie continues to capture market share versus our peers. Long-term mutual fund net sales rate of 1.7% exceeded both the advice channel and the overall industry. If we include both ETF and long-term mutual funds, Mackenzie's investment funds delivered an organic net sales rate of 4.3%. This momentum continued into July.
Our investment fund net sales, which we just released this morning, were CAD 192 million, with contributions from both mutual funds and ETFs. Mutual funds, as you saw in the release, were CAD 85 million net for July. And that was powered by retail, which was nearly CAD 150 million. Our institutional remained soft, mirroring the industry, and our ETFs were CAD 105 million net net, actually, including internal IG and Mackenzie channels, our ETFs were CAD 171 million. And our gross sales were up almost 30% on the mutual fund side year-over-year. We believe the results are remain quite strong given recent industry trends. Slide 19 provides detail on our mutual fund sales.
Gross sales improved across a number of categories relative to last year. Positive net sales in the income-oriented and balanced categories, more than offset net redemptions in Canadian and foreign equities. Overall, adjusted mutual fund net sales were CAD 163 million, down from CAD 447 million during the second quarter of last year. But as I touched on earlier, Mackenzie's retail mutual fund net sales remained steady at CAD 278 million in a challenging industry environment, and this is before considering retail net creations in our ETF business. Institutional sales experienced softness in the period, again, with this business line mirroring the overall industry. Symmetry, for example, one of our multi-asset solutions, is a core offering within the institutional platforms and saw sales decline in line with the industry. However, we're pleased with Symmetry's growing momentum within the retail channel.
Turning to slide 20, Mackenzie's ETF AUM grew to CAD 2.6 billion in assets at the end of Q2, driven by Q2 net creations of CAD 570 million, ranking number 2 in the industry. The end of July, our ETF AUM is nearing CAD 2.8 billion. Growth in our ETF business continues to be broad-based across channels and investment strategies. As you can see in the top right chart, the retail component on Mackenzie's ETF net creations, that are dark blue, has consistently been approximately CAD 250 million per quarter. Slide 21 highlights how product innovation has continued to contribute to Mackenzie's strong net sales and AUM growth. As discussed on the prior analyst call, Mackenzie launched an innovative multi-strategy absolute return fund in May of this year.
It's early days, but we are very happy with the level of interest this product is generating with advisors and their firms. Even with the pioneering nature of this product, it has already been placed on the approved list for a number of large third-party firms, and that list is growing. Last month, Mackenzie launched a new fund and portfolio analysis tool called Precision. Developed by Mackenzie with input from advisors, Precision combines a suite of powerful analysis tools with access to Canadian mutual fund and ETF data. The tool is available to all advisors across Canada on Mackenzie's website free of charge, and in less than a month since official launch, Precision has already attracted well over 1,500 advisors.
Precision is another way that Mackenzie is enhancing the advisor experience and represents a forward-looking solution to help advisors with portfolio construction decisions and meet expanding Know Your Product and suitability requirements. Rhonda will expand on these regulatory requirements in a moment. Slide 22, Mackenzie's long-term investment performance remains solid, with 79% of mutual fund assets in first or second quartile over the 10-year period. Overall, 38% of Mackenzie's AUM is in 4- or 5-star rated funds. And looking at Series F, where Mackenzie has a significant opportunity to grow- to continue to grow our AUM within the IIROC channel, 17 of our 20 largest funds are rated 4- or 5-star by Morningstar. Eight of these funds are rated 5-star. And this just demonstrates the breadth of Mackenzie's strong performance and the great stories our wholesalers have as they work with advisors.
And finally, last slide on Mackenzie, on slide 23, we continue to benefit from solid investment performance and net sales across a range of investment styles and teams. On the equity side, the growth-oriented teams and global equity and income team continue to deliver strong performance and positive net flows. Similar to past quarters, strength in these equity teams has been offset by Ivy and value strategies, which are staying true to their proven investment approaches, but are currently in a market environment where growth has tended to outperform. The fixed income team and our Symmetry Managed Solutions, run by our asset allocation team, continue to track net flows. I'll now turn over to Rhonda Goldberg to provide an update on recent regulatory developments.
Thank you, Barry. Good afternoon. Turning to slide 25, as you know, the Canadian Securities Administrators published two notices on June 21. The first requests public comment on detailed reforms, what's now referred to as the client-focused reforms, and the second sets out the intended policy decision with respect to mutual fund embedded commissions. Briefly, some key highlights on the client-focused reforms. First, it is worth noting that the Ontario Securities Commission and the Financial and Consumer Services Commission of New Brunswick indicated that they will not be proceeding with a standalone regulatory best interest standard at this time. However, what we see in these proposed amendments is this standard infused into the conflicts of interest and suitability reform.
The reforms relating to Know Your Client and Know Your Product are intended to clarify expectations of what information a registrant must collect about a client, and to increase rigor and transparency around the products and services that registrants make available to their clients. The suitability determination requirements also include explicitly requiring registrants to consider certain factors, including costs and their impact, and to require these determinations to be made on a portfolio basis. What this means in practice is registrants will be required to demonstrate that the product shelf development and client recommendations are based on the quality of the security and influence from any compensation arrangement. A firm's Know Your Product approval process is expected to consider how a security generally compares with similar securities available in the market and the overall competitiveness of the security.
For registered individuals, the Know Your Product requirements constitute a thorough knowledge and understanding of all securities that are purchased and sold for or recommended to the client. The reforms allow for different operating models, including the offering of proprietary products. Under the proposed amendments, all registrants will be expected to disclose any restrictions on the products or services they make available to the client. We believe the IGM companies are well positioned in meeting the Client-Focused Reforms. The proactive, client-centric approach we have taken in our business models and strategic initiatives, which I shared with you last year on Investor Day, aligns with the regulatory direction we anticipated. For example, at Investors Group, our focus on financial planning, enhanced continuing education, and mandating the CFP Pl. Fin. designations for our consultants, equip them to meet the enhanced Know Your Client and suitability requirements of the reform.
Our consultants have a thorough knowledge and understanding of the products we offer, and the Know Your Product approval process that is proposed aligns with our product strategy and the use of third-party sub-advisors. For Mackenzie, our holistic approach to wealth solutions, as well as Mackenzie's focus on resources and tools, will support registrants in meeting their Know Your Product and suitability obligations. I'd like to now turn to the second of the two notices, also on slide 25. This one more straightforward, which set out the intended policy decision by the CSA with respect to Mutual Fund Embedded Commissions. Embedded Commissions will remain permissible, however, subject to the enhanced conflict of interest mitigation rules set out in the Client-Focused Reforms.
The CSA is proposing that all forms of deferred sales charge, including low load options, will be prohibited, as will the payment of trailing commissions to dealers who do not make a suitability determination. We are told in the notice to expect rule proposals for comment in September. For Investors Group, the elimination of DSC is not impactful, as we eliminated DSC on new sales effective January 1, 2017. For Mackenzie, we continue to offer a range of series options to registrants, including unbundled fee-based solutions such as Negotiable Advisor Fee Series FB for the MFDA channel and competitive Series F pricing. So what can we expect next? On slide 26, I set out that the consultation process for the client-focused reforms is underway. Each of the IGM companies will be submitting a comment letter, providing specific feedback and insights relative to our business model.
Comments are due in October. As I noted, we can expect rule proposals to be published in September for comment for the elimination of the DSC option and trailing commission payments to dealers who do not make a suitability recommendation.
... IGM will continue its active dialogue and engagement with regulators on each of these topics. I will now turn it over to Luke Gould to walk through the detailed financial results.
Great. Thanks a lot, Rhonda. So turn to page 28. In point one, you can see we had earnings of CAD 0.85 per share during the quarter, up 10% from last year. This was driven by increased assets, combined with modest non-commissioned expense growth of 2.5%. As mentioned by Jeff, we're continuing to maintain our full year guidance on non-commissioned expenses of 5% increase year-over-year for 2018 versus 2017. I'd also remind everybody that we adopted IFRS 15 on January first of this year, and we provided what we believe is very rich supplemental disclosure to help people understand the related changes to accounting for sales commissions. Under IFRS 15, you'll remember, we're now expensing all commissions related to bundled product sales as incurred.
Also, as reviewed with you last quarter, another element of change that's occurring in 2018 is a shift in compensation and Investors Group away from sales-based compensation towards asset-based, with further changes signaled for 2019 and outlined on our slides last quarter. Noteworthy, if we retrospectively applied IFRS 15 on 2017's results, there's very little change in earnings, as cash commissions paid last year were very much in line with the commission amortization that we recorded last year. I'd also note that with the majority of our commissions now being expenses incurred, the slightly lower gross sales levels in Q2 of 2018 versus Q2 of 2017 did reduce commission expenses by approximately CAD 5 million and therefore benefited our earnings.
Moving to point two, you can see that we issued CAD 200 million in 30-year debentures with a yield of 4.174%, and we also announced that we'll be redeeming our CAD 375 million in 2019 maturing debentures on August 10, so about a week and a half from now. I know we're very pleased with the transaction, and we have a very strong capital position with a long date of maturity schedule on our debt, and actually have nothing coming due until 2027. Lastly, we introduced some enhancements to our cash flow disclosures this quarter to help you understand this element of our performance, and I'm gonna walk you through these changes on a few slides.
If you were to page 29, you can see again our consolidated AUM for IGM Financial in the daily chart on the left. The key points I'd make here is to remind you once again that as financial markets have been very volatile, particularly in the first quarter, our clients have fared quite well with returns of 2.1% in the quarter and just under 1% year to date. July was also good, with another 1% in investment returns, as well as net sales of CAD 232 million, and this brought our AUM to just over CAD 160 billion, a record high. Moving to page 30, a few quick comments on Investors Group's financial results.
First, on the left, I'd highlight that the management fee rate is down very slightly this quarter, which is as a result of a greater share of our assets in high net worth solutions, and this trend will continue as that composition of our clientele continues to move in favor of high net worth as we execute on that rich opportunity we have. I'd also note on that chart on the left, you can see that we have asset-based compensation at 49.6 basis points, consistent with last quarter and consistent with our guidance. And if you look at this chart, you can see that shift we made away from sales-based and towards asset-based, where last year we were running at 45-46 basis points, and this year we will be running at about 50 basis points.
The other side of that shift is in the chart in the middle, where you can see, as signaled last quarter, sales-based compensation is trending in line with this guidance at the new rates, and once again, was 1.8%, and that's the rate we continue for the coming two quarters, after which it's going to decline once again. On the right, you can see that, again, non-commissioned expense was well managed in the period, but our full year guidance for 2018, a 5% increase year over year remains intact. As Jeff signaled, we do have brand relaunch and other uses of our expenditures coming in the back half of the year.
On page 31, a few quick comments on IG PNL, which you can see we had EBIT of CAD 197.4 million in the quarter, up slightly from last year. First, a bit of noise in distribution fees, which is the third row down in the revenue line. You can see this line was lower. It's as a result of insurance product sales, and importantly, if you go down to other commission expenses, you'll see that substantially all that revenue decline is offset by lower compensation with no net impact on earnings or very little net impact on earnings.
Second, in point three on the right, you can see that mutual fund commissions are down 4.5% from last year overall, but the composition between sales-based and asset-based, as mentioned earlier, has changed. So I would highlight the IFRS 15 impact of this period by first noting if we applied it retrospectively and expensed commissions as incurred versus amortizing last period, it would have been unchanged. Second, most of this decline resulted from the reallocation from sales-based comp to asset-based comp. And third, since we are expensing bundle commissions as incurred, the lower sales in the period did result in lower commission expense, and that was about CAD 5 million in commission expense decline because of this slight sales decline.
We also made a comment on non-commissioned expenses, which I spoke to earlier. Moving to page 32, a very brief comment on Mackenzie. On the left, you can see the net revenue rate. It was 83.6 basis points in the period and was down from 85.5 basis points in Q1. I'd remind you that we announced retail pricing changes that we walked you through last quarter, and these changes were effective on June 1, 2018. We had disclosed that these changes were worth $12 million a year or two basis points, and this represented about $1 million of a revenue decline during the quarter, given that we just had one month of the changes in effect.
The remainder of the change in the fee rate do reflect a change in the composition of the business in favor of ETFs and fee-based solutions. Second, on the right, I would note that non-interest expenses at Mackenzie were up 7.7% year-over-year, and that this relates to timing of expenses, and we are maintaining our guidance of a 5% increase for 2018 relative to 2017. On the income statement for Mackenzie on page 33, you can see our EBIT at CAD 48.7 million was up 12.12% from last year. I'd draw attention to the fifth row from the bottom.
Net revenue was up 1.8% as a result of higher asset levels, and this was offset by lower fee rates, primarily due to change in the composition of the asset base. Sales-based commission expenses, which is the fourth row from the bottom, were down 38.5% or CAD 4.5 million, and much like an Investors Group, three point five million of this was a result of adoption of IFRS 15, and about one million of this decline was as a result of paying less commissions out. Commissions, commission payments were eight million last period, and you can see we, we did an expense of eleven point seven when we amortized.
I'd also note, second row from the bottom, good returns on seed capital as a result of improving markets, and that generated CAD 2.5 million in fair value adjustments on our seed. Moving to page 34, I'm going to spend a few moments walking through some cash flow statement enhancements that we made to help you understand our results better. What you can see in this table is the changes we made using full year 2017 as guide, and we did in our supplement give historical restatement of our cash flow statement on this basis. The first row that you can see in the shaded area outline the changes with the difference between our proportionate share of earnings in our 4% stake of Great-West Lifeco.
and our 13.9% stake in China AMC, net of the dividends that we received from them. I'd note that both of these investments obviously do pay solid dividends, but there is a drag on earnings between the actual earnings and cash received of about CAD 90 million a year, given that we're earning about CAD 150 million in earnings and receiving dividends of about CAD 60 million. I'd also note that within our disclosures, we do disclose the market value of our Great-West Life investment, which is approximately CAD 1.5 billion, and we also give some disclosure on the investment in China AMC, where we're carrying it at.
Second, we've isolated the non-IFRS adjustments we've made, which represent extraordinary items, to help you understand those items that make period-over-period comparability challenging. And we've also called out pension contributions. And third, and very importantly, we've reclassified cash flows relating to mortgage collections we receive from being servicer of our of our mortgage business of about CAD 10 billion. This is amounts where we receive principal and interest repayments from our clients daily, and we remit these payments to the owners of the loans, being securitization vehicles and institutional investors, on a monthly or quarterly basis. The net amount of the receipt and payment of these amounts is zero, but in the past, in any given quarter, it's created CAD 50 million-CAD 100 million of cash flow volatility.
We've reclassified those amounts into our financing investing activity line, resulting in a much more understandable and intuitive operating cash flow. In the chart on the bottom left, you can see the impact of these changes, and you'll see our operating cash flow is very understandable and intuitive following these adjustments. I'd also draw your attention to Q1 in each year of these periods, where we do have the compensation and other Q1 payments that occur, where we've accrued for the amounts over the year and do a payment in the first quarter. So very predictable operating cash flows. That concludes our remarks, and I'll turn it back to Don, the operator, to take any questions.
Thank you. We will now take questions from the telephone lines. If you have a question and using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your telephone keypad. To cancel the question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause as participants register. Thank you for your patience. The first question is from Gary Ho from Desjardins Capital . Please go ahead.
Thanks. Good afternoon. Jeff, first question for you. In your prepared remarks, you mentioned you were not satisfied with the net outflows at IG for the quarter, and looks like the July numbers have turned a little bit. Can you elaborate what changes you've made more recently to accelerate the sales that we were seeing?
Yeah, I mean, there's a number of factors I could go into. I mean, one is just making sure that we have confidence in the sales force to get out there and do their job. And there's pockets that are doing really well, and there's some other areas that aren't doing as well, and so we know that we can do it, and we can grow faster, and we've got parts of the markets that are doing that. So we're sharing those insights and successes where they are, in certain regions, stronger than others. And I think that learning is starting to go through the organization, and it's really focused on the Gamma side of the story, and that's our, that's our, you know, biggest value proposition we bring to our company.
And so we've got pockets that are doing really, really well on that and others that have some improvements to make. So I think you'll see the rest of the country come up to speed and be able to, you know, match and pass the other regions and continue to compete with each other a little bit to drive that growth. But the other thing is, there's so many things going on in our company right now from an execution standpoint, and, you know, I couldn't list them all right now, but it would take a long time. So we're just, it's almost like a Microsoft release, where you're getting-
... it's we're making the job easier for the consultant, and we're giving them more tools, better products, differentiated capabilities, better systems, and just making their job more effective and more easy to implement.
Great. That's, that's helpful. Thanks. Second for Rhonda, thanks for the regulatory update. Just on the DSC side specifically, have you had chats with regulators or, you know, your thinking within the firm, like what the phase out period may look like? And just overall, maybe were you surprised by the non-banning of the trailers announcement?
Well, we don't know yet what that transition period will be. We'll certainly see that in the rule proposals that are published in September. If we look back to the previous consultation paper on embedded commissions, there, the regulators had contemplated a three-year transition. But again, that was when the contemplation was more broad to not just pick up DSC, but also trailing commission. So my expectation is that the transition will not be that long, but again, we'll have to wait until we see those rule proposals shortly in September. I believe, you know, the CSA, I think, really tried to be reflective on the feedback they received, a broad feedback from the industry.
Ultimately decided to retain trailing commissions, I believe, because they were influenced by the feedback that for some segments of clients, that this would be the more appropriate, suitable option. Certainly, the reforms, while trailers remain, really are predicated on the mitigation of those conflicts and ensuring that it is the most suitable option for the client.
Got it. Thanks for that. And then my last question, maybe for, for Luke. Appreciate the added cash flow disclosure. So when I look at the cash flow from ops and normalized for seasonality, you know, I get to a run rate of roughly CAD 200 million per quarter now, kind of over the last 12 months. And your current dividend is roughly 67% of that, it's kind of compared to kind of 76% of that when I do the same calculation for 2017. So my, my question is twofold, you know, is there a payout on cash flow that, you know, you'd look at before considering a dividend increase? And second, you know, how would you prioritize, you know, paying down debt, which I think you're doing, potential share buyback and, and dividend increases?
Good, good question, Gary. We're, yeah, start by saying we, we all are, are interested in, in seeing dividend increases. We, we take it really seriously, and we're very mindful that on any basis, we're, we're approaching, record all-time high earnings on a sustainable basis. So, so I know for this, for this management team and, and our board, it's something that we're, we're evaluating, having regard to, to our confidence in the business, which is very high, as well as, investing activities that we have to, help build our business over the long term and, and other, other considerations. So I think you're, you're anchoring to, to our payout rate, both on, on an earnings basis and, and on a cash basis, is the right place to be.
I would let you know that we're very mindful of, you know, the level of earnings we're at and what we believe is an upward trajectory. So in the coming quarters, we will continue to be evaluating the dividend.
And then on prioritizing, you know, the different buckets.
Yeah, priority number one is, again, to maintain financial flexibility and help make sure that we're set up to build a business. We think there's obviously a rich future for this business and a lot of great investment opportunities for us to build. So that's really priority number one, is making sure that we've got the financial flexibility and wherewithal to take advantage of those opportunities that would make the business stronger. So as far as some of the priorities you listed on debt repayment or other things, you know, we just did make a number of actions earlier this month to really shore up our indebtedness.
There was a great opportunity to address the 30-year space for the third time in 18 months, and we've done so. We believe are very attractive rates. And we are taking out the 2019 debt that we had coming due next week. And the result of that is we have a very, very strong balance sheet, and we have no repayments coming due for quite some time, almost a decade. And we also are well situated to launch debt if something transformational comes along by addressing the 5-year space or other place in the market.
So if you're asking the priority on shareholder giving money back to shareholders versus creditors, you know, I'd say priority number one is to maintain financial flexibility, and this team's quite bullish on the future of the business, and that's priority number one. But dividend increases is something that we're obviously looking at and we'll continue to monitor.
Great. Okay, thanks for that.
Thank you. The next question is from Geoffrey Kwan, from RBC Capital Markets. Please go ahead.
Hi, good morning. The first question I had was for Barry. The multi-strat fund launch, I think right now you've got roughly about CAD 140 million in AUM, and I'm assuming most of that or a good chunk of that is going to be sales. Just curious about how big you think it can get over the next three years. And given the newness of the product, like, is it a very long kind of a teaching period to get advisors comfortable with the product?
Thanks, Jeff. It's a good question. It certainly is, it's certainly an educational sell in that it's new, and advisors have to be educated as to, you know, the use of, leverage and shorting. And, most importantly, as we always do, what's the appropriate role of this new product in an overall portfolio? So, great discussions being had. Money's coming in modestly every day, but it's going to start to accelerate. But we feel the reason we accelerate is the timing is perfect, because, as we know, we can never predict these things, but probably the consensus is that we're in the later innings of the equity market boom.
With rising interest rates, fixed income also is gonna be a little under siege in terms of producing the returns going forward that they have in the past. So, the discussions we're having are holistic as well to say to the advisors, you know, listen, it's at times there's a tendency to raise cash, and that's just not a good thing to do because no one can time the market. So, here is a great strategy with a that has low correlation to both equities and bonds, that you can put a slice into your portfolio and smooth out the return patterns for your clients for years to come. So, and I think I've mentioned in prior calls, it's the liquid alternative space in the U.S. really took off after financial crises.
Luckily, here in Canada, we're going to... We're all introducing products. We're leading in a environment that's becoming more volatile, that could show a great benefit to have this. In the US, it was after the financial crises, where a lot of individual investors noticed that high net worth and institutionals weren't as hurt as much because they had access to alternatives. And so, liquid alternatives, which is really alternative return patterns wrapped in mutual fund, took off in the US, and it's by many measures, it's approaching $1 trillion after 10 years. So, we're usually a 10-to-1 ratio between Canada and the US, so you could say, you know, it will be, it could be a CAD 100 billion dollar industry in short order here in Canada.
Some argue it might be higher in Canada, in steady state, because we don't have the as broad a diversification tools Canadians do versus as they do in the US. So suffice to say, very excited by the product. I think it's gonna grow very fast. It is an educational sell, new for a lot of advisors. That's part of our value proposition, again, at Mackenzie, to go out and talk about the portfolio holistically. Here's how this is, this can be used in a portfolio. And our team has done this for several years now in terms of other products, that they're not easy. There's some complexity to them, but they really benefit the investor, and therefore, we have a good rhythm to educate advisors quickly as to benefit.
Early days, but we're very encouraged by the, by the flows to date.
Okay. Thanks for that. My second question is for Jeff. Can you talk about the brand relaunch in terms of you know what you're going to do in terms of is it marketing and stuff like that? 'Cause I'm guessing it's probably a little bit more focused on trying to capture that high net worth investor. And any sort of expectations on the sales impact?
Yeah, I'd love to tell you what it is today, but we haven't even told our teams across the country yet, so I can't take you under the hood right now. But I can tell you that we're really excited about the positioning of it, and you sort of nailed it in your question, that this is a way to tell our story from a high net worth and mass affluent space. And that's exactly who we'll be targeting with the campaigns we're running on TV and in other media.
This is to sort of remind the market that we have all these skills, and make sure that that the Canadian fabric actually understand that, and that we're targeting the, like I said, the, mass affluent, high net worth clients. We got a great support from the board, and we're investing a great amount of money to make sure that it is noticed and changed and, and respected and, and, brought into the industry. So we can't wait to launch it, and you'll let me know if we did a good job.
Sorry, did you provide a date previously on when it's gonna start, like September 1st or October?
Yeah, we haven't given a date out, because we wanna tell our team first.
Okay. And just one last question. In terms of trying to capture that high net worth or more affluent type client, has this required much in the way of changes to consultant education on how to win this type of business? How to service this type of client? In other words, if these types of people you're trying to target maybe have a different profile than the existing clients that you deal with.
Great question. It's a journey, and so we are doing a lot of training. We just had all of our senior management in, all 70 managers that run our operations across the country and the distribution operation. That was what we talked about, is how do we make sure that they have the skill set and the demeanor to be able to serve mass affluent, high net worth clients. And so we put a number of programs together. There'll be more coming to help build their confidence that they have the skills to do that. And we'll be implementing that shortly. So it's a journey.
Some are more ready and some need more training, but it's you know, the confidence they're gonna have is because they have the skills to serve those clients through the training that we've given them. And as you know, we're doing increased training beyond the CFP, and that's already up and running with our IG University. So it's you know, confidence comes from knowledge and experience and, and practice and being in front of clients and, and knowing that you can succeed at that. And so we just you know, we keep... What we're doing is trying to measure like you know, for each consultant, bring in five and try to find a way to find five. Once you find five, you can find 10. Once you find 10, you can find 20, and then you're up to 50.
It's just practice. So, it's getting them in front of clients that, that have that, that have that kind of economic money and, giving the confidence in the products, and the service to go with it.
... Great, thank you.
Thank you.
Thank you. The next question is from Graham Ryding from TD Securities. Please go ahead.
Hi, good afternoon. Could I start with Investors Group, just the consultant, the size of the team. There seems to be a little bit of attrition in the last couple quarters, or year to date. I'm just wondering, is there any color there on, on sort of, why the numbers continue to trend down and maybe just some perspective there?
Yeah, I mean, we're around 2,100. You know, we're doing a lot of structural work. We're encouraging more teaming as well. And so, you know, I think you'll see 2,000 or around 2,000 is gonna be the number. We're not gonna get up to 2,500 or 3,000 unless something changes over time. But we really wanna expand the teams within the 2,000 and make sure that they have more resources within each of those teams to bring their very best to our clients. And we're seeing a lot of that happening now. And so the broader the skill sets within the team, then the more expertise they have, and that's how we serve the high net worth clients.
Okay, got it. The rebranding initiative that's gonna happen in the second half, should we expect this to be spread out over both Q3 and Q4, or is there one quarter in particular where you think you'll be spending a bit more on this rebranding initiative?
I can tell you it won't be in the middle of the Canadian summer. But, you should think about it in the fall. It'll be in the fall.
Okay. Got it. My last question on IG would just be the admin fee component, like your management fee seems to be fairly steady, but the admin fee has been trending down a little bit, as a percentage of average AUM by about three basis points a year. Is that a deliberate move, or is there something happening in your AUM mix that's causing that to come down?
Yeah, Graham, Graham, it's Luke. You should, you should look at those two fees, management and admin together. And what we've got happening is there's, there's certain admin fees that are charged on our bundled product, where it's embedded in the, in the management fees in the, in the unbundled.
Got it.
So if you look, if you look at that in aggregate, it's, it's trending fine, but what you see is a move from bundled to unbundled.
Okay, that's fine. And then my last question, if I could, is just on the regulatory side of things. You know, there was a shift in the industry, sort of away from commission funds towards fee-based funds. So I guess this is a question for Rhonda. Now that we've got these changes out there, do you expect that trend to continue, or perhaps slow down? Or are the changes that are being asked amongst the distribution side of the industry sufficient enough that you could possibly see a continued shift away from embedded commissions?
I believe we're gonna continue to see that trend away from embedded commissions. The ban, of course, on DSC and low load nudges what is already an industry trend, perhaps a little bit more. You know, while trailing commissions remain, as I indicated, those client-focused reforms do add a heightened degree of expectation around the advisor making that choice. So from a suitability perspective, from a conflict of interest perspective, remember, suitability particularly speaks to identifying and considering the cost and the impact of cost overall to the client, and that's where the embedded commission will likely not always be seen as the best choice for the client.
That makes sense. Thank you.
Thank you. Once again, please press star one at this time if you have a question. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good afternoon. Just, just going back to the IG consultants. Jeff, maybe on the recruitment side, has anything changed in that respect? And also, you talked about like more teams and, you know, within that network. Is there like a, a potential to acquire teams going forward in terms of what Luke was saying, in terms of potentially acquisitions going forward?
No. No, it's more we've got basically the 2,100 teams today. And we want to grow those teams and make the 2,000 as best we can make it. And, you know, if we accomplish all of that, and there's a chance to go to 2,500, we'll go to 2,500. But right now, we want to make sure that we're focused on the 2,000, and monetizing their skills and the opportunities in the communities that they're serving. You know, we're measuring, we're measuring market share by postal code. We're measuring everything, and we're really diving into where the biggest opportunities for us with those mass affluent and high net worth consumers. And then probably it skews more to urban than it does to rural.
I mean, we're pretty strong in rural in market share. We're higher than we are in urban. And so most of this will be an urban story, and you'll see that, how that plays out over time, through our brand spend, and then through ongoing increases as we go forward to continue to drive share of wallet and through share of voice in the communities. And so think of it as the productivity per the teams is going up, and it's going up in a combination of all the efforts we're making across the company to make their jobs easier, better performance, new products, all the things that are happening, better systems, better brand, everything else, and then accelerating their skills at the same time.
So you can see how that can compound itself over time and should be a really good story for our clients because they're getting, you know, a broader capabilities of breadth, and then, ultimately, a better outcome for their retirement income and what they're trying to achieve in their lives.
Okay, great. And maybe, and maybe for you, and Barry, over the last couple of days, there's been, a lot of, not chatter, but a lot- some of the fund companies have offered, Fidelity's offered, 0% index, and Horizons this morning is offering 0% total return solutions on ETFs. You know, does, does IG have to respond to that? What's the kind of initial reaction and, and, kind of what are your thoughts on, on, on kind of this fee trend that we're seeing, more recently in the industry, not only here, but in the US?
Yeah, Barry can answer that.
Yeah, good question. I mean, you know, clearly at IGM, we're, you know, we're focused on delivering our, our best solutions, and the flows into our multi-asset, both at IG and, and Mackenzie, is very, very high. So, we don't get too concerned with, occasional trend here and there of, of a single ETF or a single fund. It's just a building block, so we won't comment on our competitors. But for us, we're focused on delivering the best returns for our clients. And so we look at all of our, individual, components that build solutions for our clients, and the pricing of such is competitive. It's always, always going to be competitive for us. That doesn't reflect necessarily the subcomponents of one or two elements of it that are, are priced for whatever reason, at, at extremely low, low values.
We, we remain very bullish on the industry, too. I mean, if you look at Canada, U.S., globally, the asset management investment industry, you know, $80 trillion, it grows every decade. It grows at the capital markets, which on average, go up. They go down sometimes, on average, they go up. Savings rates are robust. Baby boomers, millennials in developed countries like Canada and U.S., have to continue to save, save more, save longer. We are, as you know, participating in China now, and the growth there is absolutely breathtaking in terms of the savings rates and the retirement industry that continues to, you know, drive along at record pace. So it's a really positive industry, but more focused on solutions and multi-asset, which is reflective, again, across our IGM clientele. And so that's our focus.
We don't get particularly fussed about, you know, noise here and there, as you suggested, on, you know, some pricing here and there and some individual funds or ETFs, either here or south of the border.
Okay. And Barry, you just mentioned China. And just in terms of ChinaAMC, is there any, you know, kind of maybe comment on, on year-to-date assets, you know, within that entity, or?
Yeah, they're just ticking along. We're always respectful of disclosing their AUM with the same cadence as their parent company because they have different disclosure patterns in China. So I think last disclosure we had was end of the year, they're up 4% year-over-year. So that was in 2017. In the years I mentioned in prior calls, that had some choppiness to it. The capital markets, some new regulations to try to, you know, to clamp down and ensure there's proper risk management.
As the industry, which is still in its infancy, becomes more institutionalized, ChinaAMC was strong out of the gate, first quarter in 2018, new product launches, launched their first robo-advisor in China, just, you know, just doing what they always do, doing a very good job. The CSI 300 is probably not Shanghai, the emerging market, so it was a little volatile. It was up the first quarter, and then it came down, I think, over 20%, from its peak, today. So that happens. A little bit of a little bit of trade wars, noise going on, but that's temporary, we feel.
So in event, remain just extremely bullish on China, the industry. I've mentioned before, the third pillar, their RSP, is scheduled to come on board in China next year. Just, there's just so many growth catalysts that are occurring.
So, but just, you know, we, as we've always mentioned, we-- our, our forecast of 15%-20% growth for the industry year-over-year on average, is, is we're still holding to it, but it's not going to be 15%-20% every year just because China is, you know, has its more increased volatility, given again, it's, it's always, it's always difficult to view them as emerging market because second largest economy in the world, second largest stock market in the world, but they're still emerging, and therefore there's some element of volatility, heightened volatility vis-a-vis a developed country that you're just going to have to experience.
Very helpful. Thank you.
You're welcome.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Good afternoon. So when I look at the AUA for Investors Group, I notice an increasing rate of change in terms of third-party products that's included in that AUA. It's still a low base, but it seems like the rate of change is picking up. So wondering if that's an intentional part of strategy or maybe just sort of a by-product of more fee-based accounts. Either way, maybe you can talk about that trend a little bit. Yeah, I mean, I think it's an early indication of us winning mass affluent and high net worth accounts and bringing those in.
And then those, ultimately, those individual securities generally end up in our mutual funds because we want to diversify the client's assets and make sure they're exposed to the right markets and giving them great tools and opportunities to use Mackenzie's products there. And so it's and third-party as well. So it's really think of it like a funnel that's feeding all the time, and then it ultimately ends up in our economics through the mutual fund.
... Understand. That's interesting. And then related to that topic, the CSA, I guess, has announced that they're going to review the affiliated distribution manufacturer relationship with some potential proposed changes. So wondering if you can comment on what you think may or may not transpire, or your view on why affiliated distribution manufacturing is a fair model for the end investor?
Well, certainly what we've heard, it's a great question. What we've heard from the CSA, really clearly, is three things: That conflicts of interest have to be addressed in the best interest of clients. Suitability must put the client first, and third, and this is really where I think the question lies, firms must hold themselves out in terms of the products and services they offer, and then they must do that. And that's where I believe the CSA has perhaps focused for firms that may certainly say that they offer both proprietary and third party, but in fact have not been necessarily making those third-party products as accessible or have not otherwise, you've seen from the flows in some firms, that that's not what is happening in actuality.
So I believe that the focus of affiliated firms is from that perspective, how are you holding yourself out, and then demonstrate that. So certainly, for Investors Group, we're very clear how we hold ourselves out, and that will be for all firms going forward, demonstrating that what you say you offer, you offer. And the regulations that have been proposed, those client-focused reforms, do contemplate disclosure, public disclosure around any restrictions or limitations on both products and services.
Got it. That's a helpful answer. Thank you, Rhonda. And then I want to ask you on insurance sales. It's been noisy last year and a half, two years or so because of some tax changes. Hearing that that's probably likely going to settle down starting Q3. Is your view that insurance sales at IG should start resuming more of a growth trajectory, maybe starting next quarter?
Yes, I'd expect that.
Okay, good. And then I know you don't want to give us too many details on the rebrand, but would it be fair for us to assume that maybe that rebrand or repositioning includes more holistic financial planning, so might include a greater proportion of sales, such as insurance and other financial service products?
Yeah, I mean, we want to I don't want to tell you the whole story, but, we want to show the breadth of our offering. There's no question.
Okay. Okay, fair enough. We'll learn more, I guess, as the quarters go on.
It's grounded in, you know, our value proposition, which is Gamma, and then our Gamma is grounded in the quality of the CFPs that we have across our company, and that's, that's going to be the story.
Okay. So as we think about the IG story long term, I should assume that the mix of financial services sold is going to, at least at the margin, include a little less investment fund and a little bit more of everything else in terms of mix?
No, no. It's more because we can. You know, we just brought on BlackRock on our platform. We just brought on T. Rowe Price. I mean, we can hire anybody we want. We spend a lot of money on third-party products, and we as Mackenzie as well. And so we've got a big product offering we can go after. And it's really back to the regulation conversation earlier, is how many products do you want to have? And so we-- that's what we monitor. And then mostly we want our consultants to use solutions-based products that are holistic and solving the beta needs of clients. And so, you know, our challenge is really that we're filling up these buckets of investment firms that we're using in our own.
So we got to continue to find new ways to find partners as we go forward, because there's a lot of money coming into the company, and we want to find the right solutions for them, but we want to also be diversified in those pools as well, so that there's not a concentration risk on one process.
Understand. Okay, that's helpful. That's all the questions I had. Thank you.
Thank you.
Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Potter.
Thank you, Donna, and at this point, I will conclude the call. I'd just like to thank everyone for participating today.
Thank you. The conference has now ended.