RF Capital Group Inc.

Thank you, Operator. Good morning, everyone.

This is Rocco Colella, Head of Investor Relations at RF Capital. Welcome to our fourth quarter and year-end 2020 earnings conference call.

If you have questions following this call, please reach out to Investor Relations. Please see my contact information at the end of our earnings release.

Before we get started, I would like to remind you that this call is being webcast and available for subsequent replay. Today’s remarks may contain forward-looking information and actual results could differ materially.

Forward-looking information is subject to many risks and uncertainties. Certain factors or assumptions applied in forward-looking information can be found in our latest AIF and MD&A.

Both documents are available on our website and sedar.com. This morning on the call is our President and CEO, Kish Kapoor; and our CFO, Ben Scholten.

Kish will provide opening remarks relating to the recently completed transformative transaction involving Richardson Wealth and other key takeaways from the most recent quarter. Ben will then cover the fourth quarter and year-end financial results.

Kish will then end with closing remarks, following which we will open the call to questions from analysts. I will now out turn the call over to Kish.

Thanks, Rocco. Good morning, everyone.

Thanks for joining us. The last few years have been truly transformative for our company.

We promise change and change we did, even in the midst of a global health pandemic. Over the past few years, we exited the Capital Markets business.

We concluded the consolidation of the ownership of Richardson Wealth, and focus all our attention and resources on supporting our advisors and their clients across Canada. We returned $79 million to our shareholders by way of dividends and a $40 million buyback of our shares.

We entered into 36 million in recognition agreements with Richardson Wealth talented advisors who now just -- who now own just under 31% of our company. We inspired Richardson Financial Group to leave $50 -- $75 million that they would have otherwise been entitled to on closing of the RGMP transaction in our business to support our ambitious growth initiatives and we secured the right to use the Richardson name to promote our corporate brand across Canada.

We are many to thank for this extraordinary outcome, especially our 160 advisory teams, which is down from 162 at the end of the year -- at the end of last year forming the consolidation of two internal teams in early 2021. Our 800 employees and a growing base of clients who never wavered in their support, and our shareholders who voted overwhelmingly in favor of this transformative change in our business.

Early results show we’re off to a good start. As of last Friday, our 160 advisor teams managed $31.4 billion or 31,000 clients across Canada.

This is a new record for clients as -- client assets at Richardson Wealth and it is $2.9 billion higher than we started the transformation at the beginning of 2019. Adjusting for advisors that left us during this period, in other words, looking at the asset growth attributable to only two advisors who stayed with us or joined us over the last two years, the growth we achieved is even more impressive.

On that measure alone, assets were up by $6.2 billion. And more recently, growth over the past five months since the acquisition in assets from advisors who chose to stay or join Richardson Wealth over that period were up $3.6 billion, recruited a new assets accounting for $1 billion of that increase with the remainder attributable to the strong market performance.

All these factors highlight why we believe after a difficult multiyear journey to transform the business, we have positioned the company for long-term success in the dynamic, fast expanding Wealth Management industry in Canada. If we get just a small share of the expected growth from $4.4 trillion today to the $7.8 trillion 2028, we can grow our business several fold.

We intend to do that by growing our existing client base, attracting new advisors and their clients and by acquiring like minded firms. Work on that front has already started.

Management and the Board with considerable input from our investment advisory teams across Canada and the support of a global consulting firm with deep expertise in Wealth Management, we have begun to thoughtfully map out an ambitious growth strategy. It will leverage the firm’s national platform, scale, best-in-class advisors and better Wealth Management solutions to gain a greater share of wallet in the lucrative Wealth Management market.

The strategy will exercise -- the strategy will encompass validating our view of the external market and our capabilities, laying out the desired end state vision and value proposition to our advisors and their clients, and developing a multiyear execution roadmap. We intend to complete the review by the second quarter of 2021 and communicate the key elements of our plan to our shareholders, and in fact, everyone in the firm by midyear.

To help with the successful execution of our growth agenda, we’ve added high caliber talent to our Board and our senior leadership team. Joining the Board over the past several months are independent directors David Leith and Nathalie Bernier.

David brings over 25 years of investment banking depth, including significant mergers and acquisition expertise. He was most recently head of a large Canadian financial institutions investment and corporate banking division.

David is an accomplished executive and a highly respected and experienced corporate director. Nathalie is a seasoned executive with extensive experience transforming businesses and implementing innovative growth strategies.

As former CFO of the Public Sector Pensions Investment Board, she led the transformation of that forms five year strategy, which resulted in a 50% increase in net assets under management between 2019 and 2019 -- 2015 and 2019. And more recently, we announced that Tim Wilson will be joining our management team as Chief Financial Officer effective April 5, 2021.

Tim has a proven track record of delivering profitable growth and improving operational performance. We’re thrilled by the impact they’re already having in our business and look forward to introducing them to you at our upcoming AGM.

Other highlights at Richardson Wealth include, first, the Wealth Management reported recording, sorry, the world -- the Wealth Management segment reported record recording fee-based investment management income in the fourth quarter and full year 20202. Second, Richardson Wealth was named a great place to work for the third consecutive year, with 94% of advisors indicating they’re proud to tell others they work at the company.

Further 95% of advisors said, Richardson Wealth is a diverse and inclusive workplace. Third, Joseph Bakish in our Pointe Claire office in Quebec was named the Investment Industry Association in Canada’s top 40 -- top under 40 award recipient.

Fourth, several of our advisors were recognized by another Wealth Management publication as one of Canada’s top 50 advisors, with five recipients, the third most of any firm in Canada and more than any bank owned firm, Joseph Bakish, Marc Dalpé, Alexandra Horwood, Ida Khajadourian and Kyle Richie. Fifth, we entered into a strategic alliances with two of Canada’s leading independent firms Cormark Securities in June last year and healthcare specialist Bloom Burton just last month.

These alliances will help expand an already brought shelf a wealth solutions by providing advisors and their clients prefer access to research investment advice -- research investment ideas, new issues, investment funds and other investor events. The power of these strategic relationships is evidenced by a six-fold increase in the dollar value participation in the deals led by Cormark, a substantial increase in the number of transactions introduced to our firm by Cormark access to research on over 280 companies and their recent addition of real estate capabilities in response to demand from our advisors.

And finally, in preparing for an exciting new future we’re moving into soon to be constructed modern premises on Toronto’s waterfront in 2023. This new building will meet the highest standards in environmental sustainability and its design will be support -- will support collaboration, connection, an idea exchange, which best represents the future of work.

These successes and milestones bode well for our Wealth Management business in 2021 and beyond. With -- before I turn the floor over to Ben, I would like to acknowledge and thank him for assuming the Interim CFO role.

This will be Ben’s last conference call as CFO as he transitions the role to Tim over the coming months. Thank you, Ben.

Over to you now.

Thanks, Kish. Before I dive into the results, I want to highlight the Q4 and 2020 were periods of transformation and not reflective of our operating potential going forward.

They include costs and other one-time -- one-off items incurred to conclude a transformational wealth transaction. Further, under IFRS, our financial performance only consolidates the financial results of Richardson Wealth since our acquisition of the business on October 20th.

We reported net income from continuing operations of $40 million in the fourth quarter of 2020 and net income of $29.4 million for the full year 2020. Diluted earnings per share were $0.52 in Q4 and $0.26 for the full year.

The following one-time numbers impacted our Q4 and 2020 results. A $45.7 million accounting gain on investment in associate recorded in Q4 on completion of the Richardson Wealth transaction, $1.2 million of acquisition-related costs incurred in Q4 and $6.7 million incurred for full year 2020, and $2.6 million pretax in amortization of acquired intangibles recorded in Q4.

It is worth noting that under IFRS, these intangible assets will be amortized on a straight-line basis over their useful life, adding approximately $13 million pretax, $9.5 million after-tax and annual amortization expense. And Richardson Wealth also incurred $4.1 million and $7.1 million in Q4 and 2020, respectively, in one-time costs prior to its consolidation, with our proportionate share of those costs $1.4 million in Q4 and $2.4 million in 2020.

These costs were related to the accelerated vesting of RSUs in connection with the Richardson Wealth transaction and retention payments provided in shares rather than loans made largely under the recognition plan. These costs reduced our share of income from associates in their respective periods.

Let me now briefly comment on Richardson Wealth’s standalone results for the full year 2020, noting that our consolidated results only reflect their results commencing October 20th. At Richardson Wealth adjusted EBITDA was $43.54 million in 2020.

This was down from $50.3 million in 2019, largely due to lower interest income on cash balances, which decreased sharply following the 150-basis-point decrease in the prime rate in March 2020. Revenues were $268 million in 2020, including record investment management and fee income of $208 million.

This recurring and stable fee-based income represented 78% of total 2020 revenue. AUA grew by $1.7 billion to $30.3 billion in 2020, increasing 6% with 2019 and had a record high last month of $1.1 billion to start the year.

The path to arrive where we are today has certainly not been a straight line. It is involved everyone working together toward a common goal, united by a special culture that differentiates our firm.

Let’s now turn briefly to working capital. At the end of 2020, networking capital stood at $88 million.

This is after the $40 million substantial issuer bid, $33 million in retention payments, $2 million in preferred dividends and $1.2 million in acquisition related costs. We intend to deploy this amount to support and accelerate our growth initiatives.

Richardson Wealth’s strong financial performance, record fee income and more recently record AUA when combined with a strong balance sheet evidences that we have a solid foundation from which to be an ambitious attacker to drive profitable growth. Thank you to all my colleagues for your hard work and commitment to ensuring we are prepared for what promises to be a bright future.

Now I’ll turn it over to Kish for closing remarks.

Thanks, Ben. Before my closing remarks, I want to take the opportunity to thank Andrew Marsh, Richardson Wealth CEO and Elliot Muchnik, Richardson Wealth CFO for their outstanding service.

Both will be leaving the firm later this month. After 17 years at the firm including 11 SEO and have decided to step away from day-to-day operations move -- to move to the owners’ box.

Among his many accomplishments and grew AYA from $11 billion to just over $31 billion and oversaw several transactions including assisting me in consolidating Richardson Wealth under the public company. And was agreed to stay on in a consulting role for the next two years serving as an ambassador for Richardson Wealth, he also remains a significant and incredibly supportive shareholder.

Elliot has been Richardson Wealth CFO for the past 14 years. He built a strong finance organization, a strong team, always guided by -- and has always guided the firm to multiple transactions.

We respect both Andrew and Elliot’s personal decisions on behalf of the entire company. I thank Andrew and Elliot for their significant contributions to making Richardson Wealth the leader it is today, including being strong advocates for the firm’s advisors centric culture, commitment to provide exceptional client experience and promoting a work environment that has consistently ranked the company as a great place to work.

We intend to build on all these trends to unlock our full potential and I’m confident that our results in the coming quarters, not just our words, will inspire confidence in clients, advisors, shareholders and others who we -- others who we hope to attract to the firm. The Richardson name on the door signals a return to an era when the name on the door matter and the connection with its founder was a powerful draw for wealth fam -- for wealthy families and advisors alike.

Independent wealth managers were enjoying a renaissance of sorts across Canada and we believe our firm with a proven brand, scale and a national platform is well-positioned to capture a greater share of this lucrative market. So, stay tuned for more to come.

Please continue to be well and stay safe. I will now turn the back -- the call back to Rocco.

Thanks, Kish. That concludes our formal remarks this morning.

Operator, we are now ready to open the call to questions.

Hi, there. Good morning, everyone.

Good morning.

Good morning.

So Kish, obviously, a very busy time, continues to be busy for you as you start the year here and appreciate the commentary on reaching a broader strategic plan in the coming months. Maybe just in the short-term, what are some of the priorities you have?

I mean, clearly, there’s been some additions into the executive team and a bit of change over happening there. Maybe give us a bit of color on how that’s going?

What the status is there? And maybe some other areas you might be focusing on such as marketing?

Right. So, I mean, first of all, thank you for the questions.

Our -- the consulting program or the consulting contract that we have with this international consulting firm will be completed by sometime at the end of this month, somewhere around March 20th to 25th. And we hope to announce the results of that plan and direction at our AGM, which will be sometime early in the spring.

I think it’s scheduled right now for April the 29th. So that’s when we will roll out the message externally and internally as to what our one-year and five-year plans are.

And in fact, that will detail out all of our key priorities. As to what we’ve been working on, we’ve canvassed the input of all our advisors across the country over the last several months.

They have engaged in discussions with the consulting firm. They have provided input to our Board of Directors.

We have been reaching out to external players to gather insights and data as to how to position our company for success. We’ve been actively engaged and talking to people who are recruits or advisors at other firms would now like to join us given the uncertainties behind us.

So that is an act of engagement today and a very much a priority in telling that story. We have started reaching out to some targets that we think are like minded firms that would be great additions to our capital and these are very early stage discussions, so more to come on that in the next several quarters.

And in terms of our priorities other than having added David Leith and Nathalie Bernier to our Board. We have been working on a Tim.

Of course, Tim Wilson has now joined our team. He starts April the 5th, coming to us from EQ Bank where he was there for nine years and a tremendous track record there.

We are looking at now consolidating our companies. We are a public company and a clearing broker, introducing broker into one functional management team, that functional management team and how it will look and feel to both the internal audience, external audience, we will announce that by the end of March.

I’m actually very close to that decision. And some of the other things that we’re working on, we’re working on with a -- aside from our very strong relationship with Bloom Burton now and Cormark, a very active engagement with our advisors and our clients receiving, both an introduction to new opportunities in the new issue market, access to research.

We are partnering with other firms that -- we are starting the discussions with firms that have deep, deep expertise in the insurance area. That relationship probably will take us another two months to cement and when we do, we think that we’ll be able to expand what we provide to a high net worth clients.

We’re also working with a firm that is going to give us access to effectively a digital universe, which has 3.2 million people in that digital universe that wants to engage in conversations about Wealth Management activities with our advisors, gives us an opportunity to get or at least certainly for our advisors a prospective new clients. We also think that that is an ideal forum for us to start marketing our brand and telling our story.

So there’s a variety of things. I’ve sort of listed a short few.

But I think at our AGM, we will have a fairly comprehensive view of all of our work streams to now go out and aggressively pursue an implement our strategy.

Great. That’s great color.

Thanks. And then, obviously, a nice story here has been the growth in the AUA, as you highlighted, and I guess, in part here helped out a bit by what’s been happening in the markets.

Can you offer up any color here in terms of what you’re hearing or seeing from clients? Are you seeing some incremental client inflows versus the benefits from the -- of the markets rising?

Any sort of color you could offer there?

And I think that we mentioned in our comments for the last five months, the portfolios have grown by $3.6 billion and a big part of that was market, but there was also $1 billion of new recruits in new assets that came in through that five-month period. So that’s very strong activity supported by engagement by our clients and our advisors, but also by the market.

So good strong momentum, and I would say to you that we have been very active in the, obviously, the markets have been very strong. So we’ve had a tremendous new issue activity in both January in February and we’re participating in all that.

Great. And then, I guess, from financial capacity perspective, I think, the net working capital is $88 million in the quarter.

You had previously articulated the cash available to deploy and to do investments in the firm either acquisitive or building out your platform. Are you able to provide that number and then maybe speak about the ability to layer on some expensive data if you wanted to?

I’ll take that one, Jeff. So we do need working capital in our carrying broker business and we think we can run that out of $40 million of working capital.

So there is then $48 million remaining to deploy. In respect of, we are looking, we do have a $67 million facility in Richardson Wealth and we are looking at moving that up into a public entity and out of that regulated entity.

And we may very well add on to that as well to provide us additional capital.

Yeah. I think just adding to that, our present mindset is to look to add another $40 million to our debt facility there.

And mostly that debt facility will be used specifically for recruiting and acquisition activities. And some of which I think may be deployed towards investment in our platform, which I think is a very important thing.

But we think we have enough resources here to invest in our platform, for example, something that is critically important to our advisors is an investment in our portfolio management platform. We announced the decision that we will engage in that initiative with -- it is an 18-month initiative.

It’ll cost us about $6 million to $7 million and we committed resources to that. And there’s a number of other things that they’ve highlighted for us.

But we think we have adequate resources to continue to, in fact, prioritize investment in our platform.

Right. And then maybe a few more accounting focused ones here.

Ben, maybe just help me, with the advisor incentives that were part of the transaction, the $36 million there. How does that get accounted for?

Is it tucked somewhere on your balance sheet today or how should we sort of think about where that sits in the business?

Yeah. So there was $36 million of retention awards provided, approximately it was $3 million of that, Jeff, was provided in shares and that’s part of the accelerated expense that was taken prior to the deal closing.

So there’s about $33 million leftover and that is sitting in our advisor loans and will be amortized over the next three years on a straight-line basis.

Okay. That’s helpful.

Thank you. And then the other question here, appreciate the pro forma or sort of the supplemental information on the wealth manager that you put in your press release there.

I guess the one thing I try to understand out of that is, I believe in those supplemental details. In that expense bucket, there was some expenses associated with the clearing, which now would be in your corporate and get eliminated.

So in the numbers you gave there in that supplemental would that still include, say, a couple million bucks of clearing related expense that might fall away from that segment?

Exactly. The way that it will work, Jeff, the Richardson Wealth segment will stay status quo.

What you’ll actually see as the Operations Clearing segment, you’re going to see both a reduction in revenues and expenses in that segment to account for the fact of the intercompany transactions. And just to make you aware, for the first 10 months of 2020 in our Operations Clearing segment, there’s about $12 million of intercompany amounts, both on the revenue and expense side.

Okay. That’s helpful.

Thank you. That’s really it.

I mean, I guess, the one other thing I did notice is that, the other revenues certainly moved up nicely for you. I’m guessing, is that sort of deal conditions just with the market activity being strong for the end of the year and others are bit of supplementary sort of items in there, like, insurance sales and things that go in that number too, but it was -- it really just sort of commission revenue to begin to push that other bucket higher?

I don’t know we have the answer. But we should get back to Jeff on that.

Okay. Okay.

I will come back [ph].

Sure. No.

Appreciate it. Okay.

I think that’s all I had. Thank you.

Yeah. And Jeff, just to finish off on those numbers, that you will see that in the coming quarters, we are looking to probably change our segmented reporting to report just everything under Richardson Wealth, one segment, and from an operating point of view in our Corporate segment.

And that will make evaluating our operating performance much easier going forward. Because I think, when you look at 2020, we had Richardson Wealth was only included for two months of those results.

But now you will -- starting January 1, 2021, you will start seeing full operating performance of Richardson Wealth in our results. So we thought the best way to do that is to move to two segments easier to understand our results.

Okay. Great.

Helpful. Thank you.

Okay. Thanks for that.

Thank you, Operator, and thanks, everyone, for joining us today. As always, please feel free to reach out to Investor Relations, if you have any further questions.

Have a great day and a great weekend.