IGM Financial Inc.

Murray Taylor - Co-President & CEO Jeff Carney - President & CEO, McKenzie and Co-President & CEO, IGM Financial

Gary Ho - Desjardins Capital Management Geoff Kwan - RBC Capital Markets Tom MacKinnon - BMO Capital Scott Chan - Canaccord Genuity Paul Holden - CIBC Graham Ryding - TD Securities

Thank you and good afternoon. I'm Murray Taylor, President and CEO of Investors Group and Co-President and CEO of IGM Financial.

I'm joined by Jeff Carney, President and CEO of McKenzie and Co-President and CEO of IGM Financial, as well as Kevin Regan, Executive Vice President and CFO of IGM Financial. As you go through the material, I would point out our caution concerning forward-looking statements.

Also, our page on non-IFRS financial measures and additional IFRS financial measures. We've noted one particular line, in terms of our operating earnings and an adjustment to net earnings that we will talk about later in the presentation.

I will then turn your attention to slide 5 and this is a list of various public announcements we've made in the course of the quarter and in relation to our announcements of earnings today. I then take you to slide 7 for our IGM Financial earnings highlights.

We've reported operating earnings of CAD208.1 million for the fourth quarter of 2014. Our operating earnings per share have increased 5.1% to CAD0.83 over the same period the year before.

I'd also point out that earlier today, the Board declared a dividend of CAD0.5625, maintaining the level of dividend. This represents about a 4.8% yield based on yesterday's close.

On slide 8, you can see a summary of gross sales and I would point you to CAD15.2 billion of gross sales across the company for the year. Slide 9 looks at net sales and we had positive CAD636 million net sales for the year in mutual funds.

On slide 10, you can see that our assets under management increased by 7.1% during 2014, to CAD126 billion. On slide 11, you can see a sense of the Canadian mutual fund industry, how it's grown through the years and how various indices were operating during the fourth quarter and since.

I'd also point out the little chart on the bottom right corner. This tracks the perspectives that investors may have of the Canadian equity market over several periods of time, 1, 3, 5 and 10 years.

And you can see that each of these numbers is very appropriate and respectable, in light of long term investing. And in particular, the 1 year and 3 year numbers, at 10.6% and 10.2% respectively.

Slide 12 shows industry sales levels and you can see the highlighted box and gross sales for the 12 month period, the entire 2014 year, up substantially, 6.7% in the advice channel, 9.7% in the deposit takers, 10% overall. Slide 13 shows asset mix choices and you can see, for a sustained period of time here, a strong amount of cash flow into balanced and also foreign equity, during the period highlighted by the boxes.

Slide 14, wanted to just keep you aware of developments in the regulatory and research areas. As I think we're all familiar, CRM2 has been proclaimed.

We talked about it a little bit in the last call. Since that time, the Investment Industry Association of Canada had asked for certain extensions to some of the deadlines.

The CSA granted some extension of deadlines in the 2015 period, but not the end state in 2016. I would just like to confirm to you that all IGM subsidiaries will meet all deadlines and remind you that Investor's Group will add performance reporting, rate of return reporting, for most clients' statements on June 30 of this year, 2 years ahead of the requirements under CRM2.

Also under the CSA discussion topic, Doug Cumming has been engaged by the CSA to do research on behalf of the securities regulators in the whole area of mutual fund cash flows. There was a data request and requirement of companies to provide data by January 16 of 2015 and all IGM subsidiaries had the information in by that time.

The CSA have indicated that they will take the outcome of that research and it will influence their views on future regulation and they will give some comment around those aspects later in 2015. Also earlier this week, McKenzie & company issued a very good and extensive report on retirement readiness in Canada.

They observed that 83% of households are on track to maintain their standard of living in retirement and 17% are not, but tend to be in the mid to high income areas where they have not saved enough. They go on to say, one of the principles of McKenzie, that those who have built a financial plan know, but those who we surveyed who do not have a financial plan, usually don't know how much they will have in retirement and one of the reasons that Canadians are so ready for retirement is the impact of financial advice in Canada.

And obviously, more financial advice is only going to be helpful for those who need to save more. Slide 15, you can see that the average mutual fund assets under management at IGM were up 8.7% during the fourth quarter, compared to the year before.

Slide 16, you can see that our average assets in mutual funds was CAD124.6 billion and total assets CAD140.1 billion. Our operating earnings on Page 17 were up 4.7% to CAD208.1 million from the prior year.

And page 18, our earnings per share at CAD0.83, up 5.1%. Now let me turn to investors group.

Page 20, very pleased to announce another continuous quarter of growth. We saw our consultant network increase 134 and that for the year added up to 472.

One of the strongest years we've had in many, many years and a very good testament to the growth and momentum that is building and is continuing within the company. Slide 21, you can see that our gross sales for the year were up close to 12% and for the quarter up 8.6%, strong growth in the environment that we were in and slide 22, you can see that our annualized redemption rate has come down to 8.7%.

The fourth-quarter redemption rate annualized alone was down to 8.1% and so we're seeing very good movement there, in terms of lowering redemption rates. Slide 23 shows you net sales.

And for the quarter, we were up CAD135 million to the same period last year and for the year, up CAD492 million, to CAD651 million. Slide 24 gives you a sense of momentum.

These are trackings of our 12 month trailing gross sales, redemption rate in green and redemptions in red. And you can see that the escalation up to the upward corner of gross sales, you can see the declines in our long-term redemption rate.

And of course, with fairly strong markets through this period, a stabilizing of our actual redemptions in red. Slide 25 summarizes our overall client rate of return experience.

You can see that the median return for the fourth quarter was 1.1%, during a period of some volatility. And for the year, was 7%, compared to the prior strong year of 12.2%.

Both very, very good results and of course, a range of results, depending on clients' risk orientation. Also, just remind you and point out that investors group will be adding specific rate of return information to our client statements in the middle of this year.

It will display 1, 3, 5 year and some 5 year plus data and that will be done on every quarterly statement thereafter. On Slide 26, we have repeated an up-to-date information on the client survey results that we introduced in 2014.

You can see, again, that these numbers are extremely positive and speak to the high satisfaction level of both new clients and existing clients, with the services provided by their consultants. Page 27 shows you the tracking of our insurance sales and our mortgage growth through the year.

Slide 28 gives you our assets under management, at an average balance of CAD72.5 billion during the fourth quarter. Slide 29 gives you earnings before interest and taxes, increasing by 4.3% during Q4 and we get into a bit of a detail around that on page 30.

My comments on page 30 would begin right at the top, by pointing out that our assets under management for the period grew about 9% and you can see that our combination of management fees and administration fees grew by 8.3%, very closely aligned with that level of asset growth. Our distribution fees were down 9.5% and there's really two components of this.

Our insurance sales were a little lower in the fourth quarter this year than the prior year and also, redemptions were down and hence redemption fees were down, lowering that number. And then you can see net investment income and other up substantially this time.

This all relates to our mortgage activities. We had a fair number of gains on sale, in terms of how we were funding during the period.

This resulted in a higher amount of earnings during the fourth quarter of 2014. If we go into the expense areas, I'd like to comment on the commission line.

The other commissions are influenced significantly by the new program we introduced for consultants. This program was announced towards the end of 2013, has come into its own during 2014, has been very successful.

And it has led to a higher level of income provided to our consultants in their first couple years and speaks to much of the variance there. Then, if I can comment on non-commission expenses, as we've been mentioning throughout the year, we have intentionally been seizing upon the growth and momentum we have seen in the business and the opportunities in front of us.

We have been expanding our consultant network. We've been increasing our investment management capabilities.

We've been increasing our advertising. We've been doing other things to develop business and increasing our sub-advisory costs, as we've been using other companies to supplement our own investment management capabilities.

I would also point out that, compared to Q3, the rate of change to the prior year is less, at 8.5%, as we had suggested it would be, and I wanted to just make that known. We go to page 31, I'd like to talk about the theme of competitive value and pricing.

Investors group provides comprehensive planning to our clients. We do that through our consultant network.

And as I displayed by the client service or survey results, we're extremely well thought of. We provide a very high value in all that we're doing.

But if we reflect back over the last few years, in 2012, investors group increased client value through reduced pricing, for most of our mutual funds, as you will recall. And we introduced, at the same time, some differentiated pricing for households with more than 500,000.

Those came out as Series J in 2012 and Series U in 2013 and we've listed on this page just a summary of the asset numbers, the significant growth we've seen in both Series J and U. J up 50% during the year to CAD12 billion, U up substantially from its onset, to CAD1.5 billion by the end of the year.

We have decided that all clients should be benefiting from the lower price series. We had seen a significant and a majority, of clients eligible, moving over to these lower price series.

But we have decided to provide to clients a distribution which will be made in the last half of 2015 that would provide the same level of pricing to them as if they had moved when they were first eligible. And that will be calculated after April 30 of this year, for that period of time.

The after-tax impact of both distributions and other related costs are going to be CAD59.2 million and that was very clearly set out in our press release around our earnings earlier today. Now we've also provided information in our MD&A that points out the fact that, by moving ahead on this and accelerating the timing of clients moving into these lower price series, it will have the impact of approximately 4 basis points on our AUM, beginning in the first quarter of 2015.

This is an acceleration of a rate of change that was already underway. And we do make the observation in the MD&A that that was at the pace of about 2 basis points per year.

And so this is really accelerating the move to that level and then we would expect to see, of course, a more stable pattern at that level, going forward. If we go to slide 32, you can see a summary of a number of the things I've mentioned.

Very strong growth, as I've highlighted, to a record high of 5145. We broke through the 5000 number earlier in the year and we're very pleased to see the continued growth.

In the sales area, we've had very strong gross sales, a record year, a record third quarter and fourth quarter. But also a record July 2014, followed by every single month since then, including January of 2015.

These were the best sales numbers in the history of the company for those particular months. We've seen strong mutual fund assets under management to January 31.

We had a record month end high of CAD74.6 billion and we've seen continued growth in that asset level through February. We introduced two new funds, investors U.S.

dividend registered fund. This is a fund so that individuals can invest in the U.S.

with registered money and not have to worry about a haircut, in terms of their dividends coming back into Canada. And then also the Allegro income balance portfolio class.

And as I've mentioned, investors group is very well positioned to thrive under CRM2, our high quality and consultant value proposition, our early introduction of personalized rates of return for 5 years plus and our history of ongoing support for our consultant network, we feel we will thrive and grow and see very strong momentum, as we move through that period over the next couple of years. On that note, I'm going to turn things over to Jeff Carney to talk to you about McKenzie.

Thank you, Murray. Please turn to page 34 and I'll start my comments on our mutual fund gross sales.

In the context of a soft quarter for the advice channel, McKenzie's mutual fund gross sales were down slightly, to CAD1.5 billion, for the fourth quarter. And excluding a favorable institutional re-balance transaction during Q4 2013 and a net redemption from a third-party investment program during Q4 2014.

Turning to slide 35, we continue to experience sales momentum in our balance funds which is includes our symmetry managed asset program which we're very pleased to see. Turning to slide 36, McKenzie continued to see improvements in our redemption rate on our long-term mutual funds, declining to 14% at December 31, 2014 and that's relative to our 14.3% last quarter.

This represents the lowest redemption rate since Q4 2007. Turning to slide 37, for full year 2014, McKenzie experienced positive mutual fund sales of -- net sales of CAD13 million, an increase of CAD658 million relative to 2013 and our best annual mutual fund net sales since 2007.

Turning to slide 38, McKenzie has experienced strong sales momentum during 2013 and 2014 and achieved significant improvements in our net sales, as you can see on the slide. As mentioned, gross sales momentum has slowed, similar to the advice channel of the industry, in relation to the market volatility.

Turning to slide 39, McKenzie's risk adjusted performance, as measured by Morningstar, continues to be very compelling, with 74% of our mutual funds and 71% of our assets rated three stars or better. Morningstar ratings are based on 3, 5 and 10 year risk adjusted returns.

Turning to slide 40. McKenzie had solid 3, 5 and 10 year investment performance, with 50% or more of our assets rated in the top two performance quartiles.

Our one year performance has been impacted by many of McKenzie's investment solutions that are focused on long term, risk adjusted out-performance, with lower volatility. And relative performance was affected during the bull market.

However, McKenzie's relative investment performance improved during the fourth quarter. Turning to slide 41.

McKenzie had institutional net sales of CAD265 million during the fourth quarter of 2014 and that's an improvement of CAD455 million from 2013, excluding a tactical rebalancing and other transactions. For the full year of 2014, McKenzie had institutional net sales of CAD1.1 billion, excluding tactical rebalancing transactions, an improvement of CAD1.3 billion relative to 2013.

The reference tactical re-balances were on mandates advised by McKenzie within the discretionary program of an institutional client. Turning to Slide 42 and our assets under management.

McKenzie's AUM increased by 7.7% relative to the same quarter last year and average total assets under management were 8.2% higher, compared to last year. Turning to slide 43, our McKenzie's operating earnings before interest and taxes were CAD53 million during the fourth quarter and we can get into more detail on that in slide 44.

So let me make a few comments on our operating earnings. Our management fees increased by 4% which was lower than the increase in the average AUM, due to a change in the composition of our assets under management and the pricing changes made to our retail mutual funds which became effective on September 29, 2014.

The impact of the retail price changes on management fees was CAD2 million and the impact on administration fees was CAD1.2 million. Our net investment income and other flex investment returns on C Capital which you'll see, were CAD3.8 million during Q4 2013 and we had slight losses on C Capital during Q4 2014.

Non-commission expenses increased by 17.6% relative to 2013. And as I mentioned on our last call, I expect the non-commission expenses to average CAD70 million per quarter during 2014, or approximately CAD280 million for the full year.

We ended up coming in at CAD281 million which is in line with the expectations we had. I'd highlight that CAD5 million of Q4's non-commission expense reflects CAD3 million of one-time expenses and other expense increases are timing.

As I've described previously, 2014 was a big year for us in investing in our business and the strategies I articulated to you in the past. We expect to be benefiting from these investments in 2015 and beyond.

But for the full year 2015, I expect the growth in non-commission expenses to moderate somewhat. I anticipate McKenzie's year-over-year expense increases in 2015 to be somewhat lower than the 6.3% increase we saw this year.

As you would expect, there will continue to be some seasonality in this throughout the year, particularly as it relates to the RSP season. Turning to McKenzie developments, during 2014, McKenzie experienced its highest level of long term mutual fund gross sales since 2006.

At the end of January, our McKenzie mutual fund assets under management reached an all-time high of CAD50.3 billion. We also announced the appointment of Todd Mattina as our Chief Economist and Strategist and he will be working very closely with our asset allocation team.

He joins us from the international monetary fund, where he was Deputy Division Chief and brings incredible insights and important insights for advisors, as we go forward. We also had Ashley Mesquita join us to lead our McKenzie Growth Team, our U.S.

growth class product. He joined us on November 18, as our Lead Portfolio Manager.

Ashley joins us from Invesco. McKenzie has been proactive in the marketplace in supporting financial advisors around the CRM2 disclosure rules.

We've been doing that for the last few years and we're constantly having active dialogues with advisors, to arm them with what they need to be successful. And as I've said in the past, we really think -- believe that that starts the foundation around a strong financial plan and deeply understanding what your clients are trying to achieve with their wealth.

During December, McKenzie also launched three innovative investment products to address investors' needs to manage longevity, income, volatility and inflation. These new products, one of them is our first foray into absolute return and testing, with our McKenzie unconstrained fixed income fund.

It's very difficult to call these products what they are in our regulatory environment, but unconstrained fixed income is an absolute return product. We then utilized that capability in the launch of two monthly income portfolios that are targeted at retirement income, using Alain Bergeron and his team's skill set and broader base of tools to work with, when it comes to the assets they are utilizing within these portfolios, to deliver long-term risk adjusted returns and meet the needs of retirees.

And that concludes my remarks. So operator, I'll turn it over to you to open the phones for questions.

Murray just on a decision to provide the distribution to clients, just trying to get a sense of why now and what prompted Management to do this?

Sure. We've introduced this a couple years ago.

we had an amazing success in our high net worth markets. We've been examining everything that we're doing in those areas.

We're also very conscience of competitive actions and how this feels as of course becoming more and more competitive and we felt we wanted to move ahead on this basis and we wanted to do it now and we already have a majority of our clients based on their assets in these lower priced series and we wanted to accelerate that process further and faster and it was on that basis that we decided to move ahead.

Okay and then just maybe a follow on to that. Why the decision to do this retroactively and not perspectively?

Was there something that prompted you to do that?

Well I think as we looked at the overall circumstance of our clients through this period of time, we wanted to provide them with this added value and move ahead on the basis that they would have been there for that period of time when they were eligible. We clearly evaluated all considerations as we looked at that and decided that that was the move we wanted to take.

It's a bold move and it's intended to be and we feel that it will arm our consultant network with a very strong position. It positions us with all of our clients very, very positively for the future and we feel it's a very strong position to take on the topic of pricing in that space.

And so why wouldn't the clients have moved over after they become eligible? Like why wouldn't they have made that switch?

We provided as a separate series. We provided it as an opportunity that was available to clients.

We informed our consultant network of course in terms of those choices and through the course of time, we actually did have a pretty good movement over half our clients over a couple of years moved over to those series so there was a significant amount of movement but as I pointed out we wanted to accelerate that movement and we wanted to do that on the basis of putting them in the same position they would have been in had they moved when they were eligible.

Okay and then just wanted to dig deeper on the McKenzie side. There's been a lot of rebalancing noise over the past couple quarters, so excluding this how do you guys view net sales and what are the things that you think can improve on to take that higher?

Is it distribution, is it performance, is it on the product side? Just want to hear your thoughts on that.

Thanks.

Yes, yes and yes. At the macro level obviously, I think I'm for about 18 months we've started implementing a new strategy about 12 months ago.

I brought in a new leadership team. They've brought in people under them.

We've brought insignificant investment talents, we have four new team leads. We have four to five different areas of our investment organization.

We've invested in increased advertising and we've invested in sponsoring in Canada, we've done repricing of our product line up and our platforms to be more competitive when it comes to pricing and I can go on and on and on so we've done a series of initiatives and investments in 2014 that are going to serve us well for 15 and beyond and obviously those things don't turn overnight. The feedback that we're getting from the market whether that's advisors, head offices or anyone we saw industry pundits is that McKenzie is back, that people are paying attention to us again and they are really intrigued by the moves we're making and excited about the new products we've launched, intrigued by the talent that we're attracting to the organization but obviously all of those things take money to make it happen and then how fast do you get the payback on that.

We had a great start to the year in 2015 and the markets were in good shape and particularly global equities were in favor, we're the biggest player in that space. We have great capabilities and in the fourth quarter we ran into a bit of a wall from a market volatility standpoint.

We also had some performance challenges in our two biggest funds. One of those has already been upgraded back to where it was but when you have volatility in the market and you have some performance issues in the quarter, people notice that and I think there was just a slight away from global equities.

The market as a whole was down 2%, we were down seven plus and but we're the biggest player so when you're the biggest player and you go down seven it has a big impact on your sales momentum so I view that as a short-term blip because these products have been around forever and the talent is excellent and we expect to see that money coming back more in favor. That said we had great sales in our asset allocation products.

We had strong year in our fixed income products and we have a very diverse product that allows us to participate in any markets and continue to grow. We launched new products that are garnering a lot of assets particularly in fixed income and their floating rate capabilities and I mentioned that we launched three new products that are starting to gain assets so we feel very good about where we're and we're coming to work every day to continue to improve on that value proposition and be more competitive in the market.

Just wanted to get to see if you could provide some color on the net sales so far in Q1. I know it's probably a little bitterly to talk about the impact of RSP, but wanted a sense of what you're seeing, what advisors you're buying and how does it feel whether you're looking at it on a year-over-year basis?

I'll start on that. From an investors group point of view of course we released our January results, our January results are the best in the history of the company.

We see that continued momentum going along. February I would say is also very strong.

We wouldn't give a lot more guidance than that at this point but we're very, very pleased with our continued sales activity in through February and on the redemption side again, we've been seeing a low redemption rate as I pointed out, our 12 month rate came down in 2014 but the leading edge of that the fourth quarter was even better than that and so we're seeing continued good exposure there. And so those two things combined of course will lead to net sales and so we're pretty optimistic.

And perhaps was January was a little slow. Everything I've heard from people I talked to was that it was a slower January.

So I think Murray took all of the share for everybody which is great and we're seeing a pickup in February so we're hopefully going to continue to see that momentum build through the RSP season.

And then Jeff on the institutional side of the business, you've had a few good quarters, the business seems like it's definitely improving. Are there certain in terms of looking ahead at 2015 some of the stuff that you guys are working on to try and kind of build on that momentum?

Yes, it was a big year, net 1.2 billion a lot came from institutional. We see that momentum continuing to build and feel good about that and it's really the partners that we work with are growing and as they grow and their assets grow, that certainly helps us and then we're trying to increase our share of those relationships as well so that's really what's played out in 2013 when it's just the growth of the partners that we work with.

Okay and then just one last question, again Jeff, on the retail side. When I take a look at it as you've got I think one fund family that's had some relative under performance and the flows have not been that great but outside of that performance has been arguably pretty good and the flows have been good there.

Just wanted to get your comments on what you can do to maybe address some of those flow issues and then also can you have a situation where the rest of those other funds can maybe kind of outweigh the near term or short-term redemptions to kind of improve the overall net sales picture?

I'm really excited about what's happening in my distribution organization, so I think I'd mentioned in the past that Brian took over that organization probably 10 months ago and he brought in his new team. They are, they've made significant changes in our wholesalers, so we've got now 37 teams of which a number of those are new teams combined with the great talent that we already had and so we're increasing that number of teams we had had as well as the quality of those teams but more importantly, everything that you want a wholesaler to be really good at we're implementing.

They're going back to college and getting a deep dive into their product knowledge and they're getting sales skills, how to acquire new advisors all of those things and I would expect the significant productivity increased throughout 2015, just by the leadership and the process that that teams put in place with Brian and Damon to accelerate our growth and then we're being much more strategic on where we spend our scarce resources in that space and making sure that we're falling on the right advisors at the right time to create those opportunities so I could go on all day about the changes we're making but I could tell you that that organization is built for long term success. And the other encouraging number I'll just give you is we did launch our new digital capability on our website which is the market leading site on the industry and we've had significant increase insight traffic we're up over 20% in traffic and that's a good leading indicator of future sales.

It increased again in December by another 12% versus the month before in November. Our content consumption is up 31% so that's great and then we launched Live It which is our brand sort of advertising campaign and then we're launching products underneath that branding, but we had 85,000 visitors to the Live It site which is pretty amazing and that would be individual investors as well as advisors and there were 7000 downloads of information from that site that we're providing as thought leadership pieces and insights that advisors and individuals can use as part of their managing their financial wealth, so all of those are very good leading indicators of positive momentum that's building in our model and we have to make sure we deliver that in the sales results and that's what we're planning to do.

Murray I've just got a question with respect or a couple questions with respect to the distribution on Slide 31. This offering, has it been closed or is it still open up until April 30th and if so, would that 59 million number actually increase and what impact would that have on the 4 bps that you're signaling?

Sure. Well let me clarify.

The 59.2 is an accrual up to December 31 only, so although the actual distribution to clients will be measured and calculated up to April 30, the amount that we've taken accrued and publicly disclosed here goes up to December 31, so any further amount that will be included forms part of that four basis points that I referred to in terms of the sub period of between January 1 and April 15 or first quarter of the year and so forth so it's a combination of the continued amount to the investors who qualify throughout that period as well as the movements of people over. Now if people move over on January 15, of course they are only getting the distribution for the period they were eligible where they were not in the Series A or U so for them the payment will be calculated up until January 15 so it's not doubling up in any way but hopefully that clarifies your question.

Well as I understand the offering, you would be able to top them up for any of the fees they would have I guess any of the benefit up until the time they came in, so if this offering is still open until the 30th, you could get more people in; is that correct and you could take another charge in the first quarter, am I thinking of that right?

No, no. Let me, so December 31 takes us up to the past and we'll have more of what I call a run rate cost going forward and if you imagine for a moment that everybody moved over on January 1 what would that impact be on margins?

And we're saying the impact on margin would be the four basis points they spoke of so whether they move over January 1 or whether they don't move over until April some time either way it's the same amount. One will be in the form of them enjoying lower fees on their series because they moved over on January 1 or if they move over on April 15, then there will be an amount that's paid to them and charged through at that time.

Okay so it sounds like the amount that the number of people that can move over has already been set, it's just whether they move over December 31 or April 30, am I reading that correctly?

Set might be a strong term because of course there's variations in asset amounts and cash flows and so forth that could happen of course and I mean this is an ongoing series right? So people are moving over to invest in this way for the future and it's a huge growth area for us and so it's simply a matter of in what way we deliver the lower fee to them during this period of time between January 1st and April 30th.

Okay, but could you get a substantial number of new entrants moving over between December 31st and April 30th that isn't accrued in the 59 million?

Not sure I understand the question because you either were eligible or you weren't. There is no way to create, like you either--

If you're eligible and you declined, was there a cutoff date as terms if you are eligible could you actually still come in and you're not involved and you're not as part of that 59 million?

Let me back it up here. If you're eligible at any point prior to April 30th, of 2015, you are going to be getting a distribution, period, full stop, You’re eligible.

I understand. Not an election.

Yes.

Okay. I think that's clear then.

Okay thanks for that, sorry.

Yes, sorry Murray just a follow-up on that question. So the 4 bps, that's going to be for Q1, not starting after Q1, like January 1st?

Think of it as starting January 1.

January 1st and so if you just go back to Tom's question you should know how many potential other accounts have over 500,000 in terms of any potential other people that you have to retroactively put back?

Yes. I'm trying to understand the question.

I'm just trying to think maybe the 4 bps like is there going to be more of an impact after April 20th just on this isolated event or is the 4 bps taking into consideration of what you guys think is the total Series J&U, that people are eligible to go into those products.

4 bps is our indication of what we think that's going to be with the full some of knowledge that you would think we would have or that you're suggesting we have. Obviously into the future, one will if this part of our business grows at twice the pace that the rest of our business, it may become more than 4 bps two years from now you know?

But that's our indicative amount at this point and then of course as I said and just want to repeat, we will not be having the annual two beeps reductions that we've been seeing for the last couple of years as people have been migrating over so we're doing the full migration basically and then we'll experience a more stable environment going forward.

Okay and just last Conference Call, Murray, you talked about a lot about the regulatory environment and what you thought of trailer fees. We have one of your competitors yesterday State that they think that there will be a bend in trailer fees and that it could be coming sooner which is a different tune I guess from last quarter.

Has anything changed quarter-over-quarter from your perspective or Jim's perspective in terms of potential regulatory change?

Not really. The fountain of knowledge or the fountain of information that anyone I've talked to who says that they believe there's going to be a ban and so forth, it all goes back to one document which was published by the CSA in December of 2012 and that one document laid out seven possible options that could be pursued by regulation in Canada.

This was the document 81401 called Mutual Fund fees the discussion paper and because there's been so much conversation that's ensued because of that document and because the CSA continued to do research so the research I spoke of here that Doug Cumming from York University and so forth is going to inform that and there could well be changes in the future. So this isn't to say there won't be, but we're not expecting largely dramatic changes and we would expect a conversation, they would put out ideas, proposals, thoughts by regulation, they have to get feedback to those spots before they move on to regulation and so to that conversation there continues to be speculation but I've not seen or heard any credible source that has suggested there's been any change of mind so the rumors, the ideas, the possibilities continue to exist but to your specific question no I've not heard of any specific information that would lead me to a different conclusion.

So first question both for Murray and for Jeff is just related to the investments you'd be making in your business and Jeff you gave some specific guidance on 2015 but what I want to contemplate is the scenario where maybe asset growth is not what we would commonly assume markets have been pretty choppy here so would it be a stretch to say maybe asset growth is lower than what we generally assume in that situation, would you bring costs down to maintain margins or you're more I want to pile ahead with investments for future growth.

Well I gave up long ago trying to figure out what the market will do so we take a long term view, our Board takes a long term view on investments so we're investing in the long term strategy of Mackenzie right now and I have the full confidence of the Board to continue to do that, if the markets, if the Board and we came to a conclusion there was a long term impact on the markets that we felt was going to stabilize the environment for the next three to five years we would probably have a different conversation but the reality is that we watch those things very closely and our increases in our cost base are very low and relative to overall business.

And Murray do you have any different thoughts in terms of your investments in the business for 2015?

I offer a couple observations to that. Yes we've seen volatility.

Yes we've seen choppy but our sales activity and our asset growth is at an unprecedented sense of momentum. So we do have a lot of strength and it's strength in both the growth of our consultant network, it's strength in the sales environment and strength in asset growth.

So from those points of view, anything can happen in the future with valuations of course in terms of the asset values of our holdings and the collective value of our assets through the year because of the market but clearly from where things are moving right now, I'm pretty optimistic in terms of 2015. Having said that, there are some expenses that we've talked about where we consciously increase the game and some of those will annualize into 2016.

Some of those are very good investments in the growth of our distribution network and again, with the full support of our Board we're going to continue to move ahead on those. So I don't see our expense levels radically increasing and compounding from levels in the past but certainly we're going to see some of that annualization happening and I would guide you that the kind of increase you're seeing year-over-year from us in the fourth quarter, we're going to see that emerge because of annual it station as we go into 2015.

Okay and then Murray, not to beat a dead horse but I have a couple questions for you on this switch over for your high net worth clients, just to be clear. Is it going to be automatic say as of May 1st that every household with over 500,000 will now be in a lower fee product or do you still need the consultants to make sure that the clients switch over into the different fund series?

Sure. It's not going to be automatic from a system point of view but what is going to happen is that the way in which we monitor all transactions will be enhanced with an immediate review process and so through our compliance mechanisms we have announced to our consultant network beginning on April 30th, it's our expectation that all clients who qualify are moved into that lower price series and so we will have those mechanisms to ensure that it happens.

And then you said one of the decisions you made to pay the fee rate base to your clients was competitive actions, so what we're seeing on the competitive front is some firm sort of bring down their minimum thresholds for high net worth fee discounting. Is that something you've given some thought to?

Is there the possibility of seeing it come down below that 500,000 threshold in the future?

No we’re not contemplating that. It is a household test.

Many are, not all and so I would point that out. Furthermore, the way in which we look at the business and perhaps the number of our competitors is slightly different.

We tend to have a fairly high wallet share and many of our competitors are hoping to get a 15% or 20% slice of the wallet through independent advisors and so if your target client is a client over 500,000 but you don't expect to get 50% or 80% or 90% of their financial assets then by definition to compete against us, you have to have a lower level. So there is a certain degree of assets going on in the market plus and we recognize that and on that basis we feel pretty confident with our 500,000.

And then maybe for Jeff, one last question. I believe at the beginning of 2015, one of the primary objectives you set for the business was increasing share of gross sales, so maybe you can talk a little bit about the progress you made in 2014, if you're happy versus targets and some sense of how much more progress you think you can make over the next year or two?

I think we're very pleased with our progress. We've gained share in gross sales and we did that across a broad group of our products.

It wasn't just one story that drove that growth so that's encouraging and we wanted a diversified portfolio so we can add value and grow in different types of economies and market volatility and everything else that's going on so we really feel like we've got a pretty good broad diversified group of products to do that but yes we're pleased to see our market share going up in gross sales.

Murray just wondered if could you break out for us the percentage of our AUM today that's with clients with more than 500,000 in assets and the second part of that would be after this is fully set and a majority of your clients move over, then what sort of organic rate are you expecting of future AUM to shift into J&U i.e. and what's going to be the run-rate for management pressure or not a pressure but changes in AUM mix going forward?

Sure. So we don't disclose the precise number you're asking which is our AUM for household in excess of 500,000 for numerous reasons but including competitive information but as you can see in the analyst notes, we have disclosed the amount that's gone over to J and to U, so you've got 13.5 billion, we have acknowledged that more than half the exposure has moved over to these series or I-profile series for example which would be another alternative similarly priced and so that's one way to triangulate a little bit and then we've provided the guidance that the full impact of effectively all moving over having the impact of four basis points and then as you go to the future, we've made the comment that that four basis points is basically bringing up front the two basis points per year adjustment that we had been experiencing so that two basis points per year now goes to zero and the four basis points is the best way to think about it for the future.

As long as the growth in our high net worth business is on pace with the growth in our total business, then you've got no reduction in margin thereafter. If our high net worth business grows substantially that's all a good thing by the way and to the extent it grows faster than the rest of our business then there could be a very, very modest slight difference just because of that kind of asset mix between the two environments so hopefully that's helpful.

Yes that is helpful. And the Series J and Series U, would these series be compliant or work well in a world where there was no embedded commissions permitted?

So Series U, we introduced a year ago so it's got the shortest life here and it is completely separate fees, so there is a low fee much like a Series F in the independent channel if you're familiar with that whereby the MER, the mutual funds does not include any component for the advisor or distribution aspects of the business and then there is an advisory fee that’s calculated and charged directly to the clients account. So that's Series U.

As I talked about on the last call we have another product that’s being around for 14 years that operates in the same fashion called I-profile haven't focused on that here today but the combination of those two really are in what you would call a completely unbundled structure and those two are our fastest growing products across our entire system and we've had very substantial growth and interest in those and we expect that to continue until 2015 and 2016 and so when you think about a CRM 2 world those are the most explicitly not only compliant but will be compliant on everything but those will be a complete non-event in terms of the disclosure of cost that will emerge as we get fully CRM 2 in place. At the same time, we're not concerned at all about the disclosure of CRM 2 costs on all our other products.

Obviously Series J has the benefit of a lower price than you would otherwise have in the other series and that cost will be disclosed and it will be disclosed everywhere else in the industry and we believe that the value difference we're bringing through our consultants will be substantially appreciated and it will be a non-event.

And maybe Jeff just with the expenses I think you mentioned there was some one-time expenses in Q4. Could you elaborate on that?

I don't think I said anything about onetime did I? I'll trying to think exactly what it was.

Oh, yes sorry we did have. That was to do with staffing.

Staffing, was that 3 million is that what you said?

Yes, 3 million.

And then Murray just back to you with your guidance around being compliant with the performance component of CRM 2, ready by the middle of next year--

This year.

And do you expect that to be a noticeable expense to get ready for that in your SG&A or will we not notice that?

Nope. Already done.

Complete and final, it's a project we had worked on actually for multiple years. It was a goal we fully intended to do in the absence of regulation.

As we heard regulatory discussion on this topic a couple years ago, we put it on ice to just make sure we didn't over there and then all of a sudden have to change it because of specific rules and regulations, so no, it's fully ready to go, fully tested, fully operational and working perfectly.

Okay, great and the requirement for the industry is by mid-July 2016?

So the requirement, the reason we're saying we're two years early is that if your annual reporting on your funds is July 1st through June 30th of 2016, the requirement is that the next following year, you must produce this information. So the technical requirement for this information given our anniversary dates of our funds would be on the June 30th statement that’s 2017 so that's why we're saying no, we're going to actually start showing it on June 30th, 2015 which is two years ahead of when it would be required.

All right, well thank you very much for your attention. Have a wonderful long weekend in many parts of the country and a great Valentine's Day tomorrow, so thanks very much.

We'll close the call at this point.