IGM Financial Inc.

Paul Hancock - Vice President, Investor Relations Kevin Regan - Executive Vice President and CFO Jeff Carney - President and CEO of Investors Group and President and CEO Barry McInerney - President and CEO of Mackenzie Investments

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

Thank you, Patrick. Good afternoon, and welcome, everyone, to the IGM 2017 First Quarter Earnings Call.

Joining me today on the call are Kevin Regan, Executive Vice President and CFO of IGM Financial; Jeff Carney, President and CEO of Investors Group and President and CEO of IGM Financial; and Barry McInerney, President and CEO of Mackenzie Investments. Before we get started, I'd like to draw your attention to our cautions related to forward-looking statements on Page 3 of our presentation.

Non-IFRS financial measures that we've used in this material are summarized for your reference on Page 4. And finally, on Page 5, we provided a list of documents that are available to the public on our website related to the first quarter results for IGM Financial.

And with that, I'll turn it over to Kevin Regan, who will take us through a summary of IGM Financial's first quarter highlights. Kevin?

Yes, thank you, Paul. If you turn to Slide 7 that summarizes IGM's first quarter results.

Net earnings were 177.1 million, or $0.74 a share compared to 167 million or $0.69 a share in the same period last year. Earlier today, the Board declared a dividend of $0.5625 per share maintaining the level of the dividend and this reflects the dividend yield of 5.6%, made from yesterday's close of $40.28.

Turning to Slide 8. We experienced strong growth in AUM and client inflows in the quarter.

Average investment fund to AUM rose 12.2% to 139.6 billion compared to the first quarter of 2016. Mutual fund growth sales of just over 6 billion were up 37.5%, and total investment fund net sales were up 200% to $1 billion, ranking IGM among the top of the industry on a sales basis.

Both Investors Group and Mackenzie delivered strong results in the quarter, which Jeff and Barry will discuss shortly. On the Slide 9, this provides a brief summary of the operating environment during the quarter.

Financial markets were strong in the quarter with its S&P/TSX Composite Index rising 1.7%. Other global equity indices also experienced strong gains.

Against this backdrop, industry long-term mutual fund assets rose 4.1% in the quarter. Net sales were up $6 billion relatively to last year, with balance and income categories continuing to capture the majority of flows.

Gross sales in the advisory channel rose 15% or 10% if you exclude IGM, while net sales declined from 3.3 billion to 3 billion. Both Investors Group and Mackenzie significantly outperformed on both the gross and net sale basis in the quarter, relative to our industry peers.

I will now turn the call over the Jeff to review IGM's development and Investors Group's results. Jeff?

Thanks, Kevin. Good afternoon, everybody.

I'm pleased to share with you a number of our key developments at IGM, and as what I referred to in a speech today, unleashing that potential, leveraging our scale and our capabilities across our company to deliver value to our clients and drive future growth. Today, we announced that we are expanding our shared service models in order to further leverage the best practices, talents, and scale across our companies with the creation of 2 new roles in our company: first, Mike Dibden will be joining us next month as our new Chief Operating Officer.

He'll be responsible for leading the shared services operations divisions to deliver high performance, integrate operations and technology platform that will support our client-centric strategic initiatives in driving our future growth. Mike joins us from CIBC where he held several senior positions in operations and technology over the past decade.

Doug Milne will be joining us next month to serve as our Chief Marketing Officer for IGM Financial. Doug will be a tremendous help in differentiating our multiple portfolio of brands in the marketplace and develop the opportunities for growth.

Doug joins us from TD, where he leads marketing communications. Mike and Doug are outstanding hires, and they demonstrate our continued success that allows us to attract top talents.

A key area of focus is our commitment to putting our clients first and ensuring our culture of excellence in all aspects of our business. So as part of that strategy, I'm pleased to announce that Rhonda Goldberg has been named Senior Vice President of Client and Regulatory Affairs.

With her long experience as a regulator, Rhonda is the ideal person to champion our client-centric vision for our company, and to help us position the company to succeed in a changing regulatory environment and Rhonda will be a member of the operating committee. I'll now review the Investors Group first quarter results, starting on Slide 12.

Investors Group is off to an impressive start in 2017. Gross sales reached an all-time high of $2.9 billion, up almost 30% from Q1 2016.

Net sales were up 91% to $890 million. Mutual fund AUM reached a record high of $83.9 billion, the highest month end AUM in the company's history.

Individual insurance sales continue to be strong with new annualized premium sales up 34.7% compared to the same period last year. Moving to Slide 13.

Transformative efforts taken in 2016 such as the elimination of DSC and enhancements to our consultant network have resulted in new and deeper relationships with clients, enabling us to deliver another quarter of a stronger sales performance. Our gross sales were up almost 30% compared to last year in an environment where the advisory channel sales were up 10%, excluding IGM.

Net sales of $890 million were the highest since 2007 and one of the highest quarter-end levels in the company's history. And our 12 months trailing redemption rates was unchanged from last quarter at 8.8%.

The strong momentum of the first quarter has continued in April with net mutual fund sales of over $70 million. You can see this momentum in the blue line at the bottom chart and how it corresponds to the date we announced the elimination of the DSC.

On Slide 14, you could see the composition of our Consultant network. As discussed on the last call, Consultant practices are teams led by our consultants with greater than 4 years of experience.

This is the core of our financial planning model, as Consultant practices represents 95% of our AUM and our client relationships, and 78% at/or are enrolled in the CFP program. And going forward, the CFP designation, or its Quebec equivalent, will be mandatory.

Over the quarter, the number of Consultant practices declined slightly as a result of natural attrition and we anticipate this number will be approximately 2,200 by the end of the year. However, with the enhancements we've made to our recruiting and development model, combined with our focus on providing market-leading financial planning, we expect the number of Consultant practices to grow over time from that number.

Let's turn to Slide 15. Our high net worth solutions continue to experience strong growth, with a very compelling and competitively priced high net worth offering, which has enabled us to grow this segment to over 40% of our mutual fund assets.

To give you more perspective on the growth of our high net worth solutions, let's turn to the next slide. On the chart on the left, you can see that our gross sales in to high net worth solutions have doubled over the last year and have been a significant contributor to a strong overall sales growth we were expecting.

We have competitively priced products for this client segment since launching Series J and U in 2013. During Q4, with the elimination of the DSC, you can see that we have removed a key impediment to building client relationships in this space.

We're very excited about our opportunities for future growth with this important client segment. I would also note in the chart at the bottom that over half of our high net worth sales had been unbundled, with the client paying directly for advice outside of the MER.

Turning to the next slide. From a product perspective, we're experiencing strong growth in our managed solutions.

These include a broad range of products such as Maestro, Allegro, and Alto portfolios as well as the iProfile solutions, which employ a variety of asset application strategies providing attractive risk adjusted returns for our clients. AUM and the managed solutions products rose 25% from Q1 2016, representing a 38% -- representing 38% of our mutual fund AUM, excluding money market fund.

In addition, these products captured 65% of our long term fund gross sales in the quarter compared to 56% in Q1 of 2016. Much of this growth has come from the success of our new and innovative [Ivy] managed Maestro portfolios, which have attracted $4.5 million in assets in less than two years.

You can see on the Slide 18 that our clients continue to experience positive returns, 2.1% for the quarter and 10% for the last 12 months. Many of our clients achieved these returns with the disciplined approach of the managed solutions products I just reviewed on the prior slide.

Key highlights of our Insurance and Mortgage business for the quarter are presented on Slide 19. We had another strong quarter for individual insurance sales, which were up 34.7% compared to Q1 2016.

Turning to the mortgages business. Mortgages outstanding were up 6.5% relative to last year despite the lower mortgage originations in the quarter, which were impacted by the mortgage rule changes announced by the government in 2016 in October.

Similar to others in the industry, we are adjusting to the changes and anticipate 2017 mortgage origination volumes to be lower than last year. Turning to the next slide, Investors Group management and administration fee rate declined in the quarter primarily due to the reduction in our no load pricing, which we announced last fall which came into effect in 2017.

As a reminder, from our September 19, 2016 press release, this change had an 8 basis point impact on $11.4 billion of AUM in no load series. The total impact of approximately $2 million in the quarter was more than offset by higher sales volumes.

The proportion of this upon AUM and high net worth series increased to 41.6% from 39.8% last quarter, as we attracted assets from new and existing clients. Finally, on Slide 21, you can see Investors Group's EBIT for the quarter of $178.8 million, which was up almost 10% from the prior year period.

Insurance sales remained strong compared to a year ago, and this is reflected in both the increase in the distribution fees as well as the increase in other non mutual fund commissions. Total revenue was up 11.4% compared to Q1 2016 consistent with AUM growth.

Non commission expenses were up 9.4% relative to the first quarter of 2016. For the full year 2017, I continue to expect the increase in non commission expenses at Investors Group to be below 6.5% for the full year of 2017.

For IGM Financial, I expect a non commission expense growth of approximately 5.5% to 6% for the full year 2017. We anticipate our quarterly non commission expenses will follow this typical seasonal pattern we've experienced in the past with Q2 being the highest, reflecting the RSP season.

We remain intently focused on managing our expense base, as we evolve our business to a more adaptable model positioned for future growth. The announcements of the new Chief Operating Officer and Chief Marketing Officer roles at IGM, which I described earlier, will help enable us to undertake initiatives to drive scale, benefits, and future growth.

I'll now turn it over to Barry to review the Mackenzie results.

Thank you, Jeff, and good afternoon, everyone. The Mackenzie highlights begin on Slide 23.

We had a strong start to 2017 for Mackenzie. Our mutual fund gross sales were $2.6 billion, up 38% from Q1 2016, and our mutual fund net sales of $381 million was a $578 million improvement from Q1 2016 and our best result since 2006, excluding rebalanced transactions.

Our mutual fund AUM ended the quarter at a record high of $52.9 billion. We delivered strong investment performance in the quarter with 42.7% of AUM and 4- and 5-star rated funds, placing us one of the top firms of the industry.

We experienced continued growth in our ETF business with net creations of $114 million, which included investments from Mackenzie mutual funds of $51 million. Our ETF AUM has surpassed $200 million in the quarter and we continue to expand our suite of ETFs with the launch of 2 new ETFs during the prior quarter, the Mackenzie Maximum Diversification Emerging Market ETF and the Mackenzie Global High Yield Fixed Income ETF.

As you're aware, our strong momentum has continued in April with total investment fund net sales of $112.8 million, including $89.3 million of mutual fund net sales and $206.5 million of ETF net creations, which included investment by Mackenzie mutual funds of $183 million. On Slide 24, this highlights Mackenzie's quarterly investment fund flows, along with historical trends in investment fund net sales and redemptions.

Mutual fund gross sales in the first quarter were up 38.4%, as I mentioned, relative to last year, due to strong sales of balanced funds particularly our core balanced mandates. This was a very strong result given industry growth sales in the advice channel were only up 10%, excluding IGM Financial.

Total investment fund net sales for us were $444 million in the quarter, which was a $642 million improvement compared to Q1 2016 and included mutual fund net sales of $381 million, an improvement of $578 million relative to Q1 of last year and $114 million of net creations for ETF platform. Mackenzie's adjusted redemption rate of long-term mutual funds remains below peers at 14.9% during the quarter.

On Slide 25, which is our mutual fund gross sales by asset class. The -- as you can see in the table, the 38.4% growth in gross sales was driven by strength in a broad range of asset classes.

Mackenzie captured share in the important balanced fund category, as dollar balance funds has gross sales in the quarter of $1.1 billion, with sales of Symmetry funds, up 46.5% and our core balanced funds, up 58.3% compared to the advice channel sales, which were up only 7.6%. We now have 6 of our 8 core balanced funds with over $500 million in assets rated 4- or 5-star from Morningstar and these funds are driving our overall gross and net sales improvement.

Our foreign equity fund led by Mackenzie U.S. MidCap growth class funds experienced strong gross sales of $688 million.

Also noteworthy, is that the new Mackenzie funds launched in the last three years, including ETFs, attracted over $500 million of net sales in the quarter and over 1.6 billion since inception. Turning to total net sales on Slide 26.

You can see that the balanced fund sales were the primary driver of net sales in the quarter. Core balanced funds, in particular, saw a $245 million sales improvement compared to Q1 of 2016.

ETF net creations totaled 114 million, which includes 51 million invested by Mackenzie mutual funds. Our institutional business had net sales of $289 million.

And so after adjusting for the effect of third-party allocation rebalances, Mackenzie's overall net sales were $733 million, which was an improvement of 1.1 billion compared to Q1 2016. ETFs on the Slide 27.

This chart on the left illustrates the strong growth of our ETF business as experienced over the last 12 months with AUM growing to 447 million, including investments from Mackenzie's mutual funds of 256 million. Our innovative ETFs provide advisers and investors greater investment options when constructing long-term diversified portfolios, and we continue to expand our product offering launch of two ETFs, as I previously mentioned: our Maximum Diversification Emerging Market ETF, which was launched in January; and our Mackenzie Global High Yield Fixed Income ETF, which was launched in April.

We anticipate further launches throughout the year. Mackenzie ETF also played an important role in our actively managed funds helping managers, Mackenzie managers, to construct portfolios and investment strategies more efficiently than using individual securities.

Investment funds on Slide 28. This shows our mutual fund quartile and Morningstar rankings at the end of the quarter.

Mackenzie continued to deliver strong investment performance in Q1. The proportion of our assets rated four or five stars by Morningstar increased in the quarter to 43%, which is up from 41% last quarter and represents the highest level since 2013.

The strong result ranks Mackenzie among the top firms in the industry based on the proportion of assets in four and five star rated funds. The flows and investor performance of our 10 internal investment teams, along with our third-party managers, are shown on Slide 29.

The colored bars in the top chart represent Morningstar rankings with green representing the proportion of assets in each team with a Morningstar rating of four or five stars. You can see we have strong performance across multiple boutiques.

Our Ivy, Growth, Global Equity & Income, and Fixed Income teams have a good proportion of Morningstar four or five star rated mandates, which in turn, resulted in net flows as depicted on the bottom chart. As you know, we put a new team of seasoned managers in charge of Cundill a year ago, who had further enhanced Cundill's investment process and travel across the country as you get advisers on the Cundill story.

A combination of their disciplined investment process, along with the resurgence of the Cundill-value style has resulted in a significant improvement in performance over the past year as the fund is now ranked in the 96th percentile on a one year basis and has outperformed its values-based peers. Slide 30 shows our net revenue rate expressed as a function of average total AUM, and this rate helped steady again over the quarter at 77.1 basis points.

As you know, this can fluctuate quarter-by-quarter based on changes in the mix of assets under management, asset class, and client mix. And finally on Slide 31, this presents Mackenzie's earnings before interest and taxes, which was up 14% from the same period last year to 41.5 million.

Non-commission expenses in the quarter increased 6.3% compared to Q1 2016. For the full year of 2017, our main -- we will continue to expect the growth in non-commission expenses to be below 5%.

I'll now turn it over to the operator for questions.

Maybe I'll start off with a few high-level questions. Just on the appointment of COO, Chief Marketing Officer and Rhonda's expanded responsibilities, it sounds like you're trying to more leverage off your various platforms.

And we heard recently from your sister company, Great-West having similar initiatives to leverage off investments made over the past few years. So the question is, what is the opportunity to perhaps drive down expenses without sacrificing client experience and how long would this take?

We're obviously early days into this new structure that we're building so it's probably premature for me to speculate on that. But I know that, and I feel that, we can't continue to sustain the growth rate on our expenses that we have in the past few years.

That's not a sustainable model. And so I've been doing a lot of different things since I've arrived here but I went to the Board and to Jeff Orr and from our resources and they were kind enough to give us the resources to do this.

And so I think what it's coming in is that because I'm bringing it in at a very high level, I'm getting great experienced talents that's going to help us navigate the changing world that we're living in. And that's all the way from a COO who's got great experience on infrastructure and operations, and I think we've got a lot of opportunities in there.

On the marketing side, you've got skills being used, but they're kind of around scattered around our organization and so we want to bring that together more and utilize our resources effectively there and create an outstanding capability. And then when you look at the CFO that's already here, we're getting a lot of great work out of their team and what they're doing.

So it's just I think the talent is the key story here as well as the structure. But ultimately, it's going to scale our organization to be able to navigate the changing world that we all live in, and I now have the skill sets to do that.

Okay. And then maybe just to follow on to that.

If you are able to bring down costs, how should investors think about the benefit? So for every dollar of cost savings, how much would fall to the bottom line versus kind of reinvesting into the business?

It's really too early to say on that. I'd say what we're doing now is the investigation of all of those issues and diving deep into our cost structure and looking at it from a number of perspectives.

And we also have a shared services relationship, as you know, with Great-West Life and other opportunities we can look at. And so we're in the -- this is the early start of this and we want to share it with you today, obviously, because we're hiring these new talents to do this but we're going to look at everything, every dollar we spend, and say, is it a dollar well spent?

And could it be going into something that's more growth-oriented or could it be going into returns for our shareholders and rewarding them for their patience, as their expenses have grown over the years. And we know that the current growth rates are not a sustainable model for us and that's why since I've arrived, I've been very focused on cost management and making sure that every dollar we invest is a dollar that's going to give us a great return.

Okay, perfect. And then while I have you, you mentioned competitively priced a few times in your prepared remarks.

I know you're still studying the pricing structure at Investors Group. So what changes or magnitude of changes might be in the works, if any?

Yes, I think we've come a long way. I mean, we've launched a number of new structures from a pricing standpoint.

And so when we talk about the growth of the products that we've been sharing with you on this call and in previous calls, those have already been re-priced. And so from a high net worth perspective, we're very well positioned because we're looking at the competition and the pricing in a lot of the products and we feel very confident where we are.

And that we gave you the onetime transition, as you know, before I arrived and that is addressed a lot of our clients the cost as well. So we feel very well positioned as a result of this and this fixing itself through the growth of these new products.

And the other part of this that's been great, is these new products have attracted a lot of new [managed] affluent and high net worth investors to our model, which is driving our average assets up and making our platform more effective as a result of that, and our economics better.

So you don't see any major changes on the fee structure over the near term then?

No major stress on our pricing. Our advisers have done a great job, themselves, of using the new tools that we gave them and they've really done this for us.

Perfect. And maybe if I can sneak one more in.

Just wondering if you can have -- we can get an update on China AMC. I know it hasn't closed yet, but how's that progressing?

And any update on AUM or recent flow data there?

Yes, I can talk a little bit and then Barry can chime in as well. We continue to work through the process, so we don't have an exact date on this and we still expect the third quarter is probably the best time line to think about but it may go into the fourth quarter.

So it'll be, we're kind of in the hands of the process in China and we're working through it. But there's no red flags or anything.

It's just going through the process itself. So that's what's going on there.

And then I think the, there's a lot changes going on all the time in China so it's exciting to catch up with the CEO there and then more, but what's exciting right now is that there's a movement towards equities. There's a huge sort of movement towards money market and some standard of movements in flows there.

And more recently it's going back to equities, which is really the sweet spot for China Asset Management and I think they've been a beneficiary of that, but I'll let Barry give you more color.

Yes, just briefly. Thanks, Jeff.

We're in constant communications with CAMC, as you can imagine, almost on a daily basis and things are continuing to do well for them. First of all, the economy has firmed up nicely in China so that's a good thing and CMC's model as we have particularly, previously, it's multi-channel, retail, institutional and Internet-based as well.

They've got multi-asset class so they got a lot of opportunities that they're pursuing. And so as Jeff said, China has a management history which is growing very fast.

It's fast-moving, it does shift. So sometimes, as Jeff said, the money market grows fast, industry is pulled back, '15 growth pulled back.

Looks like there's rotation on growing equities and CMC is doing very well this year-to-date in the equity space, performance-wise and flows-wise. So things are ticking along.

Our expectation, once we close the transaction, we'll start to give a more fulsome report back to you on things like flows and AUMs, if that's okay with you. But right now, we're in constant communication.

They're doing just fine, and we just couldn't be more excited with our partnership with them.

Jeff, just wanted to -- I had a question for you on the net sales at Investors Group. I mean, it seemed like it strengthened noticeably later in last year and it seems like gross sales has really improved.

And I know you talked about, from your presentation on the DSC, that may be with a little bit of inflection point or, really, a turning point. Can you talk about -- I mean, was it really that, maybe a bit of an impediment for the consultants having that DSC and not having it really, not as a game changer but was a meaningful ability to make them more competitive bringing in new assets?

And then is there anything else you can kind of contribute, in terms of what was really driving that strength in sales?

I had -- when I arrived to Investors Group, I haven't -- I've lived in the U.S. for a long time so I haven't been around the DSC for a long time.

But I know, and have experienced it, in my past and I knew that it was always an uncomfortable conversation between an adviser and a client on having to pay a substantial amount up front. And so as the market has moved away from that, Investors Group was one of the last few firms to hang on and still, it built and built and built up in the sort of growth of the company and stagnating that growth.

But we didn't really know how much we were losing, right? And we were still growing and we were doing those kinds of things.

But I knew in my in -- based on my experiences, that if we made it is easier for clients to do business with us, we'd get more money and I didn't realize it was going to be as big as this, like, it has been massive. But this is all related to the elimination of DSC, combined with the new products that we launched that are performing very well and it is sort of a combination of that.

But really, it's just the fact that our advisers' conversation with their clients and their prospects has gotten so much easier, and the money is just flowing in since we made that announcement. And then the energy of the team and their confidence in going after bigger and larger clients has improved and so, we're seeing substantial lift in the size of clients that are coming in and the external assets that are coming in with them.

And so it's a really exciting time and I don't think we've peaked at all on this yet because it's still playing out in real time with their advisers and their confidence and the improvement at going after more massive and high net worth clients, which is exactly where we need to be.

Okay. And just the other question I have, it's for Barry.

Again, somewhat similar. When I take a look at Mackenzie, I mean, arguably, you've returned to positive net sales and, again, similar to IG teams, like it's a growth sales driven story.

Performance has obviously improved, particularly at Cundill and the industry flows have also gotten better. Is there a certain thing that should point to outside of that, that has been the drivers of the improvements that you're seeing and then how you expect that to continue?

Yes, and it's a good question because it's a combination of things, probably same as on the IG side. And yes, certainly, our performance is strengthening and it obviously helps in terms of our sales efforts.

I would say, our -- on the retail side, our 40 wholesaling teams are just doing a bang up job and a number of them were new over the last couple of years. So they got time to go get traction and experience and knowledge of our partners and therefore, their productivity has really improved month to month, quarter to quarter.

So productivity of the sales force, the strengthening performance, and new products as well. I mean, we really have been blessed with some new products and they're not even -- some of them are not even three years old yet and don't have ratings yet, but they're producing really good flows.

Our Mackenzie Diversified Alternative Fund, which is about $300 million, just a little under two years being launched. So no star rating, but it just works so well in terms of putting it into an overall portfolio to help with the risk adjusted return.

Our Fixed Income Unconstrained Bond Fund is really taking off nicely and again, with these rising interest rates globally that go anywhere type of bond fund has been viewed to be quite attractive. So going forward, what we're pleased with is that the momentum is broad-based.

It's broad based by asset class as you saw on the slide, so it's really not focused on one particular asset class. It's balanced, it's global equity, it's fixed income, it's sectors specialties, and so that's very good.

And of course, we have very strong retail channels and institutional channels and they're both producing, too. So we're very confident where we are right now, sort of head down.

Everyone's focused, hard -- working hard each and every day, but the broad-based momentum is very encouraging for us. And again, productivity of the sales force, strengthening performance -- investment performance, and the launch of new products that have taken hold early days, which we'll continue to do throughout the rest of this year.

Thank you, good afternoon. So maybe we can continue exactly where you left off there, Barry.

Just as I look at Slide 29, which I think is a great slide comparing performance across categories with net sales and I look at the managed products category, it's just that performance at least in terms of 4- or 5-star rated funds isn't quite where you'd like it to be, yet that's your biggest source of inflow. So just wondering maybe if you can address that category, in particular, in terms of what's actually driving those inflows, if it's not performance?

Yes, so that's a good point because there's a strong correlation, as you know, to green and strong flows, but it's not always perfectly correlated. Take our managed account assets with the Symmetry program, that is doing very well.

That's been doing well probably three or four quarters now. And it's not quite at the green level, but when we sit down and speak to the advisers, as to how those portfolios are constructed and it's really the way that the largest institutional pension plans [tend to] put together portfolios with 20, 25 asset classes to [indiscernible] to provide a very strong opportunity for risk adjusted returns going forward, and that story resonates.

And so they see the strength in performance. They see the value proposition of -- and obviously, try and navigate these capital markets going forward but this is a really good way, potentially, for them to put investors in to do so.

So that's just one example, I think, of -- and that's why we're very encouraged by our momentum, which we think will continue because it is certainly led by the funds, the strategies that have the 4- or 5-star ratings. But there are a number of strategies and funds, both mutual funds and ETFs, they're doing well.

They're not quite at the 4- or 5-star, either because they're new and don't have a rating, or they're at 3-star and they're progressing upwards. It's very encouraging.

And so yes, it takes time at getting back the productivity of the sales force. It gives time to them to really get to know the story and explain the value proposition of some of these new or evolving strategies.

And we would argue that Symmetry, for instance, there's nothing like it in the marketplace. It really is -- looks like bringing the sophisticated pension plan investment model to the retail investor, and that's -- that's what we've done and it has been building over two, three years and we're starting to see the fruits of it.

Yes, got it. And then another question for you, Barry.

In terms of the ETF net creations that are coming from Mackenzie purchases, how are those flows originating, like, is that fund-to-fund product where you're allocating a certain portion to ETFs or is that more standalone funds that are purchasing ETF as underlying securities?

That's a good question, both actually. And again, as you know, ETFs, portfolio managers, those that don't reside on Mackenzie or at Mackenzie have used ETFs a long time in combination in their funds of funds or a single mutual fund, get, they think, more effective, efficient exposure into a particular sector or geography that they want to do and I think they can construct the portfolio better that way so that they can be more nimble and make the changes and adjustments going forward with a few sleeves of ETFs.

So it's in both within Mackenzie. And the flows, the net creations into our ETFs have been as strong from the external channels as the internal channel, Mackenzie channel, the Mackenzie PMs.

And I think we'll start to see that happen -- continue for both opportunities, probably you'd expect going forward a little more on the external side as well because we didn't that launch for the high-yield product, which I think is obviously both mutual fund and ETF model. And our in-house team did -- for instance say, okay, why don't we collect all of our exposure across a number of funds and get the exposure of that sector through the ETFs?

And they thought that was a better way of doing it. So a little bit of, obviously, a large bump into the ETF AUM but we expect it to be broad-based again going forward, with both external and internal interest and both the fund of funds as well as our exposure within a single fund.

Great, makes sense. And one final one for you, Barry.

In terms of the automatic switching plan into private wealth theories, is there any expected impact on earnings there?

Yes, so I'm glad you brought up. So we expect Q2 to impact about $1.7 million.

If I could add two points to that. One is this would naturally occur anyways, all right?

So these investors who qualified in terms of reaching a certain asset threshold would qualify to go into a lower fee series, so it's going to naturally happen. What we did, of course, is we just systematically put it in place and all of it at one point in time.

We felt to do that, it was the right thing for the investors, and the advisers are very appreciative of us to take that labor off of them because we want to try to continue make their job easier, right? So they can focus on their clients.

So 1.7 million, in fact, in Q2. That's not sustainable because it would have start to naturally occur probably over the next couple of years anyways.

And I think just to reiterate what Jeff mentioned earlier, the funds that -- on the topic of fee pressure, again same as Mackenzie, we're just making moves like that. It's just an -- it's evolutionary.

We made some very discrete price cuts in 2014 that we disclosed and to ensure that we remain competitive. But things like the high net worth's automatic rollover, again, that's part and parcel of us running our business just on a continuous basis to ensure that we remain competitive and our pricing structure is competitive.

So again, we don't expect anything Mackenzie in terms of another discrete event of fee cuts but we're just looking at it and we build scale and we make sure we remain competitive. It's just part and parcel of business as usual.

Great. And a couple of questions for Jeff.

First, in terms of IPC sales, those have been trending weaker and then a small negative in April, we're just kind of surprised to see. So maybe can talk a little bit about what's happening there.

Nothing really material. I wouldn't -- I think it's onetime kind of stuff and maybe the odd departure of an adviser but there's no big trend there, so I wouldn't change your models on that one.

Okay, okay. So expected to kind of go back to the steady positive flows we've seen out of at that business for many years?

Yes.

Okay. And then a bigger picture question for you.

I think in your disclosure, it mentions that management expects industry consolidation to continue with smaller participants being acquired by larger organizations and obviously, we would assume IGM is one of those larger organizations. So maybe you can give us some thoughts about how you think that trend is relevant to IGM?

And how you'd want to participate, in terms of particular capabilities or size you would have in mind in an M&A scenario?

Yes, I mean, we obviously monitor every development in the industry and we'll get calls probably if there's something in the market for sure because we have a reputation of investing in the past and there's obviously, opportunities there. I don't feel like we have to do any of that at this time.

We did make some investments, as you know, in different models that we're participating in, whether that's the venture fund with the Power Financial that we're a part of. And we're an investor in WealthSimple, and we're an investor in Personal Capital and then we've been an investor in China Asset Management.

So we feel that we're with some great partners and some really interesting models. And WealthSimple is the #1 [personal capital] adviser in Canada by a long way, so we're with the #1 player in the market with the biggest brand and they're phenomenally well.

And so it's -- I think it's good what we've invested in so far and also this positions our exciting new and different models that we can participate in. And if we continue to be successful going forward, then we'll invest more.

Maybe I could the start on the ETF side. Just given the growth that we've seen for ETFs in the industry and, obviously, Mackenzie and a lot of other mutual fund companies have made a strategic move in that direction.

Just for Investors Group, I'm just wondering if we see this trend continue, should we expect that Investors Group will in some form be bringing ETFs into its platform, or how are you thinking about that product?

Yes, we're looking at -- there's a lot of ways you can participate with ETFs and what's happening in the U.S. in certain markets is mutual fund of ETFs and I think that would be an appealing structure to start something like that, and I feel to have Mackenzie build it for us, potentially here, we'll do it ourselves.

But we're monitoring all of that at this point. We've had so much going on with our product shelf in the last 12 months and we feel really good about the energy that we've put into that and the competitiveness that we're bringing to the market.

But we certainly -- we're going to monitor developments in the ETF space as it goes forward and if we see an opportunity for Investors Group, we'll probably look to our partners at Mackenzie first and see if it's going to be a good place to go. And if we need to go outside of that, then we'll look at opportunities as well.

I wouldn't see us making a big splash in the capacity ETF space at this point and if we were doing anything, it would be partnering with Mackenzie on the asset side.

Yes, okay, that makes sense. Are your consultants, are they asking for ETFs to be part of their -- I guess, their offering to their clients?

Not really. They're so happy right now.

They're not asking for much. They've got a lot of momentum right now.

They're having great conversations with their clients. Performance is better with Investors Group's performance recently, and so I think they've got a lot of great products right now to talk to their clients about what these new structures we've created with our iProfile, new risk parity products.

So there's a lot on the shelf right now for them and they're taking advantage of that.

So the removal of the DSC, it sounds like it was quite a material catalyst for the Investors Group platform. Is there any other sort of legacy structures in place that you think could have a similar potential impact?

It's probably just confidence that the advisers, as they see that, because I mean, our strength is we have more CFDs than anybody in the country so we're having deep conversations with our clients. We analyze their needs and we go in deep.

And then, but we don't, we don't always have all the tools to serve them, and so now they have more tools to serve them with these new products and that's, so it's a combination of limiting the DSC, combined with these new solutions that are for high net worth clients, and they're going right at it. And because we know the client really well and we're adding tremendous value, but we've had to overcome this DSC conversation every time we were doing a transaction with them that didn't feel very good.

And so it's just literally taken the handcuffs off and letting them do their job and making it a heck lot easier for them, and that's what's played out here. And so the confidence level of the advisers is just growing immensely.

We just had an event here, it is our annual meeting. But the energy in our company right now, in our advisers, is as high as it's probably ever been.

Interesting. Maybe, Barry, I could just jump to the active ETFs a little bit and just thinking about the economics of it comparatively to your mutual funds, how should we think about that?

Can you run these products as efficiently from sort of an operating margin or an EBITDA margin? And if so, what sort of scale or size you have to get the ETF platform to in order for that happen?

First of all, yes, we can. It's, they way we're pricing the active ETFs at Mackenzie is very comparable to their equivalent active mutual fund, and the way that we've built out the business at Mackenzie is really just leveraging the infrastructure within Mackenzie.

So the operations and the plumbing, so to speak, leveraging the distribution channels, the wholesalers. We're blessed to actually that the, we have all the manufacturing we need to continue to launch more ETFs going forward.

We've partnered up, we think, pretty smartly with TOBAM, no pun intended. It was smart beta.

But TOBAM's a great partner of ours and we'll continue to expand the operating there but we've got the manufacturing back in-house. We don't just share those economics.

And the scale you require in ETFs because of that, the scale you require in ETFs to make them profitable is equivalent to the scale you need in the mutual fund. It's usually $50 million, $100 million per ETF, similar to per fund to make sure that your, and then you start to really get that leverage into your financials.

So I would actually think that you should view the active ETFs and smart beta ETFs to some extent, I could say as well, as equivalent financial modeling as you would a mutual fund, a no load mutual fund.

Yes, okay. So just to be clear, obviously, the expense side of these active ETFs is lower than the mutual fund business because, I believe, the fees on the active ETFs are lower than your F class mutual funds?

No. Sorry, the fees on the active ETFs are comparable to the fees on the active mutual funds.

And so the margins -- the financial markets will be equivalent because again the operational cost of -- that we incur to run the ETFs is comparable to the operational cost to run mutual funds because we're using the same infrastructure.

Okay, that's helpful. And If I could sneak one more in, Jeff, just I like asking you about your investments into Personal Capital and WealthSimple, and is there any update or thought on how you can leverage that into your Investors Group platform?

Yes -- no, we're spending a lot of time with them, in WealthSimple, learning more and more every day on their models and where they're going. And it's -- I mean, the big thing that Personal Capital does that's absolutely brilliant is they offer the free software where you can aggregate all your accounts, and well over one million people have signed up for that.

So they got a free client base that they can then prospect and the power of it is that you can see all of the assets of the client. So then you can segment very easily and you can take which clients you want to win, and then you can win them.

And so that's why their account size compared to a robo adviser is so much higher, they're over $300,000 compared to robos that are at 25ish mostly in the U.S. and Canada.

And so it's a very unique model. And then the science of it is that they built the ability to pull all that data together and then create this integrated statement, and that's not easy to do.

So it's their expertise, over a decade of doing these kinds of things that's enabled them to make that happen. But it's encouraging, and they're over $4 billion in assets now and continue to grow and are building great brands in the marketplace.

So we're marketing all of that and are proud to be part of that team.

And are they in Canada or they're only in the U.S.?

They're only in the U.S. They're based in San Francisco and Denver.

Jeff, I just wanted to clarify a comment you made on your IG consultants. Did you state that you expect higher consultants at year-end than what you've reported in Q1?

[No, I meant] year round, it's 2,200, and then -- but we look to grow it, maybe a little bit below that.

2,200 of the...

[Greater than] 4 years?

Yes, [greater than] in 4 years. Sorry.

2,200, okay. And you didn't comment on the total at all, right, did you?

Or...

No, I didn't.

No, okay. With the -- does relative fund performance at Investors Group become more important without DSC compared to this?

So much of our value proposition is the advisers' conversations with the client and the planning, so pricing -- you have to have a reasonable price, but it's not the most important thing in the client's eyes. Because most of their returns that we generate are through gamma and through the conversations with clients and helping them with their tax and helping them with appropriate asset allocation and backend solutions, and so it's all wrapped into that.

But the biggest part of our proposition is the advisers' conversations with their clients everyday and obviously, they have their clients and helping them maximize their positive returns so that they can have -- save more retirement income. And having those kinds of conversations, that's the -- that's our strength.

And just on that note, on the insurance side, another strong quarter with insurance sales. Is that more of the market environment or is that attributed to certain factors at Investors Group?

And how do we think about that going forward?

If you're good at financial planning, you make sure you look at all of their needs and clients need insurance. And so we've had those conversations, the financial planning conversations and uncover opportunities for them and make sure that they are appropriately insured for what they're trying to achieve as a family and their legacy.

And they are complex conversations as well, and that's where we have the skill set that I think a lot of our competitors don't.

Okay. And Barry, just on the -- you talked -- the retail flows, you're getting a lot better at Mackenzie.

Can you just comment on the IIROC distribution channel? How is the, I guess, penetration or efforts been on that channel?

It's going very well. Obviously, from my time, we had -- and we still have a strong business in the MFDA channel, right?

And that's very important to us. But we made a conscious effort to really start to get traction here, to really start to also penetrate more fully the IIROC channels, and it's going well.

We have -- we track new supporters and we track how many new tickets we're getting from new IIROC supporters. And that's been, obviously, a speech I had earlier today, not necessarily just about IIROC itself, but you can see the new supporters that we've had since beginning of [2017], it's $1.5 billion in assets.

So that's part IIROC and part MFDA, but again, it shows you that we're again -- it allows us to really be just like our CMC partners, multi-channel, retail, now equally into MFDA and IIROC and all these institutionals, so thank you, it's gone well. We're encouraged by it.

And while you're on that note, the new clients are driving a lot of that insurance growth I've talked about as well and our overall net growth as well because we're getting a lot of new clients at Investors Group as a result of the DSC change, as well.

Right, okay, thanks a lot guys.

Okay. Thank you, everyone, for joining us today and we wish you a good weekend.