IGM Financial Inc.

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

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

Thank you, Reda. Good afternoon, and welcome, everyone, to the IGM Financial's 2017 second quarter earnings call.

Joining me on the call today 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; 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 presentation are summarized for your reference on Page 4. Finally, on Page 5, we provide a list of documents that are available on our - to the public on our website related to the second quarter results for IGM Financial.

And with that, I'll turn it over to Kevin Regan, who will take us through the summary of IGM Financials second quarter highlights.

Thanks very much, and thank you for joining us today on the call. IGM's second quarter results are presented starting on Slide number 7.

Adjusted net earnings were $185.9 million or $0.77 a share compared to $172.9 million or $0.72 a share for the same period last year. Adjusted net earnings for the quarter excluded a number of other items, which consisted of favorable revaluation of our registered pension plan obligation of $50.4 million or $36.8 million after tax, which is reflecting a new policy related to the granting of benefit increase at the company's direction.

Also, restructuring and other charges, including severance and termination costs, largely associated with the reduction of our regional office footprint in the quarter of $23 million or $16.8 million after tax. An after-tax charge of $5.1 million, representing the company's proportionate share in Great-West Lifeco's restructuring provision taken this quarter.

IGM experienced a slightly higher tax rate in the quarter due to the termination of a tax loss consolidation transaction with Power Financial that it had entered into in 2014 and 2015, which had produced annual tax savings of approximately $24 million. We're putting in place a tax consolidation transaction with Power Corporation part of the group in the third quarter, which will provide an annual benefit of approximately $14 million.

So we're replacing a substantial part of those transactions. As a result, we anticipate IGM's tax rate will rise slightly to approximately 22% to 22.5% going forward.

Finally, earlier today, the board declared a dividend of $0.5625 per share, maintaining a level of dividend. This reflects the dividend yield of 5.3% based upon yesterday's close of $42.59.

Turning to Slide 8. We experienced another quarter of strong growth and client inflows.

Average investment fund AUM rose 12.5% to $143.9 billion compared to the second quarter of 2016. Mutual fund gross sales of $4.7 billion were up 36% and total investment fund net sales of $1 billion were up $1.5 billion compared to the same period last year, marking the best Q2 results for IGM in almost 20 years.

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

Industry growth sales and net sales improved, with growth sales up 21% for the industry and net sales up $5.5 billion to $10 billion. Net sales were up $5.7 billion relative to last year with balanced income and foreign equity categories capturing the majority of the flows.

Both Investors Group and Mackenzie significantly outperformed industry peers on both the gross and the net sales basis in the quarter. Gross sales in the advice channel rose 18.9% or 15.6% when IGM is excluded, which was up 36%.

Net sales in the advice channel increased from $1 billion last year to $2.5 billion this year, and 80% of the net sales improvement went to IGM. So with that, I'll turn it over to Jeff to review current developments in IGM and IGM's results.

Great. Thanks, Kevin.

Good afternoon, everybody. Key IGM highlights for the quarter are on Slide 10.

In addition to the new executive leadership positions of Chief Marketing Officer and Chief Operating Officer that I discussed on the Q1 call, I'm pleased to announce the creation of a strategy execution office, which will play a critical role assisting all of our IGM companies in successfully translating strategy into executable programs. Chuck McDevitt has joined the company to lead this Executive President's role, and he'll be heading up our Strategy Execution Office going forward.

Chuck will be responsible for evolving our strategy execution by working closely with all of our IGM senior leadership, building organizational capability and establishing a framework and a structure. Chuck brings extensive good experience in the asset management business and financial services businesses with the North American Review.

Since 2014, Chuck was a Senior Executive with Great-West Lifeco U.S., where he most recently led the integration of 3 legacy retirement businesses to form Empower Retirement, the second-largest record-keeper in the United States. Previously, he spent 19 years with Fidelity Investments and associated companies in multiple leadership positions.

On the corporate responsibility front, IGM was recognized for its strong commitment to deliver both - delivering sustainable long-term value to its stakeholders by the Corporate Knights. IGM has been ranked eighth in their 2017 ranking of the 50 Best Corporations and Citizens of Canada, an improvement over last year's ranking of 21st.

We're very proud of this accomplishment. We remain engaged in their regulatory discussions as all of our companies submitted letters in response to the CFA's consultation paper on the option of discontinuing embedded fees, stressing the importance of preserving accessibility and affordability of advice for Canadians.

These submissions are public and can be found on the OSC's website for those interested in reading our submissions in detail. Finally, I'm excited to announce that IGM will be hosting an Investor Day on November 28 in Toronto, which will provide investors and analysts an opportunity here from our senior leaders of IGM and its operating companies on strategy and execution priorities that will drive future growth.

Further details will be provided in mid-September. Let's turn to Slide 12 to review Investors Group's second quarter results.

Investors Group enjoyed another quarter of strong sales and business momentum. Mutual fund AUM increased to $84.3 billion, that's up 11% compared to Q2 2016.

Record high Q2 gross sales of $2.4 billion are up 33% from Q2 2016. Net sales rose by over $600 million to $435 million from Q2 2016, which was the best second quarter results achieved in close to 20 years.

In addition to this strong sales momentum, we're experiencing high asset retention with a noticeably lower redemption rate compared to same period last year. We experienced strong growth in our high net worth solutions with growth sales up 113% in the quarter, driven by our managed solutions products, which accounted for almost 70% of our total gross sales in the quarter.

After a number of months of hard work and collaboration across all levels of our company, Investors Group has announced a new strategic mandate and value proposition that will drive our future business success. We'll provide more detail and insight into the execution of our strategy at our Investor Day this fall, but I wanted to share with you today the key aspects of our new client-focused strategy.

If you go to Slide 13, you can see a chart, and I'm just going to walk you through how we came to this. So I've done this pretty much everywhere.

I've been in my career, but I get together a group of leaders and get significant insights before I hand into what the industry issues are and competitive landscape and deep dive into all the data of the industry, and then sort of reflect on that and try to find a path that differentiates our value proposition from everybody else. And so the outcome from that work is what you see in front of you, and I'm just going to walk you through the components of that.

So at the very premise of what we think we are as a company and our mandate is to help Canadians to be successful. So our promise is that we inspire financial confidence.

And we think by doing that, that we've done our job. If people know that they've done their best to serve - save for their children's education or the retirement plans or for legacy or for charities that we've helped them on that journey to be able to achieve those with confidence, and that means that we're transparent.

We bring our best every day, we provide great products at a reasonable price and we make it easy for them to interact with us for the long term. And we provide them with advisers, who are highly educated and talented and inspired to do their best work every day, and that's something that I strive for in my leadership.

From there, you look at our value proposition and I've had a lot of these over the years. But this one is the simplest one that we've ever discovered, and I'm really proud of what the team came up with that's - me involved as well.

And that's that our value proposition is better gamma, better beta and better alpha. So let me explain those 3 terms because some people interpret them in different ways.

For us, better gamma is the measure of the value of the adviser really. And so you have to have informed advisers who understand the structure of the industry, what products and tools and tax opportunities and the coaching that they can bring to their clients to maximize the gamma.

And in most studies, you can see that gamma dominates the returns for the clients because if you don't maximize something like an RSP, you left free money of the table that you could have been able to achieve because of the tax benefits of those types of structures. Another example would be when people panic in a down market and they decide not to save for a while and they try to time the market, and we know that, that generally ends in a disaster.

And so having an adviser at your side that you trust and guiding you is going to inspire you to stay in the markets. And you all know that most markets go up over time, and you just have to be patient to get the benefit of that and not panic in those downturns.

So gamma has a lot of richness in it, and it's going to be a competitive advantage for us. And if you think about gamma, what I'd say to you is you need to be a CFP to be able to deliver gamma because you have to understand the structure and the seat and plans, taxes, all those things to be able to achieve that, and we're blessed to have the skill sets here with our advisers to be able to do it.

Second on that value proposition is better beta, and better beta is the measurement of the advisers' utilization of our mutual funds. And the critical thing here is to make sure that they have the tools to do that, and the reality is they probably don't because when you're putting together dispersed individual products, you don't know what you've really traded as the outcome.

And so what we've been doing, and I think you've heard a lot about this from us over the last couple of years, is building more solutions-based products using experts to do that asset allocation amongst the various funds that we've used and giving a true diversified portfolio that's achieving goals. But knowing what the outcomes of that - putting all that together would do, and this is us giving market exposure so that clients can benefit from the capital markets and the ongoing growth of equities, fixed income and other opportunities.

And then finally, a better alpha. And obviously, that's something that you're well aware of, and we're working hard to measure that our clients get the benefit of our best work.

And you'll see us evolving that model as we go forward to make sure that our clients are getting our very best every day, and they're getting that at a risk-adjusted experience, not just straight up or a lot of volatility, but with really structured capabilities that deliver long-term returns for clients to help them get that extra alpha to help achieve their return and income goals. And then finally, our strategic mandate is to be Canada's financial partner of choice.

And I've mentioned before that, for us, we think that our competitors are the banks and that's what we're focused on. They have majority of the assets in the country, and we like our value proposition and how we can line up against them.

And we're going to be working very hard to achieve our goals of bringing a lot of those clients that are probably being underserved there to our organization because we think we can do a better job for them. The way that we're going to do all of this is through our focus.

And so it starts with superior advice, and that's the knowledge. And again, that's where we're grounded.

And one of the things that we've marked considerably ahead of distribution and I have agreed to is that we've now made that mandatory for our advisers to have CFPs because we believe that for them to do their job, they need the training and the skill sets that CFP provides and the insights that will enable them to bring to their clients and ultimately, the outcomes they can drive. So we also, as you know, have been going on the equality versus quantity trained and we've been executing that very quickly, and I feel really good about that.

But we're going to make sure that every one of our advisers has the skill sets and the competencies and energy to be able to help our clients to achieve their goals, and that they're well trained and best trained in the industry. Then you look at segment and client experiences.

We've dabbled in segmentation in this company, but we have not bring - brought sophistication to it. And with my new hire, Doug Milne, our new Chief Marketing Officer, I can tell you that he has immense knowledge in this space and he's already positioning us for being very structural in our approach to how we serve our clients, which ultimately is going to give the clients a better experience.

It's going to utilize our resources more effectively, and he's going to make sure that the clients are getting the right solutions for the right times for where they are in their life whether that's their age, or their needs, or their wealth, or whatever it is that they decide to segment with. And so this will make us much more nimble and much more connected to our clients by knowing them better as we serve them.

We're very focused on our entrepreneurial advisers. We think that's our competitive advantage at the core of this company, and they're doing a fantastic job.

And you're seeing the results of their hard work and the growth that we've been experiencing. But we're going to make sure those entrepreneurial advisers have core capability that's consistent across the whole organization, and that's with the CFP.

But we're also bringing in our own training programs and going above the CFP to make sure that we're in front of any changes in the industry, and we continue to challenge our advisers to grow and learn as the world evolves. We are on a path of building powerful financial solutions, and the power team has done a great job.

And you've seen the results of those hard worked efforts that they've put in around powerful solutions, but we have more to come. And there's a lot of great ideas that we have around organization to do that, and we think that will differentiate us in the high net worth space as we go forward, which is a huge focus for us as you know and I have said before.

Then we've got some structural things that we need to do. So business processes that are simple, easy and digitized.

I'd say that we've pretty years of work to do to get to where we want to be because it has been probably under invested in some ways. And so you've seen us invest in a couple of new opportunities recently in some systems that are enabling us to grow.

But we're going to make sure that everything we do in this organization is efficient, it's utilizing modern technology and it's enabling us to have speed to market and ultimately, more class and more scale into our operating models. And Mike Dibden, who's only been here for a short while, is already on a path to discovering where those opportunities will be going forward, and we look forward to updating you on that at the Investor Day, and Mike will have a chance to do that from the stage.

So lots of work to do there and sort of rethinking some of our models and some - how we execute and re-imagining our model, so that we can make this company much more efficient in the way we transact across the organization. And then finally, we have to enable all of this with a brand that is known and recognized and inspires clients and is effective in allowing us to do that.

And we have to have the appropriate corporate services and other cost structures, and all of this is fortified with a winning culture. And culture, in my experience, is the most important thing you can do as a leader to develop a great company and put it in a position for long term and successful growth.

So that's a quick review of that. We'll spend a lot of time on all of these in deeper dives, and my teams will be presenting a lot of these topics when we get together if you decide to join us in our event.

And the next slide, you can see a little more of a definition on better gamma, better beta and better alpha, just so that you see the technical definitions of those because I might be talking about something that you don't - haven't heard before, so we want to make that available to you. And now I'm going to jump over to the other side and just get into the results.

So we've always started to act on the strategy in a number of ways, and we've introduced a number of strategic changes over the last 12 months such as the elimination of DSC and the enhancements to our distribution network to improve the client experience. We want to increase engagement and ensure incentives are aligned to client outcomes.

So there's a lot of work going there. These transformative efforts have resulted in new and deeper relationships with clients, and that's really driving our strong growth as just the focus that our advisers have brought to their work and their energy and their momentum that they're building.

And all of this is creating strong sales performance. Gross sales reached an all-time high, and we're up 33% compared to last year, outperforming the industry, which was up only 21%.

Net sales of $435 million were the highest in almost 20 years for our company. And our 12-month trailing redemption rate, our long-term plans, declined to 8.6% from 8.8% in Q2 2016.

So all obviously helping our story. On Slide 16, you can see the composition of our Consultant network.

As discussed on the last call, Consultant practices are teams that are led by a Consultant with greater than 4 years of experience, and they - this team is our core of our financial planning model, and they represent 95% of our AUM and client relationships. And that's really where you should focus on when you're looking at our economics and productivity and the work that they do.

During the quarter, we mandated that all Consultant practices must have their CFP designation, and enrolment increased dramatically. So the percent of practices having their CFP are enrolled in the program.

It went from 78% to 95% on our way, hopefully, to 100%. And I'd remind that we have more than - more CFPs already than any other firm in the country, and we're proud that we pioneered the curriculum many decades ago.

Let's turn to Slide 17, this is our high net worth solutions. They continue to experience strong growth with assets of 25% compared to Q2 2016 levels.

We have a very compelling and competitively priced high net worth offering, which has enabled us to grow the segment to over 43% of our mutual fund assets, up from 38.3% at Q2 2016, enabling better pricing and a better client experience for those. The next slide provides the sales view of the - of our high net worth solutions.

On the chart on the left, you can see that our gross sales into high net worth solutions have doubled over last year and have been a significant contributor to the strong sales growth we're experiencing. I'd also note in the chart at the bottom that almost 65% of our high net worth sales are in unbundled series, with clients paying directly for advice outside of the MER.

So a lot of business already is getting unbundled. I'd like to highlight, this is a testament to the competitiveness of our fees and our value proposition, and this is our most fee-sensitive segment that is choosing an unbundled fee option.

Turning to the next slide. From a product perspective, we continue to experience strong growth in our managed solutions products.

These include a broad range of products, such as our Maestro, Allegro and also portfolios as well as our high-profile solutions, which employ a variety of asset allocation strategies providing attractive risk-adjusted returns to our clients. AUM in managed solutions products rose 27% from Q2 2016, representing 39% of our mutual fund AUM, excluding money market funds.

In addition, these products captured approximately 70% of our long-term fund growth sales in the quarter compared to 56% in Q2 2016. You could see on Slide 20 that our clients continue to experience a positive returns over 1, 3, and 5-year periods.

Many of our clients choose these returns with disciplined approach of the managed solutions products I just reviewed on the prior slide, and they're set up for long-term success. Key highlights of our insurance and mortgage business for the 6 months ended June 30, 2017, are presented on Slide 21.

Individual insurance sales rose 8.9% year-to-date compared to the same period last year. Within our Mortgage business, volumes continue to be impacted by the mortgage growth changes that you know a lot about announced by the government late in 2016.

Despite low originations, mortgages outstanding rose 4.5% relative to last year. Turning to the next slide.

Investors Group, Management and Administration fee rate declined in the quarter, primarily due to assets moving into high net worth products. The proportion of mutual fund AUM and high network series increased to 43.2% from 41.6% last quarter as we attracted assets from new and existing clients.

Finally, on Slide 23, you could see Investors Group's EBIT for the quarter of $193.9 million, which was up over 11% from the prior year period. Total revenue was up 8.5% compared to Q2 2016 as AUM rose over the period.

Non-commission expenses were up 6.6%, relative to the second quarter of 2016. For the full year 2017, I expect the increase in non-commission expenses at Investors Group to be below 6.5%, unchanged from the guidance I provided last quarter.

We remain intently focused on managing our expense base as we evolve our business to a more adaptable model positioned for future growth. In addition to the new Chief Operating Officer, Chief Marketing Officer and Strategy Execution Office roles at IGM, it will enable us - all of those new teams have really just found their desk and they're starting to get to their work.

But this will enable us to drive scale efficiencies through common platforms and processes across our companies and ensure we remain aligned and focused on our long-term vision. I'll stop there and turn it over to Barry to review Mackenzie's results and look forward to your questions in a few minutes.

Thank you very much, Jeff, and good afternoon, everyone. If I could have you turn to Slide 25, and I'll go over some of the Mackenzie highlights during the second quarter.

And you can see from the statistics on the page that we continue to experience significant sales and business momentum during the quarter. Our mutual fund AUM ended the quarter at a record high of $53.6 billion.

Our mutual fund gross sales reached an all-time high of $2.2 billion, up 47% from Q2 2016. Our investments funded net sales, that's a combination of our mutual fund sales or ETF sales, of $625 million in the quarter.

Mutual fund net sales of $447 million in the quarter were both the best quarterly net sales results we've ever experienced over the last 18 years. We also delivered strong investment performance in the quarter with approximately 40% of our AUM in 4 and 5-star rated funds, which is above the industry average.

And our ETF business continued to experience strong growth in the quarter with our total AUM and our ETF business surpassing $600 million as at the end of June, which ranks - puts us ninth in the overall ETF AUM lead tables. And our net creations of $389 million, which included $211 million of investments from Mackenzie mutual funds, that ranked us fifth in the industry at the end of Q2.

And we continue to innovate, and we launched 2 new funds in Q2 and 1 ETF. Our global credit opportunity mutual fund, our U.S.

strategic income mutual fund and our global high-yield fixed income ETF. Turning to Slide 26, these are highlights for our core investment fund flows along with historical trends.

You can see that mutual fund gross sales in the first quarter were up 47% - second quarter rather, were up 47% relative to last year with strong sales across a broad range of asset classes led by our core balanced spendings. This is a very strong result, given industry growth sales in the advice channels.

As Jeff mentioned, we're up only 16%, excluding IGM Financial. In total, investment fund net sales were $625 million, as I mentioned in the prior page in the quarter, up $1 billion compared to Q2 2016 and included mutual fund net sales of $447 million, an improvement of $822 million and ETF net creations of $389 million, again as I mentioned, including $211 million of investments from our Mackenzie mutual funds.

If you look at the chart on the lower left, which illustrates the strong momentum Mackenzie is experiencing in investment fund net sales, year-to-date to the end of July, so we just released these, our investment fund net sales have exceeded $1 billion. I'm really proud of the Mackenzie employees, who work very, very hard to return Mackenzie back to a positive sales and delivered a strong momentum that we're experiencing.

And our business, we're just exceeding all of our expectations this year. So kudos to the Mackenzie team.

Again, we do actually expect this momentum to continue, given the high level of engagement and focus of the entire Mackenzie workforce. And finally, Mackenzie's adjusted redemption rate, a long-term mutual funds, declined to 14.3% compared to 14.9% in the prior quarter and remains below peers.

Slide 27, we provide a breakdown of total mutual fund gross sales in the quarter. You can see in the table on the left, the 47% growth in gross sales was driven by strength in a broad range of asset classes, which has continued since last quarter.

Mackenzie continues to capture share in the important balance fund category as our balance funds of gross sales in the quarter of $1 billion with sales of Symmetry funds up 51% and our core balance funds up 60% compared to the advice channel sales, which were up only 9%. And all 8 of our core balance funds with assets over $500 million are rated 4 or 5 stars by Morningstar based on their F Series class, and these funds are driving our overall gross and net sales improvement.

And our foreign equity funds are also selling well led by our Ivy Foreign Equity Fund and the Mackenzie U.S. Mid Cap growth class fund, experiencing strong growth sales of $563 million.

Slide 28 provides details on Mackenzie's total net sales by category. And similar to the gross sale story, we have seen net sales improvement across really the entire range of asset classes.

Balance on sales are the primary driver of net sales in the quarter. Core balance funds in particular saw 233 million of sales improvement compared to the same quarter last year.

ETF net creations, as mentioned, totaled $389 million and our institutional business had net sales of $1.4 billion due to large set of advisory award in the quarter from Investors Group. So overall, our net sales were about $2 billion, which was an improvement of $2.3 billion compared to the second quarter of 2016.

On Slide 29, turning to our ETF business. The chart on the left illustrates the strong growth to reach our businesses, as I mentioned, over the last 12 months.

So our AUM now at the end of June was $622 million, and that includes investments from Mackenzie mutual funds of $282 million. And based on our recent released July flows, just yesterday, our ETF AUM is now just under $750 million.

So we had a very strong July. And again, we launched one new ETF, our global high-yield fixed income ETF in the quarter, and so we are now up to 11 ETFs.

Slide 30 shows Mackenzie's mutual fund quartile and Morningstar rankings at the end of the quarter. Continue to deliver strong investment performance in Q2.

And the proportion of assets in first or second quartile in the 1, 3, 5 and 10-year periods increased compared to Q1 results, a good momentum. And 40% of Mackenzie's assets are in the important 4 and 5-star category based on Morningstar Ratings, which, again, is above industry average.

31 shows the flows and performance of our 10 internal investment teams or boutiques along with our third party managers. The colored bars on the top chart represent Morningstar rankings, with green representing a portion of assets in each team with the Morningstar rating of 4 or 5 stars.

So you can see again, we have strong performance really across the board across multiple teams. And the bottom chart illustrates the momentum in net sales for each of the teams for the last year compared to Q2 '17 versus '16.

And I just want to call out Cundill, the redemption rate for Cundill has improved significantly over the last 12 months from 21% to now 14% as our managers educate advisers, some of the disciplined investment process. And fund performance for the Cundill team has improved to the 91st percentile in the 1-year period.

32 - Slide 32 rather shows our net revenue rate expressed as a function of average total AUM. And the rates declined slightly from last quarter due to change in the composition of assets under management with a greater share of non-retail priced products and the impacts of the auto switching of qualified investors in our private well series, which we announced earlier this year.

And finally turning to Slide 33. Mackenzie's earnings before interest and taxes rose 8% from the same period last year to $43.4 million.

Our non-commission expenses in the quarter increased 7.2% compared to the second quarter of 2016. Important to note thought that our core expense base is tracking the plan and we continue to manage costs prudently across reorganization wherever higher incentive compensation due to sales and asset levels, which significantly exceeded expectations, drove the rise in non-commission expenses in the quarter.

And given the strong trajectory of our net sales, which I highlight on Slide 26 in our expectation that this momentum will continue to accelerate through the rest of the year, higher sales bonuses could add 2 to 3 percentage points to our non-commission expense guide of 5% growth for the full year. As a reminder, this would only occur if we experience continued strong growth in sales and that these are upfront costs on assets that will generate revenue in the coming quarters and years.

And now I'll turn it back over to operator, Reda, for questions.

Yeah. Thanks very much.

Just a quick question with respect to the discontinuance of the DSC, I noticed that the redemption fees, the fee income from redemptions is tracking a little bit lower now. And how should we look at that going forward with the DSC now gone.

Is there any reason why it's a little bit lower this quarter? And how should we be looking in that going forward?

Yes. This quarter is lower - it's Kevin Regan speaking, mostly because of the mix.

You look at redemptions occurring in general terms, they're down. Jeff looked at the quantity of redemptions that actually would attract the fee, and they were down as well compared to prior periods.

So therefore, the fee itself will be down. So it's the blend of both the volume being down and the mix being down at fee eligible redemptions.

Over the long passage of time, ultimately, as the DSC assets mature and move up when you get redemptions, you won't earn a fee into the future, but you've got a long tail on the sales that were made. Essentially, the day before we change the pricing strategy, both have the 7 year tail on them.

So it will gradually melt away. But for this quarter, it's essentially a mix issue.

Okay. That's good.

Thanks.

Yeah.

Thanks. Maybe first question for Jeff.

Just on the new strategy here. So where do you think you'll need to make the most changes?

And is it more trimming of the consultants did better investment performance? And what would be the costs associated with these changes?

Yes. I mean, let's start with the distribution first.

I mean, I think there is - we're training them. Like so we're going beyond - so we are obviously making CFP mandatory, but we're actually going to go beyond the CFP itself and even take it to a higher degree.

So we're building our own education. We're creating our own university, and we think that our competitive advantage over the long term is going to be that we're smarter and more educated and more grounded than the industry and that everything is available to an adviser to achieve our goals, making sure their clients get the best possible outcomes, and that's going to be our differentiation.

And so we have some of that today, but we're going to fortify that and people will be tested, so that we make sure that they've ingrained this into their knowledge and into their experiences that they're going to provide to their clients. So think about as they will be the most trained and inspired distribution team in the country.

So that's on the Consultant side. Any - what about changes on the other buckets?

As far as the rest of the products and things or what…

Yes, you talked about products, you talked about the investment performance side. Like what are the changes that you're thinking there?

Yes. So we're - I mean, we're constantly looking at tools to help build the best possible portfolios to our clients that we can find.

And you've seen this, but instead Barry and I sort of built Mackenzie, and there's lots of really interesting products that are being built there that we could use potentially at Investors Group as well, so I think you'll see some of that. But we're also looking at a retirement income space and how can we be the market leader there.

And so there's tremendous amounts of opportunities for us going forward. We like what's happened with our product line-up because it's already gone through a transition to a more sophisticated offering and more targeted to the high net worth market.

So again, there, those - as we have more and more of those clients, the demands will go up and we'll look for opportunities to again innovate in that space and bring new tools to it. And then being part of the Power group who gives us access to a lot of interesting ideas across all of the asset managers, and we've been doing some of that in Investor Group and Mackenzie.

So there's no lack of opportunity. It's really making sure you manage yourself really effectively and have the right products for the right time and - but also don't over complicate it either because in both Barry and my model, we need our people to deeply understand these products, so they know how to utilize them.

And then on our side, we're using more - the products that we built as components of a solution, and we're really trying to get our advisers out of building their own data and trying to do that themselves and leave it to the pros. And so I think you'll see more tools around that and also around solutions that will diversify us even more into other find of fund solutions or diversified products going forward.

Great. Thanks for that.

And my second question on the non-commission expenses. I think the current run rate is still certainly about the 5.5% to 6% you guys targeted for 2017.

So will the savings from the restructuring charges you guys took this quarter bring you within that range?

Yes, those restructuring charge, I mean, if you will, the savings related to that, we factor that into comments that both Jeff and Barry had made earlier. So it's already baked in through the remaining part of the year.

And obviously, as you do gain advantage from doing restructuring, as Jeff suggested, there's other places that we intend to do redeployment of some of the expenses into other places to help us build capacity. But for the amount that you'd seen flow through the income statement this quarter, we factored that into our...

We're just starting on the journey of sort of reengineering our operations, and that's going to take time to play out.

Okay. And then I know we're just half the halfway mark here, how should we think about and non-commission expense growth maybe for 2018?

Is it going to be below this 5.5%, 6% range? Is that the right way to think about it?

Well, at the IGM level, if you think about the acquisition cost that Barry's experienced because of his fast growth here, but in concluding that, we expect IGM to run at 7%.

For this year?

Yes.

Going to the future...

No, it's the same message I gave before is that if we can't run at these rates forever, we'll run out of money. And so we're targeting the 3% as our long-term goal, and they're - all these new people are going to be helping us to find the synergies in the side of our company and then growth will help us and other things as well to invest in efficiencies.

And so it's going to be a series of initiatives that will get us there, but we know we have to do that. And that's something that we got a lot of work already started on.

Okay, great. That's it from me.

Thank you.

Hi, good afternoon. First question I had was for Barry.

Just going back to the Slide 31 talking about Cundill specifically. I mean, when you take a look at it on absolute basis, it's still, I believe, is - based on what you're showing there, had the most net redemption in terms of dollar amounts.

And so what you've seen, I guess, is from that table. As the gross sales have increased, the redemption rate is coming down.

I'm just trying to get a sense here in terms of beneath the surface here because you made changes to investment, I think it was last year. Is it fair to kind of take it to think about it as that your clients have kind of recognized the changes in the team, that the improvement in the performance within the family of funds.

And essentially where this could be and maybe a little bit of a wildcard that as these net redemptions, hopefully, start to improve that your net sales, overall, could even pick up more than what they've done already?

It's a good question. Thanks, Geoff.

So first of all, we couldn't be more pleased with the Cundill team that's been added new team a little over a year now, and you can see the performance has been very strong for the one year. And very tighter process, still adhering to the traditional value approach.

And redemption rates have been normalized. And so that take a little bit of time.

And the team working with our wholesalers work very hard to talk to the advisers to say, listen, new team's in place and give us some time. And so if you see with the normalizing of the redemptions to levels equaled roughly to the other teams, that job is done.

Now it's onto the sales side, and that would be, you're right, that would be a nice lift as we expect to see the - now with redemptions normalizing, the gross sales start to pick up for Cundill. We have really a broad-based momentum though, which is really encouraging, and obviously it's such a benefit to have 10 boutiques because they each offer something different for marketplace And so as we have majority are doing well and that continues to expand and accelerate, then you will see ourselves pick up accordingly.

The - just to be clear though, it's also very gratifying to see that our balanced funds, and as I mentioned, 8 of our 8 core balanced fund, it's a larger balanced funds, are all 4, 5 star in the F Series. That's been a huge boom for us, and it's by far the deepest category in Canada, as you know.

And we view the balance category a little more broadly. We view it more of a multi-asset class category.

So the "traditional balance" that we have, the 8 core balance, which are run by the various boutiques, are doing very well, including Cundill. We also have our managed assets, multi-asset Symmetry, which is, as you saw by the charts, just up over 50% sales year-over-year.

And we're also continuing to innovate, and the areas of innovation are mostly in the multi-asset class area. We launched our Mackenzie diversified alternative fund a little under 2 years ago.

That's over $350 million now in AUM, which puts together 20, 25 different asset classes. We've launched more outcome-oriented multi-assets.

So I guess you can call them balance, but we call them outcome-oriented multi-asset. Our strategic income fund is doing very, very well.

So - and even the ones that we launched that are not "multi-asset" that take our unconstrained bond fund, which is a strategy, which is over $800 million now with a really strong 3 year track record. Each of these pieces, new products that we developed, we believe that when you put into our overall portfolio, as said Jeff was saying, it improves the portfolio overall.

So that's solutions orientation that we've been looking at now for 3 or 4 years and it's taking hold. So not to get off track on your specific question of Cundill because we're just so excited about the Cundill team, but they all - all of boutiques worked so well in tandem.

And Cundill is back, and that would be one of many inflection points to continue to fuel our growth going forward.

Okay. Thanks for that.

And just my other question for Jeff. Yes, I know you've talked a little bit about where you want to take things with IG, and I know you've talked a little bit at the IGM level that it may be kind of play out over a period of time.

I'm just wondering if there's anything else kind of incremental that - now that you've been in the seat on the IG side as well as the IGM side for a little bit now. If there's other things that you kind of see in terms of either at IG or across the platform, whereas before you have the co-CEO situation of additional kind of revenue growth opportunities, other areas that you can maybe reduce the expenses over the next year or 2.

Yes. No, it's - we've been doing a lot of due diligence on that topic and looking at every cent that we spend in this company to make sure that it's well used.

And so when we're ready to share that with you, we will. And some of these things are going take longer because you have to invest in to actually make some of them happen.

And then others, you're just eliminating resources or people or finding other ways to solve that problem. But I don't think it's going to be a silver bullet here.

It's going to be a series of different projects and events that we're going to go through to do this. But we know that to hit that target that I said around 3%, it's going to take a lot of reengineering really to get that done.

And that's why I've brought in a person just to manage all of the execution of that. And then with my dividend and what we're doing with our marketing organization, they're all going through a fairly transformational change as we upgrade.

And I can tell you that the early days on this new talent are already having a significant impact on this company. So we'll get a chance to put them on the stage in front of you guys so you can see them live unless you have more other ideas because they've all been here for probably 90 to 120 days at that point.

So they'll have some more context, but they're already coming in and having great conversations with us about where we can go from here and how we can accelerate the growth or find new efficiencies or bring in new capabilities that will enable our company to compete even more.

Okay, great. Thank you.

Good afternoon. The decline in the Consultant and Investor, maybe just could you provide some color on where you're at with that process.

I think it's down...

Yes. So we're pretty much through the cleansing.

There is - you're always looking, and this could be something that happened. But what's more exciting is we're getting sort of refocused on hiring, and we've raised our standard of bringing in new people.

And so the early concerns on raising that standard on the new people that we've been hiring is looking very promising. So we're excited about that.

But I think you'll start to see that growth of new advisers, not at the same rate that you would have historically been experiencing it. But certainly seeing this continue to invest in our future, while we help all of the advisers that are already 4 plus today, making sure that there's productivity - productive as possible.

So I think you'll start to see-- if you're monitoring that 4 plus, that will be sustained over time around the numbers that you see today for sure.

Okay, great. And have you been able to maintain the majority of the assets that were associated with the advisers that left?

Or was there some attrition there?

No, we kept it all.

Okay. The China AMC deal, I'm just wondering what's the timing around that.

Is there any update and what to expect?

It's Barry. Yes, everything's taking along as expected.

So as we've been projecting the - all we're doing is just going - waiting for the approval process to finish with the regulatory authorities in China. It looks like that the - probably late Q3, and it might leak into early Q4, but there's no concerns at all.

We're tracking and monitoring, having ongoing dialogue. They just have to go through.

And I think more importantly, our partnership with CAMC just continues. We don't have to wait for the transaction to be completed.

We're doing a lot of joint meetings and training and secondments, and so it's a great partnership. And working on mutual park development in terms of launches here in Canada powered by them and launches in China distributed by CAMC powered by Mackenzie, so all good.

And so what we will do when the transaction does formally close is that we could and we'll coordinate this with the proper alignments and cadence with CAMC and their parent companies and securities. When that occurs, then we can disclose a few more, you know, how things are going business-wise with them.

But at this point in time, we'll have to wait for the transaction to close.

Okay, appreciate that. And you've already issued the or raise the debt to finance the deals that you're paying, interest costs associated with that deal currently, is that correct?

Yes, that's correct. That's easy.

That's flowing through our interest expense. So when you look at the competitors, you can see the difference and it's all that.

Yes, okay. Jumping back to Investors Group.

The comment or one of the boxes in the strategic vision mentioned powerful financial solutions. I think it suggests launching new products, but also you mentioned competitively priced.

Should we be reading through that with anything in terms of your - reviewing your pricing at all or is that just a mention of ensuring that you are competitively priced going forward?

Yes. No, I'm already branding myself as we are comparatively priced.

So when I say that, I'm just saying that across our practice and that we feel very confident with where our pricing is today.

Okay.

Again, we have levels. More assets you bring in, the lower the cost.

And so we're not worried and you've seen the amount of flows going into high network solutions and - but we're repricing ourselves through our P&L right now, and it's going rapidly.

Yes. So the repricing is happening to some extent because your high network solutions are increasing as a percentage of your sales?

Yes. For people, we either have less than 100,000.

They're probably paying what they should pay because their scale isn't as high, and so it's - and they're not likely to leave because they're getting a good service. And so we don't really worry about that, and our retention is strong.

So it's not an issue on pricing. At some point, you guys will stop asking me, but I got to keep looking at it.

No, you just mentioned in the slide, so I wanted to make sure I'm listening...

No, no, no. It appears to print it out, but I just got to be clearer as I possibly can.

But I guess it's reasonable to expect the cadence that we're seeing in that average management fee rate to continue if you assume that high net worth products are going to continue so well for you. Is that fair?

Yes, that's fair.

And then my last question, if I could. Barry, just on the mutual funds that are selling well, can you give us a little bit of color on - it sounds like the balance fund are doing well.

What channels are working well for you? Has there been any noticeable change there?

It's - no noticeable changes. It's been very gratifying that really the source of the accelerated sales have been all channels, IIROC, MFDA, are the platforms, our third-party partners.

It's been broad-based in terms of the channels. It's been broad-based, which we are very pleased with as you saw on the slides across asset classes and sort of our existing product line-up and their new launches last 2, 3 years.

It's been broad-based geographically across our 41 wholesale teams across the country. So that's probably - obviously, we're very pleased with the results.

Still early days, right, a lot of work to do, and we think we do even better. It's good to have the recovery momentum be that broad-based because sometimes Jeff and I run businesses over the last 25 years, sometimes you have 1 or 2 levers kind of going for you.

And - but this is not the case. This is extremely broad-based, and we're very, very pleased to see that.

So we'll keep focused and keep the team focused and - but not let up on innovation either. We have a lot of new ideas in terms of strategies to launch over the coming quarters, both in mutual fund format and ETF format that we think that the advisers and Canadians will be excited about.

Great. And can you give me a bit of color around the distribution of your sales between commission paying and F Class and maybe stand-alone funds versus your managed solutions?

Yes, it's - so on the last note, second one first. It's broad-based.

But you saw the stats, if you look at the slide, it better shows all the different asset class with balances clearly doing really well. And managed assets will be your Symmetry, and it balances you more traditional.

That's on Slide 28, actually. So you can see that it's - but not just balance though, everything is up.

Our foreign equity is up and Ivy's continued to sell really well. And as I mentioned, our Mid Cap U.S.

is doing very well. Our sector is up.

Sector is predominantly our diversified alternative fund at MDAF. So that's really nice.

Income-oriented, that's fixed income and still selling well in Canada overall the industry. And what's leading it is more global, more unconstrained, more out go anywhere bonds.

And so that's what's driving that for us. So that's done very well.

And then back to your first point. I think we're experiencing what the industry is experiencing, that's the - our F Series or unbundled series.

It is growing fast, faster than our A. But, of course, we have a very significant valued clientele with the advisers tripping them at the A channels for our A bundled series.

So those are all, again, are growing very well. But no surprise, it's like the industry, our F Series is growing the fastest among the Series.

Thank you.

Hi. Good afternoon, guys.

Barry, just going back to the groups in terms of the sales reduction. You mentioned Ivy having good gross sales.

But I noticed that's the only group year-over-year in Q2 that had a significant reduction in net sales, but it's got the most 4 or 5 stars. And also you commented that foreign gross sales were strong.

What's the disconnect, is there just a lot of gross redemptions, I guess, as well countering that?

Yes. The only reason for that is that, again, when you have - Ivy sold strongly for many, many years and this happens with any of our boutiques, but obviously it's been leading for many years.

It's simply rebalancing. So their gross sales are very robust and strong as they always are, but these - the net is softer than prior years, simply because the exposure in overall portfolio in a lot of advisers has gotten a little out of balance, and therefore, they've doing some - through rebalancing.

So we've asked around, and that's the reason for that. So I think also, to double check, but again for the industry flows, they're pretty good overall performance.

I think they're a little off year-over-year and the balance continues to drive that. But no concerns at all with the foreign, maybe not being where it was in prior years, it's simply some rebalancing going on with the adviser community.

Great. And have you noticed anything in July with the Canadian dollar still increasing after June in terms of flows into the foreign equity category?

Our own experience, no, our own experience has been in July, that's only 1 month. But pretty much the same as the prior 6 and maybe just a little bit of uptick in the balance.

The balance is really - we had $188 million net flows in mutual funds in July alone and broad-based across the board, but probably a little more of an uptick in balance in July, but not typically different than the prior months.

Okay. Thanks very much.

You're welcome.

Thank you, Reda. That concludes the call today, and we thank you for joining us.