CI Financial Corp

TSX:CIX

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to the CI Financial 2021 First Quarter Results Webcast Call. [Operator Instructions]Please take note of the cautionary language regarding forward-looking statements and non-IFRS measures on the second page of the presentation.I would now like to turn the call over to Mr. Kurt MacAlpine, CEO of CI Financial. Mr. MacAlpine, you may begin.

[Kurt MacAlpine, CEO & Director]

Good morning, everyone, and welcome to CI Financial's first quarter earnings call. Joining me on today's call is our CFO, Doug Jamieson.During the call, we will cover the following topics: A discussion of the highlights and challenges of the quarter; a review of our financial performance during the quarter; an update on our sales to date for the second quarter; an update on the execution of select items of our corporate strategy, then we will take your questions.Following a transformational year in 2020, we had a record quarter to start 2021. Doug will cover in more detail in a moment, but I'd note we've made changes to our adjusted metrics to remove the noise associated with our M&A providing better visibility into the trends and economics of our business. We've started to see material contributions from our wealth management expansion, which helped drive record adjusted EPS of $0.73, record adjusted free cash flow per share of $0.75, record adjusted EBITDA per share of $1.14 on record adjusted revenues of $603 million. We expect an even larger contribution from our wealth management business as 2021 progresses and the recently closed SBH, Barrett and Brightworth acquisitions and the recently announced Dowling & Yahnke acquisition begin to contribute.We continue to take a dynamic approach to capital allocation. During the quarter, we spent $113 million to repurchase 6.6 million shares. The acceleration compared to recent quarters reflects our view of the stock's absolute and relative valuation and a brief lull in deal closings between the 6 deals that closed in Q4 and the 4 that closed in April. We also reduced leverage while further improving our maturity profile. Using the proceeds from our December notes offering and the reopening in January, we fully retired our 2021 and 2023 notes and repurchased $44 million of our 2024 bonds. The Board also declared an $0.18 dividend consistent with prior quarters.On the sales front, although the company continues to be in redemptions, we generated our best net sales quarter since 2017, reflecting the tangible evidence our strategic initiatives are paying off. As anticipated, outflows from our institutional business declined and the level of at-risk assets continues to shrink. One example being our ETF platform, we're on the back of innovative product launches. CI was the industry leader in creations in March for the first time in our history.Our strategic momentum accelerated in the first quarter. During the quarter, we announced the acquisitions of Segall Bryant & Hamill, Barrett Asset Management and Brightworth, which combined added nearly $40 billion of client assets when those deals closed at the end of April. We continue to modernize our asset management business with the launch of innovative thematic products such as our Bitcoin and Ethereum funds, which immediately saw a market uptake and have established themselves as category leaders.Now Doug will review the financial results for the quarter.

[Douglas J. Jamieson, Executive VP & CFO]

Thank you, Kurt. Before reviewing the financial results, I'd like to highlight some changes to our reporting. Effective with this quarter, we have changed the definitions of our adjusted metrics, including adjusted EPS, adjusted EBITDA, adjusted EBITDA margin and free cash flow. These measures now exclude the amortization of acquisition-related intangibles, the change in fair value of acquisition liabilities and FX gains or losses associated with the translation of items related to acquisitions and our U.S. dollar debt. We believe these changes provide better visibility into the underlying trends of our business and better consistency with how our peers report their results.Turning to the Q1 results. Core average assets under management, which represent the assets managed by CI in Canada and GSFM in Australia, were up 4% in the quarter to $131.6 billion. Core AUM ended the quarter at $132.6 billion, up 2% from year-end, and that sets up a solid launch point for Q2 with ending AUM above the Q1 average. U.S. assets under management are reported separately from core AUM as the revenues earned on those assets are part of an overall fee paid by clients for wealth management, and those revenues are included in the wealth segment.In the first quarter, CI's U.S. AUM grew 8% to $5.9 billion on net sales of $284 million and market performance. Wealth management assets grew to $102.1 billion, up 6% sequentially, reflecting solid organic growth and positive market returns.Net income of $124.2 million included $27.4 million of noncore items. Adjusted net income of $151.6 million increased 2% sequentially, and 30% from a year ago. Adjusted earnings per share of $0.73 was up $0.02 per share or 3% from the fourth quarter and up $0.17 or 30% from the first quarter last year, with these gains driven by the emerging profitability of our Wealth Management segment. Free cash flow was up 7% to $155.6 million.CI's SG&A in the first quarter was $133.4 million, up from $116.7 million last quarter and $115 million in the year ago quarter. The increase reflects a combination of the impact from the acquisitions that closed at year -- at the end of 2020 as well as seasonal items.Spend in the Asset Management segment increased $6.5 million from last quarter. The increase in part, reflects higher variable costs due to higher asset levels, although a portion of the increase reflects seasonal payroll costs and active Q1 product launch calendar and other items that are nonrecurring in nature. SG&A in the wealth segment increased $10.2 million, reflecting a full quarter impact of the 6 acquisitions that closed in Q4.Free cash flow in the quarter of $156 million was largely deployed towards buybacks and dividends. CI repurchased 6.6 million shares in the quarter at an average price of $17.17, taking advantage of what we believe is an undervalued stock as well as a quarter where no acquisitions closed.CI's gross debt finished the quarter at $2.2 billion, a reduction of more than $250 million. As we used proceeds from our December and January U.S. bond offerings to redeem early in full, our 2021 and 2023 bonds, and buyback in the market, $44 million face value of our 2024 notes. Net leverage ended the quarter at 1.9x, down 0.2 turns, reflecting growth in EBITDA and the modest reduction in net debt.I will hand it back over to Kurt.

[Kurt MacAlpine, CEO & Director]

Thanks, Doug. Before providing a strategic update I want to update you on our assets and flows for the month of April. Following continued growth and the closing of the 3 acquisitions, we ended April with total assets of $288 billion, up 20% from March an another all-time high for CI. This includes $141 billion of assets under management and $147 billion of wealth management assets. This marks the first time in CI's history that wealth management assets exceed asset management assets.To put this in perspective, when we initiated the new strategy in the fall of 2019, our asset management business was nearly 3x larger than our wealth management business. This highlights the significant progress we've made in expanding our wealth management business, globalizing the firm and positioning the asset management business for greater success.In April, we saw continued improvement of -- in our flows. For the month, we had net redemptions of $236 million. As we have worked to modernize our product lineup, we experienced strong momentum in our newly launched products. For example, our Ethereum ETF, which launched on April 20, took in $150 million during the fund's first 9 trading days, positioning ourselves as the clear asset and trading leader in this incredibly important category.I now want to highlight some of the progress that we've made executing against our strategic priorities of modernizing asset management, expanding wealth management and globalizing our company. I'll start with the strategic priority of modernizing Asset Management. In previous quarters, I've discussed at a high level, the corporate rebranding, the evolution of our investment management platform from a multi-boutique to an integrated investment manager and the creation of our advanced analytics and predictive modeling capabilities. Today, I would like to focus on the significant progress we've made in transforming our sales model and modernizing our product platform.Establishing a strong foundation powered by data and analytics, has provided us with the information we need to transform our sales model. We are now able to serve clients in a highly customized way, leveraging qualitative and quantitative insights. Over the past 12 months, we've changed nearly everything about our distribution model. Sales and marketing used to be parallel functions and are now working to service clients seamlessly. We have invested heavily in training and development, which has reduced our need for product specialists. We have recut territories and roles to focus on the highest priority opportunities and increased our focus on the IIROC channel.We've also moved away from the decades-old external, internal assistant coverage model employed by nearly all asset managers globally, in favor of one that leverages technological advances and data-driven insights. Now our most senior salespeople cover the largest 250-client relationships in each territory, and we've added dedicated sales coverage focused on the next 450 largest advisers. This shift has a number of benefits. It shrinks the size of each salesperson's territory, down to a manageable level where they can cover every client in a high-touch, personalized way. It increases our sales capacity by 34% through shifting people from service to sales roles, and it provides more operating leverage in our business, as only 1 person is generating commission per dollar of assets sold.Moving on to products. We've made a series of structural, strategic and tactical changes to our product development process, and we're experiencing strong early results. The rebranding exercise has simplified our product shelf and made it easier for clients to understand and access our great capabilities. We've made significant investments to position ourselves to win in high-growth categories, including liquid alternatives, thematic strategies, cryptocurrencies and ETFs. And we have established strategic relationships with some of the world's leading asset managers to provide Canadians with access to their capabilities for the first time.We've transformed our wealth management business over the last 16 months with assets tripling from $51 billion to $153 billion, which positions us with more assets in our Wealth Management segment than our Asset Management segment for the first time in the firm's history.While M&A has been the driver of growth, we have also seen solid organic growth from our Canadian wealth franchise and our U.S. RIAs. Importantly, the asset growth has come with attractive economics as we've seen significant EBITDA emergence. given the attractive profiles of the RIAs that we've acquired.Including the acquisitions closed in April and the Dowling & Yahnke deal announced Monday, which is expected to close later this quarter. Run rate adjusted EBITDA for the wealth management sector is up to $168 million. This is $153 million increase in run rate wealth management EBITDA from 2019 levels. Consistent with prior quarters, I want to be clear that this is not a forecast. This number only includes our current interest in these companies and does not include any growth or market assumptions. It also excludes any strategic or cost synergies, asset management product sales, business model improvements, or planned but unannounced transactions. We are confident that meaningful synergy opportunities exist, but we prefer not to give guidance.Digging a little deeper into our Wealth Management segment, I want to spend a moment providing an update on our Canadian franchise, where we've made considerable strategic progress. We have never been more focused on wealth management, which is reflected in our strategic initiatives and our exceptional growth.Within Assante, we've made considerable investments to digitize and expand our platform, enhancing the client experience and adding discretionary capabilities for the first time. Since we acquired Aligned Capital in October, their platform continues to realize exceptional growth. Since closing, they've added 31 new advisers to their platform and their assets have increased by $2.8 billion to $13.5 billion.We are in the process of integrating our 2 direct-to-consumer platforms, WealthBar and Virtual Brokers into 1 digital platform that provides automated investing and direct trading capabilities. We are in the process of building on our legacy Stonegate high net worth business, now branded CI Private Wealth, and evolving that business to create Canada's first wealth management company offering an RIA client experience. The early impact associated with these initiatives have been exceptional, and our Canadian Wealth Management business has increased assets by greater than 50% since we rolled out our new corporate strategy.In Q1, we continued to build upon our highly successful 2020 entrance into the U.S. RIA market. In a short period of time, we've assembled a national network of best-in-class RIAs that can leverage CI's resources and deep experience in wealth planning. We are excited to welcome the teams at Segall Bryant, Barrett and Brightworth to the CI family and look forward to collectively executing on our vision to build the leading private wealth platform in the U.S.Earlier this month, we announced an agreement to acquire Dowling & Yahnke, which at USD 5.1 billion in assets is our second largest RIA acquisition to date. Dale Yahnke and his team have built an incredible business as evidenced by their size, their growth and the long list of accolades they've received. Also in May, Congress, one of our affiliated RIAs announced the acquisition of Pinnacle Advisory Group, a Maryland-based RIA. Since we invested in Congress less than 12 months ago, their assets have more than doubled to USD 5.8 billion. Combined, these deals boost our RIA assets to over $80 billion.I'm excited by the momentum that we have established in the U.S. wealth management space in the 16 months since we've entered. I believe we have the fastest-growing U.S. wealth management platform ever. And it is clear that the leading RIAs are choosing CI as their strategic partner. Our pipeline remains robust, and our value proposition continues to resonate with the highest quality growing firms that share our vision.Before we open up the call to questions, I want to take a moment to thank Doug Jamieson, who will be moving on from CI after a distinguished 25-year career after the upcoming CFO transition has been completed. The organization is very grateful for your contributions, and we wish you the very best as you pursue your next chapter.I would now like to open up the call for questions.

[Operator]

[Operator Instructions] We'll take our first question from Scott Chan of Canaccord Genuity.

[Scott Chan]

Kurt, you talked about the Canadian Wealth platform. And then one of the points you brought up was establishing a fee-based planning first platform similar to what you're seeing in the U.S. RIA channel. Can you elaborate on kind of what that entails? And I guess what stage are you at? And how meaningful could that I guess, a little business model shift become over time?

[Kurt MacAlpine, CEO & Director]

Absolutely. So -- and Scott, I think you're referring to the creation of Canada's first, I guess, RIA-like experience in wealth management. So essentially, for those that aren't familiar, we have a high net worth platform today called Stonegate, which is essentially a collection of leading financial adviser teams that are focused essentially exclusively on servicing high net-worth clients in their respective teams. So there's a couple of things that we're working on. One is naturally putting some of those teams together to create a more integrated business as opposed to a collection of teams. That's underway currently. And we will essentially create roles in an experience that is very similar to the RIA business model. And then the second piece would be scaling that platform up beyond the existing Stonegate teams that exist today. So I'd say we're in the early stages of making it happen in terms of the structural changes that are required to bring it forward.On the service model and the experience changes, this is something we obviously know well given the size and velocity of growth that we've experienced in the U.S. segment. So I think what this will do is it will take this fantastic business that we have in Stonegate today. Evolve it structurally that will allow us an opportunity to really scale up in the high net worth space in Canada in a way that's somewhat consistent with how we've been growing in the U.S. market.

[Scott Chan]

And like on the Q1 results, I think you called out performance fees of $12.6 million. What was that attributable to? And I guess going forward, typically, Q4 is kind of the performance fee period where you see kind of more of a material amount. So how do we think about over the quarters beyond Q4 going forward?

[Kurt MacAlpine, CEO & Director]

Yes. So performance fees, as we've evolved our business model and have established leadership position in the alternative space or the liquid alternative space in Canada and with the introduction of some of the private markets products that we're bringing to market, those come with management fees and with performance fees. As you know, performance fees are quite lumpy and episodic in nature. So they will hit periodically when the opportunity exists, but it won't be a -- I wouldn't think of it as a recurring consistent quarterly contributor.

[Scott Chan]

Is there something [ lastly ] that you can quantify like how much of the assets are performance fee eligible right now?

[Kurt MacAlpine, CEO & Director]

It's a very small percentage right now, but it is growing, given the success that we've had in alternatives in the Canadian marketplace. And I do anticipate that will -- the percentage of assets that would qualify for performance fees as we continue to evolve our product shelf, our distribution model and our client experience should naturally grow. I think one of the things that really stands out is the number of high net worth households that we now have doing business with CI. And that obviously creates opportunities on the product front where there is high demand for customized bespoke alternative strategies.

[Operator]

We will now move on to our next question from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, MD & Analyst]

Yes. I see you made some adjustments to fair value of the contingent consideration payable in the quarter. Can you point to any specific acquisition this would have been related to? And what could you initially get wrong when, I guess, when you set this fair value? And what has changed that caused you to make an adjustment to that fair value? And then I guess, what would trigger any kind of further increases in the fair value of this consideration payable going forward?

[Kurt MacAlpine, CEO & Director]

Sure. So when we're structuring transactions or making acquisitions, we typically have a fixed consideration and then an earn-out opportunity for the particular RIAs, which is typically tied to profitability and organic growth, excluding market factors. So as these businesses continue to perform, and we've seen, as I shared last quarter, 2020, we had annualized organic growth ex-market of 9%. These businesses have outperformed our expectations, which is obviously a very positive thing. So as they continue to perform and continue to grow their earnings and the revenue, we may need to make adjustments to that, which I think is a positive. So Tom, it's just about exceeding expectations that we had initially set in the process.

[Tom MacKinnon, MD & Analyst]

And is this sort of a present value? So is that what we would look at is this -- or it's not sort of any kind of trailing? It's not just what you've kind of how they've exceeded your expectations since they've -- since you brought them on board. Is this more of a present value type approach in doing that?

[Kurt MacAlpine, CEO & Director]

Yes, it's more forward-looking. We're taking a look at the growth rates relative to our initial expectations, and we're making adjustments as we get closer to various earnout periods.

[Tom MacKinnon, MD & Analyst]

And then if we had like this 9% growth again in 1 year from now, will we be looking at taking a similar fair value adjustments? Or how much do you think you've captured a lot of this in your adjustment you made in the quarter?

[Kurt MacAlpine, CEO & Director]

Well, without getting too deep into the weeds, the earn-outs are typically range-bound, and there are certain thresholds by which firms qualify for earnouts, which is done on a customized level as it relates to each specific acquisition. So it's not an uncapped situation where if we continue to grow at 9%, it would continue to grow proportionately to that 9%. I think we are trending to the very high end of the earnouts on the back of better-than-expected growth and EBITDA margins. But I wouldn't anticipate it won't move linearly with continued organic growth.

[Tom MacKinnon, MD & Analyst]

Okay. So if we continue to get similar growth, we wouldn't necessarily see the same kind of adjustment in the future. Is that a fair assumption?

[Kurt MacAlpine, CEO & Director]

Correct. Yes. But I mean, I would see -- so yes, that's correct. I would say I see this as a positive, right? If you think about the -- we're buying businesses with certain set of assumptions. And in order for that adjustment to take shape, the business would have to exceed the growth and profitability assumptions that we had put in place. So the incremental value that's being generated on a multiple basis is a fraction of the upfront consideration, and it is range-bound. So when we're making these adjustments, it's on the positive, it's on the back of very strong business performance that exceeded expectations upfront, which is obviously what you'd want to see from any acquisition that you pursue.

[Tom MacKinnon, MD & Analyst]

Absolutely. And just a quick follow-up. There's a $7.1 million write-down related to some assets and investments in the quarter, like everything seemed to be on fire in the quarter. So what was this write-down related to?

[Kurt MacAlpine, CEO & Director]

That was a couple of different items. There was a trading write-down that we took in our brokerage business that was kind of onetime in nature. So we took the write-down when it occurred, and we will work through the appropriate steps to potentially recapture some of that. That accounted for the majority of the $7.1 million.

[Operator]

We'll now move on to our next question from Geoff Kwan of RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question was just one of the things I sometimes get asked by investors is just on the RIA acquisition strategy, what numerical data is there to understand? The acquisition multiples you're paying, the economics of the RIAs and kind of how you create value through improving margins and what the like.Now I get you don't want to disclose metrics on specific acquisitions, and you also kind of talked about not wanting to provide guidance on synergies and whatnot. But just wondering, like, is there anything you can provide to help answer at least some of these questions on maybe even in aggregate, what the acquisition multiples you've paid for all the RIAs so far? Any sort of pro forma kind of actual revenue as a percentage of AUA rates and aggregate EBITDA margins?

[Kurt MacAlpine, CEO & Director]

Sure. And thanks for the question, Geoff. So the way we -- and I've shared this historically, just given the velocity of M&A that we are undertaking, the sole reason that I haven't been disclosing the multiples that we're paying on a per transaction basis. One, obviously, these are nonmaterial transactions for us on any individual basis. But then secondly, every deal that we pursue is a highly customized process that has a number of different factors at work. I think if people are interested in taking a look at what we are paying. You can triangulate it. We've been very clear on a quarter-by-quarter basis.Here's what the EBITDA contributions are from our wealth management businesses. So the starting point pre-strategy was $15 million. We're running at $168 million now. That's $153 million improvement of EBITDA people can take a look at our free cash flow and changes to our leverage ratios and get a pretty good sense for what we are paying in aggregate for those businesses.From a synergy perspective, I think that this is one of the areas where we truly stand out relative to everybody else. So I think it's virtually impossible to argue with the statement that the leading RIAs in the U.S. have chosen CI to be their strategic partner. And the reason that we've decided to come together collectively is we share this belief and we see this opportunity that we can build the leading private wealth platform in the U.S. Our strategy towards doing that is find the single best RIAs in the marketplace, very well-run, high-quality businesses with great management teams that share that vision that want to come to our platform and continue to be entrepreneurs as we pursue this strategic vision.As part of that, they have the ability to tap into a very attractive synergy profile, which includes things like asset and licensing synergies. So as it relates to tech and service offerings, they can tap into corporate service and synergies. So essentially, access to our HR, marketing, our finance, our legal or admin, our payroll capabilities. They can tap into investment management and asset allocation related synergies. We also have cross-border synergies, being the primary financial adviser over 300,000 Canadian families.And also in the case of Congress, as we had mentioned earlier, using our capital to pursue sub-acquisitions, which are acquisitions that, for the most part, wouldn't be on our radar, but are highly attractive, financially highly accretive transactions as well. So I think when people who are coming to our platform, there's a lot of consistency in the quality of businesses that they've built and the synergies that appeal to them and to us as we put these platforms together, looking to achieve that aspiration.

[Geoffrey Kwan, Analyst]

Can I just maybe follow up on your comment there and because I think with the -- in the presentation decks, right, the pro forma run rate EBITDA contribution that you flagged, doesn't always match up from a timing perspective on what you disclosed in terms of the purchase prices in the notes of the financial statement because those typically are just the ones that you've had closed deals. So with that $168 million, what would be the aggregate purchase price of all the RIAs that encompass kind of getting you to that $168 million.

[Kurt MacAlpine, CEO & Director]

I don't have that in front of me. But it is not something, Geoff, that will be disclosing proactively. I think that there's enough information out there for people to triangulate. But as I mentioned, this isn't a purchase price thing, this is a -- we are in the midst of M&A, and every transaction is a highly customized, highly qualitative and quantitative process, and want to make sure that we're positioning ourselves for the best success possible as we have those conversations.

[Geoffrey Kwan, Analyst]

Okay. And just quickly, my second question was around on the Q2 net sales number, I know it's only a couple of weeks into mate. Just was wondering from what you've seen. Is there anything that the trend has been different versus what you had in April, even quite frankly, kind of year-to-date? I was thinking, in particular, on the Canadian retail side, how that $206 million net redemptions might look like if you excluded some of the ETF net sales?

[Kurt MacAlpine, CEO & Director]

Well, the trend continues to be strong. If you take a look at 2021 from the start of the year through to today. We've had a significant improvement in our flows on a year-over-year basis. The piece that I would mention in the retail stuff is quite readily available, obviously, with ETF creations being accessible daily. A lot of our success has come from products that we didn't have 6 or 7 months ago. We've had incredible successful launch of our cryptocurrency strategies where we've established ourselves as the leader, I believe, in both Bitcoin and Ethereum, being the only firm that's offering mutual fund and ETF structures for both of those strategies. We launched an innovative gold fund. Our alternative suite continues to deliver good results. So I think across the board, we're seeing really good success. The institutional numbers are a little bit misleading in the sense that some of the redemptions that we had experienced in Q1, we were notified of those redemptions in the summer and early fall of 2020. So just given the institutional redemption cycle, some of what you're seeing hit was just the execution of redemptions that were flagged to us 6 or 7 months prior.So when I look at the pipeline of retail, and I talked a lot about the strategic changes. We've fundamentally changed our entire distribution approach. We fundamentally changed and transformed how we think about bringing strategies to market. And I think it's -- people would recognize that we have a very different, more exhaustive product suite than we had even a year ago. And the integration of our investment management platform, which is 2 quarters in, we've already seen an improvement in performance. It's obviously hard to attribute performance to any 1 specific thing. But I do think the coming down of the compliance walls, the better sharing of information, integration of research and trading, either has or will lead to better results overall.So when I look at sales, Geoff, I'm very encouraged by the primary inputs that would lead to better sales, and I do think it's flowing through to our numbers now.

[Operator]

We will now move on to our next question from Gary Ho of Desjardins Capital Markets.

[Gary Ho, Analyst]

I just want to dig a little bit deeper into your financial flexibility. Obviously, you've been very busy with acquisitions past few months, many of those closing this quarter. Can you just tell us kind of what your dry powder looks like currently taking into account the announced acquisition and net debt to EBITDA on a pro forma closing.And that number, correct me if I'm wrong, the denominator of that includes the $12 million in performance fees that does not? And you mentioned that, that could be lumpy.

[Kurt MacAlpine, CEO & Director]

So in terms of our perspective, I'd say, my perspective on the long-term approach to leverage is pretty consistent, which is I think over time, we will structurally deleverage or -- and you've seen us deleverage in Q1 a little bit.In the short term, there's a couple of things that we are working through, and I've shared this many times before, but I think we have a criminally undervalued stock price relative to the quality of the business that we have and the strategic initiatives that we have underway. So as long as that disconnect exists, people should expect us to be continuing to buy back stock to take advantage of this disconnect that we believe exists.The second part is deployment of capital through M&A as we continue to execute against our strategic priorities. In M&A, by definition, is lumpy in nature, both in terms of the transactions or the businesses that come to market and the success rate that firms ultimately have. So we saw a lot of activity coming on the back of really Q3, Q4 last year where we closed a number of transactions in December. Q1 was a little bit quieter and then Q2 has picked up a little bit. as well. And we'll see what the rest of the year holds for us. I do think we have a very robust pipeline, great set of opportunities in front of us, and we'll just see as we work our way through that process.So I'd say, overall, if you took a longer-term view plan to structurally deleverage there might be some movement on either way in the short term as we look to take advantage of M&A and the disconnect in our stock price.

[Gary Ho, Analyst]

Okay. And then maybe related to those comments. So the net debt number, shouldn't we also account -- I think Tom mentioned this as well, the acquisition liabilities that's currently on your balance sheet, almost $360 million, like on a holistic basis, shouldn't we take that into account as your leverage? And can you comment kind of the rating agencies, do they look at it that way? Or how do they look at your leverage, currently?

[Kurt MacAlpine, CEO & Director]

Doug, do you want to take that one?

[Douglas J. Jamieson, Executive VP & CFO]

Yes, sure. The -- those liabilities are in future quarters and in some cases, years away, and we expect the EBITDA will grow into those liabilities. So I think the rating agencies will look at it, but they take into account that there should be growth in EBITDA to match up with the timing of those liabilities.

[Gary Ho, Analyst]

Okay. Okay. And then my second question, Kurt, can you just elaborate on that new asset management sales model that you mentioned in one of your slides. Just maybe perhaps, give an example of the legacy way sales process to the new approach. And with a 34% increase in sales capacity, how should we think about that? Does it give you option to reduce wholesalers or allow you to kind of go after additional relationships?

[Kurt MacAlpine, CEO & Director]

Yes. So the legacy model that I was mentioning was essentially, if you look across virtually any asset manager globally, they have the same sales structure in place today that was in place in the 1980s, 1990s, which is essentially, an external wholesaler, an internal wholesaler and a sales assistance. So essentially, you have 3 people focused on a singular set of overall client relationships. So you have someone doing sales, someone doing service. And essentially, they're working together to service typically a very large amount of clients. So in our case, the average territory had 700 clients. Anyone who's looked at relationship management, sales process, sales practice would say that 700 relationships is too many relationships for any one individual to ultimately manage.So the first -- in order for us to make this transformation, a couple of things needed to happen. One, obviously, all the associated technological advances needed to happen so you could service clients seamlessly wherever you are in person on the road traveling and things like that. But then probably the most important catalyst that allowed us to move faster than others into this model was the data and analytics that we have. So we just have so much better visibility today into our clients. Who they are, what they want from us, the buying decisions that they're thinking about that have really allowed us to segment our clients into 2 separate groups.So essentially, we took this 3-person focused on 700 clients model, said, we're going to have senior wholesalers cover the largest 250 relationships in a territory end-to-end. So you own all of your client relationships from start to finish, which, obviously, clients much appreciate versus having to deal with multiple different people. We've then taken individuals who are in a more service-oriented capacity and put them into sales roles, which has allowed them to focus on the 450 next highest probability opportunities or our highest probability relationships in the territory as well. So what we've really done is delayered, essentially 3 layers of coverage into 1 singular layer that is much more focused, much more targeted and informed by better data and information.So Gary, the way I'm thinking about it is this puts more selling capacity into our system and more servicing capacity in a way that we never had before. So the 34%, the way I would look at it today is it's not a cost-cutting exercise, it is a growth opportunity exercise, and the data allowed us to do it.I think If I had to guess, I would say, looking forward, I assume as other firms start to incorporate data, I would envision this being the default model in the industry. And I think that -- in order for you to move from the legacy model, you do need the data and insights to be able to structure and segment and prioritize accordingly.

[Operator]

We will now move on to our next question from Graham Ryding of TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

On the U.S. Wealth Management business, are you seeing any evidence that you flagged a bunch of areas where you're targeting the surface synergies over time? I'm just wondering, to date, are you seeing any evidence of that? Or is it too early given most of these acquisitions were just in 2020 or early this year?

[Kurt MacAlpine, CEO & Director]

Yes. We're seeing early evidence in a couple of different areas. The asset and licensing based synergies, just the scale that we have now at $288 billion is obviously much larger collectively than any 1 individual RIA that we would acquire. So our ability to negotiate or renegotiate contracts, receive the scale benefits of CI as opposed to the individual firm. That's definitely coming through already.And then the second piece would be, if you look at some of the firms, how they've started to transition and adopt CI into their branding. So we've started to have firms tap into our corporate services. So we've been in the process of aligning benefits once again, capturing the scale, having marketing work with their teams to refresh and enhance their brand experience, bring digital marketing capabilities to market and things like that.We're very, very early stages, as you could imagine, with most of our transactions having just closed in December of last year. But we're working through a number of different strategic synergies. We're focused on right now from a sequencing perspective, the areas that drive the greatest client impact with the least amount of disruption. And the reason for that is the organic growth that these businesses are experiencing has been exceptional. And as I shared last quarter, we've had 9% organic ex-market move ex-M&A. So these businesses on their own are really growing at a phenomenal rate. And what we're trying to do is make sure that we can be value-add partners without disrupting that incredible momentum that they all have in place.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. That's helpful. The wealth management acquisitions that you've closed or announced year-to-date, what are the EBITDA margin and organic growth profile of those entities like on aggregate?

[Kurt MacAlpine, CEO & Director]

On aggregate, it's pretty consistent with the firms that we've acquired so far. So when we're looking at M&A, we don't have -- I get this question a lot from people. Are you looking at certain geographies? Are you looking at certain size of businesses? We're not. We're looking for high-quality, well-run businesses that have dynamic leadership teams have thought through succession planning that share our collective vision. So one of the characteristics for us to initiate conversations is the businesses need to be running well, growing organically and have solid strong operational discipline as a starting point. So we haven't been pursuing any acquisitions with firms that don't meet the criteria. So as a result of it, you see a lot of similarities between the firms that we've ultimately acquired.I think the other piece that's helpful is very early on, we were very fortunate to start winning. So there's a lot of M&A activity taking place in the U.S. marketplace as it relates to RIAs because there's a fragmentation in the industry that doesn't exist in other areas of wealth management or in financial services more broadly. And we were very fortunate to win what I would see as the flagship RIA platforms in the U.S., the BDFs, the RGTs, the Brightworths, the Congress', firms like this. And that's really allowed us to generate momentum.And I think that if you look at M&A activity, we've been the clear leader in the 5 -- $3 billion to $5 billion-plus segment. And I think that, that's allowed us to attract a different level of caliber firm than what you would see as the standard transaction that's taking place. So I think it's really a momentum thing that we were fortunate enough early to be successful at attracting some of the leading firms, and that's really created the snowball effect We're now really virtually all of the leading RAs are choosing CI.So as a result of that, that you end up with a consistent size, scale, operational discipline and growth profile given the firms that are coming to us.

[Operator]

We will now move on to our next question from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, MD & Analyst]

Just looking a little bit at sales -- net sales first on your Slide 9. If we look at the closed business and institutional business, like I would assume that would be a lower margin. Maybe you can add some color there. And then to what extent is your asset management sales remodeling here in terms of how you're modeling how you're delayering here? How would that help net sales? Is it -- I -- do you think the issue in terms of net sales is a redemption issue? Or is it just more of a gross sales issue, specifically with respect to Canadian retail. And how would this new sales model help improve net sales in Canadian retail?

[Kurt MacAlpine, CEO & Director]

Sure. So I'll take them in order. So as it relates to our closed business and our institutional business, yes. On a mandate by mandate basis, Tom, I'd say your statement is accurate, obviously. Every mandate depending on the strategy, the type of management, the size, the relationship has different pricing. But I think it's fair to say that from an economic perspective, $1 of retail assets is more profitable than $1 of assets in any of the other specific channels. That's not to say that those aren't great businesses. Take institutional as an example. So despite having lower fees, the hold time for strategies tends to be months but years and sometimes longer than the decade. So what -- and then the size of the tickets tend to be considerably larger as well. So the sales process is slower, the holding period is longer. Yes, the fees are lower, but the assets are higher. So it's still very attractive economically for us. Given we are selling strategies where we have existing capabilities today, hence, capacity to be sold. So -- but if you were to stay at a high level, yes, the retail business on a per dollar basis is more financially attractive.As it relates to sales structure model, it's really both. So we've been in the business for a very long period of time, and like any asset manager that's been in the retail business for a long period of time. You have different types and profiles of clients. So sometimes we experience -- a lot of the redemptions that we experience tend to be a function of advisers that we have long-standing relationships with, being in the later stages of their careers and typically, client are within 5 or 6 years and age on either side of their adviser on average. So as a result, if you have part of your assets that are tied to advisers that are older, the clients that they're servicing are in retirement in drawdown mode now.So a lot of the redemptions are coming currently just from advisers and clients that are in retirement and using those proceeds. So when we think about growth opportunities, the reason for the sales shift is we obviously absolutely want to protect the core to the extent that we can, hence, the changes that we've made to the investment management model, the corporate rebranding, the associated fund renaming conventions, but we're also trying to make sure that we are resonating with the advisers that are growing their businesses today and those that are on the cusp of growing their businesses.And we have lots of great strategies in place that we've had for a while that resonates. But oftentimes, some of those advisers are thinking about portfolio construction differently. And I felt where we were vulnerable a year or so ago where we're not today is in categories like alternatives, opportunities that exist in crypto, the gold strategy that we launched. We want to make sure that we're evolving our sales model to focus, make sure we're continuing to service the advisers that have had long-standing relationships with us and then also making sure we're getting in front of those newer advisers.And I think the changes that we've made, it's not just the sales model, but the separation of that essentially 3-tiered model to servicing a single client base to having dedicated end-to-end client ownership, will create more sales opportunities. So we're focused on both managing the redemptions and also growing the business. And we need to do both as we continue to work towards net sales and strong growth.

[Tom MacKinnon, MD & Analyst]

That's great. And just with respect to the closed business, the seg fund runoff stuff. What about the margins on that? Is that lower than retail as well?

[Kurt MacAlpine, CEO & Director]

Yes. Yes.

[Operator]

We will now take our next question from Gary Ho of Desjardins Capital Markets. Gary, you may have yourself on mute?

[Gary Ho, Analyst]

Sorry about that. Yes. Kurt, can you provide some comments on your asset management fund performance? The data I'm seeing, there's some early signs of short-term outperformance, which is good. Just thoughts on sharing kind of what you target for your AUM both benchmark or funds that are kind of 4- or 5-star rated. I think most of your Canadian peers provide a target that they hope to achieve over a longer-term period?

[Kurt MacAlpine, CEO & Director]

Yes. So our fund performance over the past 2 quarters has certainly improved and it's trending in the right direction. Like I said earlier, there's a lot of factors that would go into fund performance improving. Obviously, the shift from growth to value has benefited us, given we tend to skew more value than some of our competitors.I do think the removing of the compliance walls that essentially -- and we've talked about this, I believe, in previous calls, but just take Harbour as an example. Harbour is, historically, was a legacy $3 billion investment boutique within CI. So Harbour had the scale, the team size, the purchasing power, the trading capability of a $3 billion firm. Harbour is now fully integrated into our integrated investment management platform. So their scale is somewhere between $141 billion and $288 billion, which is the total size of our asset management business or for our company. So whether that's access to IPOs, access to management team, sharing a research amongst legacy signature in Cambridge and Sentry businesses and others. I do think it's additive. So the team has come together quite nicely. Information is flowing freely as well. And I do think while it's tough to attribute, I do think that is benefiting our overall performance as well.Look, from a -- from our target perspective, the goal would be to have 100% of our assets outperforming our peers. I mean, we're in this to make sure that on a risk-adjusted basis, we're delivering the absolute best experience possible for our clients. And I take great satisfaction in knowing we're moving that in the right direction. And obviously, we have a lot of work to do.The interesting thing, and I'm sure people appreciate this, but we've just been in a remote work environment for so long. A lot of these changes that we made took place last September. And we haven't had the opportunity for our investment teams to be together in person, sharing information. So they've done a phenomenal job of working together in a remote environment. But the way that the businesses were set up historically, there wasn't a lot of natural engagement between the boutiques. But when we come back into the office whenever that is, we'll be coming into 1 integrated investment management floor, where people will be sitting with their asset class teams, having access to the full organization, the research information and things like that.So I think we're just starting to scratch the surface on the potential. And absolutely, the goal is as much of our assets as possible, ideally, the goal being 100% of them outperforming our peers, overall.

[Gary Ho, Analyst]

Okay. Great. And then that was my second question, just going back to the RIA acquisitions. One item I want to bit more color on is when you structure these deals, on a proportionate basis, how much of it is actual cash payout at closing versus an earn-out component, I think that's captured in the acquisition liability. And can sellers take back stock in CIPW entity as well. Can you kind of help me frame kind of in each of those buckets, what it looks like?

[Kurt MacAlpine, CEO & Director]

Sure. So let me talk about the structure first, and then I'll talk about how the trend -- or the components that we used to fund the acquisition, and I'll talk about the structure. So there's 3 different pieces or tools that we have. So one is cash, obviously. The other one is stock in CI Financial. And the third piece and probably the most important piece is the ability to swap equity in your business for shares in CI Private Wealth or essentially, our U.S. entity.So let's just say, hypothetically, we were to acquire 75% of the business There's essentially 2 ways that could take shape. We buy 75% for a mix of cash and stock. And then the second part of it, would be either they keep stub equity in their respective business or they have the ability to exchange that equity for shares in CI Private Wealth. Most firms have indicated that they are interested in capturing the strategic synergy benefits of the platform coming together.So there -- they will be swapping shares for shares of CI Private Wealth when we create that opportunity later this year. And I think that this ties back to some of the questions earlier on the synergy profile and why I'm so excited about how we've structured the business and what I think will come because people are coming to us with the same strategic vision and alignment. Otherwise, obviously, they wouldn't come to us. Secondly, as we've changed our governance model which I believe I've talked about in the past. But -- so when we started down the strategic model, we had this cascading leadership structure, where we had a series of executive vice presidents, followed by a senior management committee.I changed that in December of 2020 because I didn't feel it appropriately represented the breadth of the businesses that we have at CI. So we moved away from cascading leadership into 4 different executive operating committees. I've added a fifth one, which is our U.S. wealth management business as well. So now we have people coming to us because we have a shared vision and believe that we can collectively have the leading private wealth platform in the U.S. We, second, have a governance model now where information is flowing freely and we have the leaders of these respective businesses working together to set the strategy and the operation model. And there is financial incentives in place, where people can participate economically for the shares that they keep not only in their business but also in the broader platform. So there is full alignment I would say strategic, governance and operational and financial.As it relates to the structuring of the transactions they are typically structured, and every transaction is unique, but I would say there is a couple of common themes across. One is an upfront payment, which obviously could be a blend of any of those 3 things that I just mentioned. And then there is an earnout. And our earnouts are typically structured almost always or maybe always, focused on a profitability threshold to make sure that the businesses are continuing to carry forward that operational discipline that they had prior to the acquisition, which is incredibly important to us that our shareholders are getting the value by which we valued the business on or the multiple by which we value the business on.And then the second thing is organic growth, excluding market move. So we're not -- this is things that are within the control of the respective RIAs. Are you running your business just as efficient, if not more efficient than what you told us you were? And then secondly, are you growing organically at a rate that is faster than what you've done historically, that would warrant an enhancement or an earn-out type of payment that typically comes at 3 years in the future. So that's typically how they're structured.

[Gary Ho, Analyst]

Got it. And just to confirm the earnout piece, that can also be settled with stock or CIPW stock?

[Kurt MacAlpine, CEO & Director]

Yes.

[Operator]

And it appears there are no further questions at this time. I'd like to hand the conference back to Mr. Kurt MacAlpine for any additional remarks.

[Kurt MacAlpine, CEO & Director]

I just want to thank everyone for the participation in today's call and your interest in CI Financial, and we look forward to connecting next quarter.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.