CI Financial Corp

TSX:CIX

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, I would like to welcome everyone to the CI Financial 2020 fourth quarter results webcast. [Operator Instructions]. Please take note of the cautionary language regarding forward-looking statements and non-IFRS measures on the second page of the presentation. As a reminder, today's conference is being recorded.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 fourth quarter earnings call. Joining me on today's call is our CFO, Doug Jamieson.During the call, we will discuss the highlights and challenges of the fourth quarter, review our financial performance, provide an update on our sales to date for the first quarter, discuss the execution of select items of our corporate strategy, then we will take your questions.We had a strong quarter to cap off the transformational year for CI. Adjusted EPS of $0.71 in Q4 and $2.45 for the full year, both represent record levels. We began to see material contributions from our wealth management expansion, which helped drive strong sequential growth in cash flow and adjusted EBITDA. We expect an even greater contribution in 2021 as many of the acquisitions we made closed at the end of the quarter.We continue to take a dynamic approach to capital allocation. During the quarter, we spent $30 million to repurchase 1.8 million shares. The slowdown compared to prior periods reflects the success of our wealth management expansion strategy and the 6 deals that closed in the quarter.Following our listing on the New York Stock Exchange in November, we tapped the U.S. credit markets for the first time in December to raise USD 700 million in 10-year bonds at a coupon of 3.2%. While we didn't initially plan to raise that level of capital, significant demand driven by a belief in our strategy and outlook allowed us to globalize and diversify our credit investor base, lock in attractive long-term financing and utilize a significant portion of the proceeds to retire our 2021 and 2023 bonds, improving our maturity profile with no change to net leverage. The Board also declared an $0.18 dividend, which is consistent with prior quarters.On the sales front, although the company continues to be in redemptions, we generated solid gross sales results, which increased 13% sequentially and 10% from a year ago. Our institutional business struggled, driven almost exclusively by banks and insurance companies continuing to in-source mandates to their in-house teams, although the level of at-risk assets continues to shrink, pointing to improved results in '21.Importantly, our announcement last quarter that we centralized our investment functions and moved away from our historical multi-boutique model has not negatively impacted our gross or net sales. Client feedback has generally been positive. And longer term, we continue to expect the restructuring will drive better investment performance and a better client experience.These changes, combined with the enhancements we've made to sales, marketing, and product management should translate into improved net sales. Strategic momentum continued in the fourth quarter. We further scaled our wealth management platforms, closing on the acquisitions of 5 U.S. RIAs as well as Canada-based wealth management firm, Aligned Capital. In 2020, we are the fastest-growing RIA platform in the U.S. and the fastest-growing wealth platform in Canada.In January, we announced the acquisition of Segall Bryant & Hamill with $23 billion of RIA and institutional assets, bringing attractive new capabilities to the firm. Finally, the quality of our integrated and rebranded Canadian investment management business, CI Global Asset Management, received a number of awards from Lipper and FundGrade.I will now turn the call over to Doug to review the financial results for the quarter.

[Douglas J. Jamieson, Executive VP & CFO]

Thank you, Kurt. Core average assets under management, which represent the assets managed by CI in Canada and GSFM in Australia, were up 1% in the quarter to $126.2 billion. Core AUM ended the year at $129.6 billion, up 5% during the quarter and setting a good launch point for Q1 average AUM at 2.7% above the Q4 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 fourth quarter, U.S. AUM grew 5% to $5.5 billion on net sales of $301 million and market performance.Wealth management assets grew to $96.5 billion, with the addition of Aligned in Canada and 5 RIAs in the U.S. during the fourth quarter. Net income of $105 million included legal and severance charges. Adjusted net income of $147.6 million increased 13% from $130.6 million last year. And adjusted earnings per share of $0.71 was up $0.09 per share or 15% from the third quarter and up $0.05 or 8% from the fourth quarter last year. These gains were driven by a net increase of $8 million in pretax earnings in the wealth segment and higher AUM as well as continued accretion from the share repurchase program.Free cash flow was up 4% to $150.2 million from $143.9 million last quarter. CI's total SG&A in the fourth quarter was $116.7 million, up from $108.8 million last quarter and $113.8 million in the fourth quarter last year. Spend in the asset management segment increased $4.1 million from last quarter driven by higher average AUM and year-end compensation accruals. SG&A in the wealth segment moved up to $34.1 million from $30.4 million, primarily as a result of incremental SG&A from BDF's inclusion for a full quarter and the addition of Aligned.Free cash flow in the quarter of $150 million exceeded dividends and buybacks of $68 million by $82 million. CI dialed down the share buyback during Q4 totaling 1.8 million shares as more cash flow was directed to the 6 acquisitions in the wealth management segment that closed during the quarter.CI's gross debt finished the quarter at $2.5 billion and a reported debt-to-EBITDA ratio of 2.7x as EBITDA rebounded 12% in the third quarter, $228.4 million from $204.5 million last quarter. Net debt increased to $1.872 billion as cash was deployed to close the acquisitions of Aligned and the 5 RIAs, and the net debt-to-EBITDA ratio held steady at 2.1x.On a pro forma basis for the January bond offering and the announced redemptions of our 2021 and 2023 notes, gross debt has declined nearly $200 million to $2.3 billion with no change in net debt or net leverage.I will now hand it back to Kurt.

[Kurt MacAlpine, CEO & Director]

Thanks, Doug. In January, we saw continued pressure on retail net sales. However, we did see an improvement in the institutional trend where net sales were positive for just the third month in the past 2 years, driven by the strongest gross sales in over 2 years. However, it's important to recognize that institutional results by their nature are lumpy.We're still in the early stages of a strategic transformation of our sales function and our investment platforms, and we are confident that these actions will lead to better flows.I now want to take a moment and recap the significant progress we've made on our strategic initiatives in 2020. As a reminder, our 3 strategic priorities are modernizing asset management, expanding wealth management, and globalizing our company. All of our initiatives will continue to support one or more of these strategic priorities. 2020 was a transformational year for CI.Using Slide 12 as a guide, I will highlight some of the progress we've made along several dimensions. Starting with our rebranding, last May we outlined a plan for a corporate rebranding aimed at streamlining and simplifying our business, removing unnecessary complexity and making it easier for our clients to do business with us.Fast forwarding to today, our rebranding effort is largely complete. All of our corporate logos have been updated, our signage has been changed, and most of our websites have been transformed. We anticipate that the rebranding effort will be fully completed by Q1 2021.Within asset management, we shifted from a multi-boutique to an integrated model. We discussed this in length last quarter and we remain confident that the change will drive better communication, information sharing, and enable our clients to benefit from the full-scale of CI Financial, not just the boutique they purchase products from. We are confident this new model will lead to better investment performance.We expanded and improved our product offering. We brought a proprietary offering of Jeffrey Gundlach strategies to Canadian investors, launched a private equity product with Adams Street, expanded on our Liquid Alts leadership position, launched a Bitcoin fund and launched an innovative physical gold product.We executed strategic accretive M&A to expand our wealth management business and globalize our company. We started the year as an unknown firm in the U.S. and ended it with the fastest-growing wealth management platform. Our differentiated strategy is resonating well with sellers and we're poised for another strong year in 2021.In Canada, we completed the acquisition of WisdomTree Canada and wealth management platform Aligned Capital. I'll dig deeper into our M&A and wealth management expansion in a moment.We globalized our investor base with the bond offerings. In December and January, we shifted the majority of our creditors from Canada to the U.S. and our November cross-listing on the New York Stock Exchange should drive a more diversified shareholder base, reflective of our changing business mix.We continue to operate efficiently and realize material cost savings. SG&A was down 8%, including the costs associated with onboarding new affiliates throughout the year, and 11% when excluding the impact of acquisitions. While SG&A expenses in 2021 will reflect the full year impact of 2020 M&A, the changes we made to our existing business are structural and will benefit us on an ongoing basis.Finally, we locked in attractive long-term debt capital and improved our maturity profile. With our U.S. bond issuances in December and January, we were able to raise 10-year money at 3.2% and redeem early our 2021 and 2023 bonds, improving our maturity profile and pushing out our next debt maturity to 2024.We transformed our wealth management business in 2020. Including the CAD 7.6 billion RIA assets of Segall Bryant & Hamill, we will have onboarded over $46 billion of new wealth management assets since the start of 2020. That growth in client assets combined with the attractive business models of the U.S. RIAs has transformed our wealth management segment profitability. The impact is $110 million increase in our run rate wealth management EBITDA compared to the reported EBITDA in 2019.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.I want to take a step back and highlight the U.S. RIA platform that we built in a short period of time. Our goal, as we've discussed, is to create the leading private wealth platform in the U.S. and provide a comprehensive and unrivaled client experience. We aim to continue to scale the platform through a combination of M&A and organic growth within the firms that we've acquired to date.Our value proposition and differentiated strategy are resonating with RIAs and in the span of under 12 months, we went from being an unknown to the fastest-growing firm in the market. The key point that I want to emphasize on this slide is that under a year, we've assembled a platform of extremely high quality, profitable, and growing firms. In aggregate, these firms generated 9% organic net new asset growth in 2020 and operate at roughly 40% EBITDA margins. And we're just at the beginning of this journey.Finally, I want to give a little more color about our previously announced acquisition of Segall Bryant & Hamill. SBH represents our largest acquisition to date based on both RIA assets and total assets. The deal will roughly double the size of our U.S. business. SBH has approximately $23 billion split between a $6 billion RIA and a $17 billion institutional money manager. They are a high-quality firm with a long track record of Performance excellence in client service. Management of the firm shares our vision for the platform we are building, and we look to leverage the scale and capabilities of their growing institutional business.2020 was a transformative year for our company as we started to execute against their new corporate strategy. While I'm pleased with the early progress we've made and feel our business is stronger and more diversified today than it's ever been, we still have a ton of work to do to achieve the objectives we've set out for ourselves.With that, I would like to open up the call for questions.

[Operator]

[Operator Instructions]. We will now take our first question. It comes from Scott Chan of Canaccord Genuity.

[Scott Chan]

Kurt, when you give us some financial metrics on the SBH transaction, the net new asset growth of 9%, is that a net sales kind of comparable, similar to what -- were you [ sourced ], is there something different in that metric?

[Kurt MacAlpine, CEO & Director]

No, it's similar to a net sales number, Scott, as you know and most wealth managers don't report net sales. But I do receive a lot of questions around are these businesses growing organically on a standalone basis. And the answer is clearly yes. So the 9% number that I shared is net sales.

[Scott Chan]

Okay. And with all the new products that you've kind of introduced over the past year, DoubleLine, I guess, more recently, the Bitcoin and the Galaxy, some Liquid Alt stuff, can you kind of just comment on kind of the traction on these new products that you're getting? Because obviously these are important in terms of driving better kind of net flow improvement going forward based on the legacy business that you have.

[Kurt MacAlpine, CEO & Director]

Yes. When I look at the net flows that we're receiving from the new products that we're launching, obviously bringing a new product to market takes time. But if I step back and look at the themes that we've been investing in, Liquid Alternatives has been a critical area of focus for us. We have the fastest-growing Liquid Alternatives platforms. In Canada, we have over $3.2 billion of assets in growing in that asset class currently. Our DoubleLine relationship has brought in a few hundred million dollars in the span of the first 6 months being in the marketplace together. Our Bitcoin fund, I believe we're the largest asset management company offering a strategy of this kind. We're not the only firm globally, but I believe we're the largest and have picked great partners in Galaxy and Gemini, and that's off to a good start. And our new physically backed gold ETF that has fungibility with other physically backed gold ETFs like GLD is poised for significant flow as well.So I do feel very confident that we are bringing better, more relevant strategies to market and that we're getting some early traction in those. But I anticipate that will pick up as investors have more time to digest, evaluate, and understand the products relative to the alternatives they're currently using.

[Scott Chan]

And on the institutional side, I mean, in the past, CI has always struggled to grow that pure institutional segment. So how do we kind of think about SBH maybe medium term? How does that kind of work into your institutional strategy? And has there been any changes on the Canadian side since you started?

[Kurt MacAlpine, CEO & Director]

Yes. Let me start with the Canadian side. So I'll take the question in reverse order. So I have hired a new head for our Canadian institutional business, Brad Hicks, who came to us from MFS, historically running that Canadian business. So he has spent the past few months outlining for us a new institutional strategy. We're in the very early stages of executing that strategy, but I have an immense amount of confidence in what he and the team have outlined. They've been adding to the team and growing that business. And I feel like we're set up for success on a go-forward basis.As you mentioned, we weren't historically an institutional-focused business. We had an institutional business. And I feel like what Brad is bringing to the table is a true institutional background and heritage, and it's really been additive to our sales progress and are in the conversations that we're having. I think Segall Bryant is an institutional business. Clearly, it's the largest standalone RIA that we've purchased, but it also comes with a $17 billion fully-built institutional business in the U.S. And I'm very excited once the transaction closes for Brad and our Canadian team to be able to collaborate with the great team at Segall Bryant to really continue to advance our institutional sales efforts.

[Operator]

Our next question comes from Graham Ryding of TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

I just wanted to talk about the wealth -- the pace of your sort of wealth management acquisitions, particularly in the U.S. I think originally you kind of talked about $10 billion to $15 billion a year in acquisitions. I think you're moving at a faster pace than that. I guess, just why are you comfortable sort of bringing up the pace of acquisitions? And then looking forward, are you planning to lift your sort of appetite for leverage? Or how should we think about where you're comfortable on the debt side?

[Kurt MacAlpine, CEO & Director]

Sure. So first on the pace. When I had shared the $10 billion to $15 billion number, it was really from a starting point of a dead standstill, maybe 1 or 2 smaller acquisitions into the process. So I've been surprised and amazed at how well our strategy has been resonating with sellers. So really in a span of a year, we went from having no business, no presence in the U.S. marketplace to having built what I believe is the fastest-growing RIA platform ever in an incredibly short period of time. So really, the momentum has picked up quite a bit based on the back of not the deals, but the quality of the firms that have chosen to partner with us. So every time you see us announce an acquisition, it's really a catalyst for other firms to reach out and have conversations with us. So it's been very flattering that we're a new entrant to the marketplace and we have such strong demand from these really incredibly well-run firms to partner with us. So you saw an uptick as us taking advantage of this momentum and really positioning ourselves to grow at a faster pace than what we had initially anticipated, which was tough to call at that point, given that we're just entering the market.When I think about leverage, what I would say is if I take a multiyear view, I do expect us to structurally deleverage over time. However, there's 2 things that are really at work right now. One is incredible momentum in the U.S. RIA platform. And as you've seen from the quality of firms we've done, the assets we've done, the organic growth of these firms, they're buying exceptional businesses. At the same time, we have what I describe as a criminally low stock price relative to the inherent value of our company. So it's challenging for us not to buy back stock, obviously, at these levels which we're happy to do on a pretty consistent basis. So as long as the M&A pipeline remains robust and the disconnect that we believe exist in our stock, we're comfortable taking up leverage for a quarter or 2.Now with that being said, M&A by nature is lumpy. We have no deals announced aside from SBH right now, which is coming in midyear. So you will see M&A be lumpy in nature. But over time, whether leverage ticks up for a quarter or 2 to take advantage of M&A in front of us or a disconnect in our stock price, you'll see it trend down structurally over time as we continue to execute our strategy.

[Graham Ryding, Research Analyst of Financial Services]

Okay, understood. And if I could ask one more. You talked about the quality of the firms that you're buying. So if I look at that 9% organic growth rate or the 40% EBITDA margin, are those the type of characteristics that you're looking for when you're describing quality? Or is it more than that?

[Kurt MacAlpine, CEO & Director]

Yes. It's a combination, I would say, we're looking for high quality, well-run firms with great management teams that share our vision for the industry. So collectively, we're looking to build the leading integrated private wealth platform in the U.S. So the firms that are coming to us have a similar belief and we collectively feel that we are better partnering together than competing against one another, and we feel that bringing our firms together, most importantly, will create a better collective client experience, nearly equally important, a better collective employee experience, and drive better business results overall. So that's really what we're looking for. And so there is a lot of overlap between the financial metrics and the consistency and quality of those firms, but they also have to share that vision with us as well.

[Operator]

Our next question comes from Geoffrey Kwan of RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Just going back on the RIA strategy, given all of the transactions including SBH to date, I know you've been reluctant to kind of talk about maybe perhaps individual transactions. But on all of the deals that you've announced or closed, are you able to kind of provide kind of the blended acquisition multiple, like say on a PE basis or whatnot? And then similarly, the 40% EBITDA margin that you have in the presentation, it sounds like that's just the U.S. platform. Or does that include Assante and Stonegate?

[Kurt MacAlpine, CEO & Director]

So the first question is, Jeff, I'm not able to provide multiples at this time. As I've mentioned, this is not a function of what we've paid. We're just in active conversations with a lot of different RIAs and each business is valued differently based upon different characteristics that they ultimately bring to the table. You will see through our leverage or use of cash flow and then the clarity that I've provided on the increase in EBITDA associated with our wealth management business, you can probably get in the range of what we've been paying with a reasonable degree of confidence.

[Geoffrey Kwan, Analyst]

And then just the 40% EBITDA margin, was that just the U.S. assets? Or was that including Assante and Stonegate?

[Kurt MacAlpine, CEO & Director]

It is the U.S. assets, yes. Yes. It's structurally a different business. So in the Canadian -- it's not really the Canadian marketplace. It's the type of platform that you're acquiring. So when you have commissions or advisers that are generating commissions, a lot of the scale accrues to the adviser because as they continue to grow, they continue to take a greater share of the overall commission. When you're operating in a corporate RIA business, like the ones that we're acquiring, employees receive a salary and a bonus that's tied to the success of the business overall. So similar to an asset manager, that scale accrues to the company. So yes, so we'd say the 40% margins we're speaking about our RIA business.

[Geoffrey Kwan, Analyst]

Okay. And just my second question was you kind of talked where the flows are in January. The industry flows are getting better. Does your crystal ball -- like what's your crystal ball suggesting when you think you could return to positive territory on a monthly basis consistently on the Canadian retail, mutual fund side of the business?

[Kurt MacAlpine, CEO & Director]

Yes. Well, I don't like to use a crystal ball. I mean, I don't give guidance given I think it's guessing. But what I would say is when I look at the inputs, so what are we doing with our investment management platform that should lead to better outcomes. So we've talked about the integration of a series of independent multi-boutiques to one true fully integrated global investment management platform. We're in the early stages of that. We've had that model in place for a few months, and we're already starting to see some of the tangible benefits. So I'd say on the investment management platform front, we made considerable progress. On the sales front, we have transformed our sales and marketing functions, leveraging data and intelligence that we've talked about before and corresponding changes to our coverage model and our approach to marketing and digital marketing, which includes the corporate rebrand. And on top of it, I think we've had a very ambitious product development agenda. And you've really seen us solidify our leadership position in Liquid Alternatives, continue to grow in areas like Bitcoin, the Gundlach relationship, the product that we launched with Dr. Coughlin on the longevity economy and things like that. So while I won't guess when the sales will turn because there's a lot of different factors that would come into it. When I look at the different inputs, investment management, sales, marketing, and product development, I do feel very good about the changes that the team has made, and I'm confident that that will lead to better outcomes for our business.And then on the institutional front, as we've talked about before, the vast majority of our redemptions are coming from bank and insurance owned platforms that have repatriated assets, essentially terminated a third-party relationship and have decided to run the money in-house directly. There's no real opportunity to protect those assets. So I have shared that that asset base has shrunk considerably, there's very little of it left. So just based upon the attrition we've seen from, call it the most vulnerable segment of our business, I feel very good that you're going to see the institutional business stabilize and turn around as we execute the strategy, onboard SBH and things like that.

[Operator]

Our next question comes from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, MD & Analyst]

I just jumped on this call. So I'm not sure if the question was asked. But my question has to do with the strategy of expanding in terms of wealth management distribution and how you would characterize the differences between Canada and the U.S. I think in terms of RIAs, you've noted that even without trying to do an AUA to AUM play, the margins in the RIAs that you're acquiring are in the 35% range, perhaps you can correct me on that, but I believe that's the margins you had talked about. How does that compare in terms of Aligned? Does Aligned have those kind of margins? Or do you need to sort of move AUA into AUM in order to improve margins at Aligned? Maybe you can talk a little bit about that, please.

[Kurt MacAlpine, CEO & Director]

Sure. So it's a really great question. I would say the single hardest point for me to land with Canadian investors is helping them understand what we're building and what we've acquired in the U.S. RIA marketplace. So if you look at wealth management in Canada, and this is a very general statement, but a lot of wealth management platforms don't make money on a standalone basis, but are profitable for the owners for a variety of different reasons. It could be cross-sales of mutual funds. It could be selling and banking products, insurance products, capital markets products, and things of that nature. So typically, the businesses are commission-based advisers plugging into or using a platform. Those businesses exist in the U.S. as well. There's a wirehouse segment. There's independent broker-dealers. There's regional broker-dealers. There's insurance brokers that all fall under that similar mold. So really, the major distinction between the economics of the wealth management business on a standalone basis is really driven by how the advisers get paid. So it's not uncommon to see businesses with hundreds of billions of dollars or even trillions of dollars in the U.S. context with commissions run that business for breakeven or very small margins.We're running, acquiring RIAs. These businesses, think of them on a standalone basis economically as the similar contribution to a well-run asset manager. So the RIAs that we've acquired run their businesses at 40% EBITDA margins. And that's very consistent with the well-run asset management business, where a comparable wealth business might run at 0 or a few points of margin. Then on top of that product cross-sales come into play, which really drives the profitability. So when I look at our RIA business, what excites me is essentially in a wealth management segment, we are creating asset management economics on a standalone basis. The 40% numbers that I've shared are pre-synergy. They're pre-product cross-sale, they're pre-ancillary services, things that would ultimately benefit the client over time. So there is an opportunity that this segment, on a standalone basis, has the same margins as an asset management business as we further drive integration from strategic collaboration. It has the potential on an EBITDA adjusted basis to be the most lucrative segment in our business overall. So I think that's the major distinction, Tom, whether it's looking at Canada or the U.S., it's looking at who does the scale accrue to. And if there's a commission that typically accrues to the adviser, not the platform, hence the need for focusing on the product cross-sales. And then if it accrues to the platform, then you see or have the potential to see economics similar to what we're experiencing. So Aligned Capital, specifically, I'm not going to get into their margins on an individualized basis. Aligned is a profitable standalone business. It was built as an independent company running on its own. So unlike many of the wealth platforms in Canada, didn't have a standalone or an affiliated bank or an insurance company or asset manager or capital markets business. So that business has been run for profit since inception.You will see us increase that profit collectively as we naturally bring that business in together, whether that's access to corporate services, whether that's tapping into our technology, some of our resources, it could be product cross-sales and things like that. So I'd say it's a combination. But you should think of it as profitable on a standalone basis. It's not profitable like the RIA because it's run in a different manner. But there's still a lot of opportunity for us to grow and scale that business, both on AUM and economics.

[Tom MacKinnon, MD & Analyst]

So is the message here that Aligned Capital is profitable as a standalone, maybe not the same kind of EBITDA margins as a standalone as you're getting in the U.S. RIAs, but there's an ability here to increase that profitability to make it consistent with the U.S. RIA. Is that correct?

[Kurt MacAlpine, CEO & Director]

No. No, I'm sorry. So it is profitable on a standalone basis. There are opportunities through our collective scale to make it more profitable for the benefit of the clients and the advisers. But it will not scale to an EBITDA level for what you would see at an RIA. And that ties to the fee-based nature and where the economics accrue. So in an RIA, the economics accrue to the company on a wealth platform, whether it's Aligned Capital, Assante or any other platform you'd really think of in Canada, the majority of the economics accrued to the adviser. It's just a different business model. But it doesn't mean it's not a fantastic business in that we won't scale it up from where it currently is, it's just constructed differently than an RIA.

[Tom MacKinnon, MD & Analyst]

And you've had some success at Assante kind of going -- turning those assets under administration into assets under management. Is that part of the strategy with Aligned? Or is it just to take the existing profitability and to scale it up?

[Kurt MacAlpine, CEO & Director]

Well, there's 2 things. I think 1, we -- similar to the RIAs, we and the team at Aligned collectively feel that we're better off partnering and collaborating together than competing against one other. And if you think about the areas for collaboration, just if you look across CI, we have corporate insured services, marketing strategy, finance, HR, that tap into our corporate services. We have technology capabilities. We have asset administration businesses. We have investment management businesses. So there's lots of opportunity for us to collaborate across the board. Our goal on the investment function, which was kind of asked at an earlier question, we're looking to build the single best investment management platform for Canadian investors. And if we achieve that objective through a combination of the changes we've made to integrating our investment teams, the changes we've made to product development and the changes we've made to sales and marketing, so if we're bringing great products to market, I do think Aligned advisers and Aligned clients will benefit from those strategies as I do all Assante advisors and clients as I do third-party advisers and clients. So I think all of these things are opportunities for us. It's not just product. It's product plus a lot of other opportunities as well.

[Operator]

Our next question comes from Nik Priebe of CIBC Capital Markets.

[Nikolaus Priebe, Research Analyst]

I just wanted to start with a question on your most recent acquisition of SBH. Clearly, very significant transaction that accelerated growth of the U.S. expansion. Is there any additional color you can provide, perhaps on the margin profile and the net flows experience of that business? Should we consider that to be kind of comparable to the broader RIA platform on that basis?

[Kurt MacAlpine, CEO & Director]

Yes. It's a great question, Nik. There's really 2 parts to that business. So it's a little bit unique in the sense of on a standalone basis, it would be the largest RIA acquisition that we've acquired with $6 billion in assets, but there's also a $17 billion institutional business. If you think back to our strategic priorities, we have 3 of them, modernized asset management, expand wealth management, globalize our company. Most things that we've been doing from an acquisition standpoint align with 1 or 2 of those priorities. Aligned actually -- SBH actually aligns with all 3 because of the asset management business and the great institutional capabilities. It definitely expands our wealth platform and it doubled the size of our business in the U.S. So the way you should think about it is an RIA is very similar to the other RIAs that we've acquired. And then the institutional business is more similar to a traditional institutional business. So they're going to have -- those business segments are going to have different revenue captures and different margin profiles that better reflect and align with the businesses themselves.

[Nikolaus Priebe, Research Analyst]

And then just one more question from me. I just noticed there was a legal and restructuring charge in the quarter. Just wondering if you could expand a little bit on the nature of that charge. Was that on the asset management side of the business? Or was that related to the acquisition activity in the wealth platform? Just some color on that would be helpful.

[Kurt MacAlpine, CEO & Director]

Sure. I mean, I'm not going to go into a lot more detail on it, but it represents a combination of nonrecurring restructuring costs, primarily severance and then increased legal reserves. So on the severance side, we've made significant changes to our business to better align ourselves against our strategic priorities. And on the legal side, we've made some adjustments to reserves related to the market timing proceedings previously discussed in our financials. As the facts and circumstances evolve and change, we'll require to adjust those reserves. So we intend to vigorously defend ourselves on the basis that, among other things, the affected investors had been compensated through our 2004 settlement with the OSC, but it's really driven primarily by those 2 factors.

[Operator]

Our next question comes from Gary Ho of Desjardins Capital Market Partners.

[Gary Ho, Analyst]

Maybe just going back to that last question on the restructuring charge. Maybe on the severance piece, how should we think about the cost saves looking out from that? And any color in terms of SG&A guidance for 2021?

[Kurt MacAlpine, CEO & Director]

I'd say on the severance front, Gary, we're continuing to retool and restructure and modernize our business across the board. So we've talked about in the past, we've made some significant reductions really over the past 4 quarters to our SG&A. We've realized over $80 million in savings through efforts and initiatives that we've had underway. Naturally, obviously, as we continue to acquire businesses, the total SG&A of the business will trend up, but then that will naturally trend down over time as we realize the synergies from the businesses that we're acquiring. So I really think of it as twofold. There's the structural changes that we've made to the core business, which is the $80 million number that I've shared. Those are permanent. So they'll continue to flow through to the business on an ongoing basis. And then you will see SG&A increases associated with M&A activity. And those will tick-up just really inheriting the SG&A from the businesses we acquire as we start to work to put those respective platforms together.So no particular guidance because a lot of the changes will be driven by the level of M&A activity, which is lumpy and uncertain by nature. But hopefully, investors get a lot of confidence that we have extracted a significant amount from our core business, and we continue to focus on things like digitization and automation that should drive further savings over time.

[Gary Ho, Analyst]

Okay, that's helpful. And then my next question, just a couple of lumpy items this quarter. There's the $9 million investment gain and then there's also a $5.3 million performance fee. I guess the investment piece could fluctuate quarter-to-quarter, but the performance fee -- can you provide a bit of color on kind of how that's calculated? How should we think about that number looking out?

[Kurt MacAlpine, CEO & Director]

Yes, I would think about the performance fee as lumpy as well. So it's obviously fees tied to performance associated with our liquid alternatives suite, which is a common characteristic in the alternative space, as you know. So I'm not going to give any guidance on it because it's tied to the specific investment performance relative to stated objectives. But it is something that as these strategies perform, will flow through to our financials on an ongoing basis. And the bigger that we get in Liquid Alternatives, the more likely that that is to occur.

[Gary Ho, Analyst]

Got it. And then maybe just last one from me, a quick clarification question, just going back to Scott's question on the 9% net flows -- organic net flows for the U.S. RIAs. So just want to clarify, so that -- so if I'm going to include market performance in that [ efficient ] model on an organic basis, the AUA growing quite a bit higher than that 9%. Is that correct?

[Kurt MacAlpine, CEO & Director]

So what it was, was -- I wanted to provide visibility and this is not going to be recurring or consistent visibility. So one of -- wealth management and asset management businesses have different reporting requirements. I believe the industry is a little too anchored to net flows and asset management relative to the operating fundamentals and the free cash flow generated from those businesses. So what I'm not trying to do is to recreate wealth asset management reporting in a wealth management segment that typically doesn't happen. What I wanted to do, given how fast we've been moving in the space is to provide all of you with clarity on to what we've acquired. So the 9% is organic flow. On top of it, if you're modeling -- if you're using that as an assumption or whatever number you're using, that is independent of market move. So that is what we've been able to bring into our platform from all of those firms on a cumulative basis. But the market performance, whatever your assumptions are on that going forward, would be independent from your assumptions on market.

[Operator]

It appears we have no further questions at this time. I would like to hand the call back to Mr. MacAlpine for any additional or closing remarks.

[Kurt MacAlpine, CEO & Director]

I just want to thank everyone for their interest in CI Financial, and appreciate you participating in today's call. We look forward to chatting next quarter.

[Operator]

This concludes today's conference. Thank you for your participation. You may now disconnect.