IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2018-Q2

[Operator]

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the IGM Financial Second Quarter 2018 Earnings Results Call for Thursday, August 2, 2018. Your host for today will be Mr. Keith Potter. Please go ahead, Mr. Potter.

[Keith Potter, Senior Vice President Finance & Treasurer]

Thank you. Good afternoon. I'm Keith Potter, Treasurer and Head of Investor Relations, and welcome, everyone, to IGM Financial's 2018 Second Quarter Earnings Call. Joining me on the call today are Jeff Carney, President and CEO of Investors Group and President and CEO of IGM Financial. We have Barry McInerney, President and CEO of Mackenzie Investments; Luke Gould, Executive Vice President and CFO of IGM Financial; and Rhonda Goldberg, Senior Vice President, Client and Regulatory Affairs, and she's joining us today to provide perspective on the latest regulatory notices published on June 21. Before we get started, I would like to draw your attention to our cautions concerning forward-looking statement on Slide 3 of the presentation. Slide 4 summarizes non-IFRS financial measures that we have used in this material. Finally, on Slide 5, we provide a list of documents that are available to the public on our website related to the second quarter results for IGM Financial. And with that, I'll turn it over to Jeff Carney, who'll review IGM's second quarter results, starting on Slide 7.

[Jeffrey Robert Carney, President, CEO & Director]

Thank you. Good afternoon, everyone. Total AUM reached a record high of $159.1 billion at the end of the quarter, primarily driven by investment returns. Q2 was the seventh consecutive quarter of advice channel market share gains for IGM Financial with investment fund net sales of $171 million. Q2 was quite tough on the industry from a net sales perspective, with industry long-term mutual fund net redemptions of $3 billion, down close to $13 billion from last year. For some context, this was the worst second quarter for the industry in over 2 decades. Industry ETF net creations also felt the effects and were down $7 billion relative to 2017. Similar to last year, we continue to focus on expense management with expense growth of 2.5% relative to Q2 2017. As I mentioned on the last call, we do have some backloading of expenses, including the upcoming brand relaunch for Investors Group, and we continue to guide to non-commission expense growth of no more than 5% for 2018. IGM Financial adjusted net earnings per share were $0.85 for the quarter, up 10.4% from last year and the highest second quarter in the company's history. Luke will speak more to this in his remarks.Slide 8 provides a context of the broader industry operating environment. Following negative returns and market volatility in Q1, the second quarter saw positive equity market returns in most geographies, led by the S&P/TSX, which was up 5.9%. Our clients benefited from stronger Q2 markets with client returns of 2.1% on assets managed across all of our operating companies. While second quarter industry long-term mutual fund net sales declined by nearly $13 billion year-over-year, positive returns in the second quarter should contribute to an improving net sales outlook going forward.Turning to Slide 9 on financial results for the second quarter. Adjusted net earnings were $203.7 million, which exceeded our previous quarter, $185.9 million in Q2 of last year. As I mentioned, Q2 adjusted earnings per share were $0.85, up year-over-year and a record high Q2. Investment fund net sales were $171 million, down from the same period last year. We have just released IGM's investment fund net sales of $232 million, and they do look to be improving relative to Q2.On Slide 10, we show the segmented results. You can see IGM's EBIT increase is driven by all 3 segments, including corporate and other, which includes our share of China Asset Management's earnings in 2018. You can also see segmented investment fund net sales across the bottom of this slide. Let's turn to the Investors Group section. So turning to Investors Group quarterly highlights on Slide 12. You can see that AUM reached a record quarter-end high, driven by positive investment returns of 2% for the quarter. Investors Group continue to capture market share within an industry that experienced its worst net sales in over 2 decades. I'll speak more to this in a moment. We continue to focus on our high net worth solutions, and they would now represent almost 44% of our growth sales. And finally, we continue to experience solid asset retention with long-term trailing 12-month redemption rates that remains very low at 8.6%, which is flat year-over-year.Turning to Slide 13 on operating results. Investors Group experienced net redemptions of $110 million for the quarter. You can see the trailing 12-month net sales rate for Investors Group of 1.5% is ahead of the overall industry at 1% and the advice channel at 0.5%. You can also see the noticeable depth for us and the industry overall.While we gained share in a tough market, we're not satisfied with that because -- for the overall results, and we're working hard to accelerate our net sales momentum. We reached an inflection point on sales momentum during July with growth sales increasing 4.5% relative to 2017. Net sales of $53 million and positive investment returns drove Investors Group's AUM to a new record high of almost $90 billion. We continue to see large opportunity to leverage Investors Group's strong value proposition in the high net worth space, and we are executing against our strategy to compete in this market.On Slide 14, you can see sales to high net worth and managed solutions continues to be a key area of emphasis. Our high net worth sales as a percentage of total sales is now at 44%, and our unbundled fee structures, where the client pays the advice fee directly, now have $24.2 billion in AUM and account for 74% of high net worth sales. Slide 15 highlights our client rate of return and historical redemption rate experience. Despite market volatility in Q1, our clients have experienced positive returns over a 1-, 3- and 5-year period. Investors Group's trailing 12-month long-term redemption rate of 8.6% is unchanged from Q2 2017 and remains well below the industry average of 16.5%.I'll stop here and turn it over to Barry McInerney to take us through Mackenzie's results.

[Barry Sean McInerney, President & CEO]

Thank you, Jeff, and good morning, everyone, and good afternoon, I guess. On Slide 17, we provide an overview of Mackenzie's strong Q2 results. Investment fund AUM reached an all-time record high, up 3% during the second quarter and the increasing 3.8% year-to-date. We continue to gain market share with adjusted investment fund net sales of $580 million during the second quarter. Mackenzie's second quarter ETF net creations of $570 million ranked second in the industry. In the context of an industry experiencing significant declines in net sales, Mackenzie's second quarter retail mutual fund net sales were on par with 2017. Offsetting strength in these areas was net redemptions in the institutional channels, which experienced declines more in line with the industry.Slide 18 highlights Mackenzie's operating results for the second quarter of this year. Mutual fund gross sales of $2.4 billion were up 7.5% year-over-year. These figures are adjusted to exclude the impact of fund allocation changes during the period. Total adjusted net sales of $483 million compared to $543 million last year. Mackenzie continues to capture market share versus our peers. Long-term mutual fund net sales rate of 1.7% exceeded both the advice channel and the overall industry. And if we include both ETF and long-term mutual funds, Mackenzie's investment funds delivered organic net sales rate of 4.3%. And this momentum continued into July. Our investment fund net sales, which we just released this morning, were $192 million, with contributions from both mutual funds and ETFs. Our mutual funds, as you saw in the release, were $85 million, and that's for July. And that was powered by retail, which was nearly $150 million. Our institutional remains soft, mirroring the industry. And our ETFs were $105 million. Net-net, actually, including internal IG and Mackenzie channels, our ETFs were $171 million. And our gross sales were up almost 30% on the mutual fund side year-over-year. So we believe the results remain quite strong given recent industry trends.Slide 19 provides detail on our mutual fund sales. Gross sales improved across a number of categories relative to last year. Positive net sales and income-oriented and balanced categories more than offset net redemptions in Canadian and foreign equities. Overall, adjusted mutual fund net sales were $163 million, down from $447 million during the second quarter of last year. But as I touched on earlier, Mackenzie's retail mutual fund net sales remained steady at $278 million in a challenging industry environment, and this is before considering retail net creations in our ETF business. Institutional sales experienced softness in the period, again, with this business line mirroring the overall industry. Symmetry, for example, one of our multi-asset solutions, is a core offering within the institutional platforms and saw sales decline in line with the industry. However, we're pleased with Symmetry's growing momentum within the retail channel. Turning to Slide 20. Mackenzie's ETF AUM grew to $2.6 billion in assets at the end of Q2, driven by Q2 net creations of $570 million, ranking #2 in the industry. And the end of July, our ETF AUM is nearing $2.8 billion. Growth in our ETF business continues to be broad-based across channels and investment strategies. As you can see in the top right chart, the retail component on Mackenzie's ETF net creations, the dark blue, has consistently been approximately $0.25 billion per quarter.Slide 21 highlights how product innovation has continued to contribute to Mackenzie's strong net sales and AUM growth. As discussed on the prior analyst call, Mackenzie launched an innovative Multi-Strategy Absolute Return Fund in May of this year. It's early days, but we are very happy with the level of interest this product is generating with advisers and their firms. Even with the pioneering nature of this product, it has been -- it has already been placed on the approved list for a number of large third-party firms, and that list is growing.And last month, Mackenzie launched a new fund and portfolio analysis tool called Precision. Developed by Mackenzie with input from advisers, Precision combines a suite of powerful analysis tools with access to Canadian mutual fund and ETF data. The tool is available to all advisers across Canada on Mackenzie's website, free of charge. And less than a month since official launch, Precision has already attracted well over 1,500 advisers. Precision is another way that Mackenzie is enhancing the advisory experience and represents a forward-looking solution to help advisers with portfolio construction decisions and meet expanding know-your-product and suitability requirements. Rhonda will expand on these regulatory requirements in a moment.Slide 22. Mackenzie's long-term investment performance remains solid with 79% of mutual fund assets in first or second quartile over the 10-year period. Overall, 38% of Mackenzie's AUM is in 4 or 5-star rated funds. And looking at Series F, where Mackenzie has a significant opportunity to grow -- to continue grow our AUM within the IIROC channel, 17 of our 20 largest funds are rated 4 or 5-star by Morningstar. Eight of these funds are rated 5-star. And this just demonstrates the breadth of Mackenzie's strong performance and the great stories our wholesalers have as they work with advisers. And finally, last slide on Mackenzie, on Slide 23. We continue to benefit from solid investment performance in net sales across a range of investment styles and teams. On the equity side, the growth-oriented teams and global equity and income team continue to deliver strong performance and positive net flows. Similar to past quarters, strength in these equity teams has been offset by Ivy and value strategies, which are staying true to their proven investment approaches but are currently in a market environment where growth has tended to outperform. The fixed income team and our Symmetry managed solutions, run by our asset allocation team, continue to track net flows.I'll now turn it over to Rhonda Goldberg to provide an update on recent regulatory developments.

[Rhonda Goldberg]

Thank you, Barry. Good afternoon. Turning to Slide 25. As you know, the Canadian Securities Administrators published 2 notices on June 21. The first requests public comments on detailed reform, what's now referred to as the Client-Focused Reform, and the second sets out the intended policy decision with respect to mutual fund embedded commissions. Briefly, some key highlights on the Client-Focused Reform. First, it is worth noting that the Ontario Securities Commission and the Financial and Consumer Services Commission of New Brunswick indicated that they will not be proceeding with the stand-alone regulatory best interest standard at this time. However, what we see in these proposed amendments is this standard infused into the conflicts of interest and suitability reform. The reforms relating to know-your-client and know-your-product are intended to clarify expectations of what information a registrant must collect about a client and to increase rigor and transparency around the products and services that registrants make available to their clients. The suitability determination requirements also include explicitly requiring registrants to consider certain factors, including costs and their impact, and to require these determinations to be made on a portfolio basis.What this means in practice is registrants will be required to demonstrate that the product shelf development and client recommendation are based on the quality of the security and influence from any compensation arrangement. A firm's know-your-product approval process is expected to consider how a security generally compares with similar securities available in the market and the overall competitiveness of the security. For registered individuals, the know-your-product requirements constitute a thorough knowledge and understanding of all securities that are purchased and sold for or recommended to the client. The reforms allow for different operating models, including the offering of proprietary products. Under the proposed amendment, all registrants will be expected to disclose any restrictions on the products or services they make available to the client. We believe the IGM companies are well positioned in meeting the Client-Focused Reform. The proactive client-centric approach we have taken in our business models on strategic initiatives, which I shared with you last year on Investor Day, aligns with the regulatory direction we anticipated. For example, at Investors Group, our focus on financial planning, enhanced continuing education and mandating the CFP/Pl. Fin designations for our consultants equip them to meet the enhanced know-your-client and suitability requirements of the reforms.Our consultants have a thorough knowledge and understanding of the products we offer. And the know-your-product approval process that is proposed aligns with our product strategy and the use of third-party sub-advisers. For Mackenzie, our holistic approach to wealth solution, as well as Mackenzie's focus on resources and tool, will support registrants in meeting their know-your-product and suitability obligation. I'd like to now turn to the second of the 2 notices also on Slide 25, this one more straightforward, which set out the intended policy decision by the CSA with respect to mutual fund embedded commission. Embedded commissions will remain permissible, however, subject to the enhanced conflicts of interest mitigation rules set out in the Client-Focused Reform. The CSA is proposing that all forms of deferred sales charge, including low-load options, will be prohibited as will the payment of trailing commissions to dealers who do not make a suitability determination. We are told of the notice to expect real proposal for comment in September.For Investors Group, the elimination of DSC is not impactful as we eliminated DSC on new sales effective January 1, 2017. For Mackenzie, we continue to offer a range of series options to registrants, including unbundled fee-based solutions such as negotiable adviser fee Series FB for the MFDA channel and competitive Series F pricing. So what do we expect in that? On Slide 26, I set out that the consultation process for the Client-Focused Reforms is underway. Each of the IGM companies will be submitting a comment letter providing specific feedback and insights relative to our business model. Comments are due in October.As I noted, we can expect real proposals to be published in September for comment for the elimination of the DSC option and trailing commission payments to dealers who do not make a suitability recommendation. IGM will continue its active dialogue and engagement with regulators on each of these topics. I will now turn it over to Luke Gould to walk through the detailed financial results.

[Luke Gould, Executive VP of Finance & CFO]

Thanks a lot, Rhonda. So turn to Page 28. In point 1, you can see we had earnings of $0.85 per share during the quarter, up 10% from last year. This was driven by increased assets combined with modest non-commission expense growth of 2.5%. And as mentioned by Jeff, we'll continue to maintain our full year guidance on non-commission expenses of 5% increase year-over-year for 2018 versus 2017. I'd also remind everybody that we adopted IFRS 15 on January 1 of this year, and we provided what we believe is very rich supplemental disclosure to help people understand the related changes to accounting for sales commission. Under IFRS 15, remember, we're now expensing all commissions related to bundled product sales as incurred. Also, as we gave it to you last quarter, another element of change that's occurring in 2018 is the shift in compensation at Investors Group away from sales-based compensation towards asset-based, with further changes signaled for 2019 and outlined on our slide last quarter. Noteworthy, if we retrospectively applied IFRS 15 on 2017's results, there's very little change in earnings as cash commissions paid last year were very much in line with the commission amortization that we recorded last year. I'd also note that with the majority of our commissions now being expensed as incurred, the slightly lower gross sales levels in Q2 of 2018 versus Q2 of 2017 did reduce commission expenses by approximately $5 million and, therefore, benefited our earnings. Moving to point 2. You can see that we issued $200 million in 30-year debentures with a yield of 4.174%, and we also announced that we'll be redeeming our $375 million in 2019 maturing debentures on August 10, so about 1.5 weeks from now. We're very pleased with the transaction, and we have a very strong capital position with a long date of maturity schedule on our debt and actually have nothing coming due until 2027. Lastly, we've introduced some enhancements to our cash flow disclosures this quarter to help you understand these elements for performance, and I'm going to walk you through these changes on a few slides. Moving to Page 29. You can see, again, our consolidated AUM for IGM Financial in the daily chart in the left. The key points I'd make here is remind you, once again, that as financial market has been very volatile, particularly in the first quarter, our clients have fared quite well with returns of 2.1% in the quarter and just under 1% year-to-date. July was also good with another 1% in investment returns as well as net sales up $232 million and this broader AUM to just over $160 billion, a record high. Moving to Page 30, a few quick comments on Investor Group's financial results. First, on the left, I'd highlight that the management fee rate is down very slightly this quarter, which is as a result of the greater share of our assets in high net worth solutions. And this trend will continue as that composition of our clientele continues to move in favor of high net worth as we execute on that rich opportunity we have. I'd also note on that chart on the left, you can see that we have asset-based compensation at 49.6 basis points, consistent with the last quarter and consistent with our guidance. And if you look at this chart, you can see that shift we made away from sales-based and towards asset-based, where last year, we were running at 45 to 46 basis points. And this year, we will be running at 50 basis points. The other side of that shift is in the chart in the middle, where you can see us signal last quarter, sales-based compensation is trending in line with this guidance at the new rates and, once again, was 1.8%. And that's the rate we continue for the coming 2 quarters, after which it's going to decline once again. And on the right, you can see that, again, non-commission expense was well managed in the period, but our full year guidance for 2018 of 5% increase year-over-year remains intact. And as Jeff signaled, we do have a brand relaunch and other uses of our expenditures coming in the back half of the year.On Page 31, a few quick comments on IG's P&L, which you can see we had EBIT of $197.4 million in the quarter, up slightly from last year. First, a bit of noise in distribution fees, which is the third row down in the revenue line. And you can see this line was lower. It says results of insurance product sales. And importantly, if you go down to other commission expenses, you'll see that substantially, all that revenue decline is offset by lower compensation with no net impact on earnings or very little net impact on earnings. Second, in point 3 on the right, you can see that mutual fund commissions are down 4.5% from last year overall. But the composition between sales-based and asset-based, as I mentioned earlier, has changed. So I would highlight the IFRS 15 impact to this period by first noting if we applied it retrospectively and expensed commissions as incurred versus amortizing last period, it would have been unchanged. Second, most of this decline resulted from the reallocation from sales-based comp to asset-based comp. And third, since we are expensing bundled commissions as incurred, the lower sales in the period did result in lower commission expense. And that was about $5 million in commission expense decline because of the slight sales decline. We also made comments on non-commission expenses, which I spoke to earlier. Moving to Page 32, very brief comments on Mackenzie. On the left, you can see the net revenue rate. It was 83.6 basis points in the period and was down from 85.5 basis points in Q1. I'd remind you that we announced retail pricing changes that we walked you through last quarter, and these changes were effective on June 1, 2018. We had disclosed that these changes were worth $12 million a year or 2 basis points, and this represented $1 million of revenue decline during the quarter given that we just had 1 month of the changes in effect. The remainder of the change in the fee rate did reflect the change in the composition of the business in favor of ETFs and fee-based solution. Second, on the right, I would note that non-commission expenses at Mackenzie were up 7.7% year-over-year and that this relates to timing of expenses, and we are maintaining our guidance of a 5% increase for 2018 relative to 2017. On the income statement for Mackenzie on Page 33, you can see our EBIT of $48.7 million was up 12.12% from last year. I'd draw attention to the fifth row from the bottom. Net revenue was up 1.8% as a result of higher asset levels, and this was offset by lower fee rates primarily due to change in the composition of the asset base. Sales-based commission expenses, which is the fourth row from the bottom, were down 38.5% or $4.5 million. And much like in Investors Group, $3.5 million of this was a result of adoption of IFRS 15 and about $1 million of this decline was as a result of paying less commissions out. Commission payments were $8 million last period. And you can see we did have expense of $11.7 million when we amortized. And I'd also note second row from the bottom, good returns on seed capital as a result of improving markets, and that generated $2.5 million in fair value adjustments on our seed.Moving to Page 34. I'm going to spend a few moments minutes walking through some cash flow statement enhancements that we made to help you understand our results better. And what you can see in this table is the changes we made using full year 2017 as guide. And we did, in our supplement, give historical restatement of our cash flow statement on this basis. So the first row that you can see in the shaded area outlined the changes with the difference between our proportionate share of earnings in our 4% stake of Great-West Lifeco and our 13.9% stake in China AMC, net of the dividends that we received from them. I note that both of these investments obviously do pay solid dividends, but there is a drag on earnings between the actual earnings and cash received of about $90 million a year given that we're earning about $150 million and receiving dividends of about $60 million. I'd also note that within our disclosures, we do disclose the market value of our Great-West Life investment, which is approximately $1.5 billion. And we also give some disclosure on the investments in China AMC, where we're carrying it at. Second, we've isolated the non-IFRS adjustments we've made, which represent extraordinary items, to help you understand those items that make period-over-period comparability challenging. And we've also called out pension contribution. And third and very importantly, we reclassified cash flows relating to mortgage collections we receive from being servicer of our mortgage business of about $10 billion. This is amounts where we receive principal and interest repayments from our clients daily, and we remit these payments to the owners of the loans, being securitization vehicles and institutional investors, on a monthly or quarterly basis. The net amount of that receipt and payment of these amounts is zero. But in the past, in any given quarter, it's created $50 million to $100 million of cash flow volatility. We've reclassified those amounts into our financing/investing activity line, resulting in much more understandable and intuitive operating cash flow. In the chart in the bottom left, you can see the impact of these changes. And you'll see our operating cash flow is very understandable and intuitive following these adjustments. And I'd also draw your attention to Q1 in each of these periods, where we do have the compensation and other Q1 payments that occur or we've accrued for the amounts over the year and do have payments in the first quarter. So very predictable operating cash flow.That concludes our remarks, and I'll turn it back to Dawn, to the operator, to take any questions.

[Operator]

[Operator Instructions] And your first question is from Gary Ho from Desjardins Capital.

[Gary Ho, Analyst]

Jeff, first question for you. In your prepared remarks, you mentioned you were not satisfied with the net outflows at IG for the quarter, and it looks like the July numbers have turned a little bit. Can you elaborate what changes you have made more recently to accelerate the sales that we were seeing?

[Jeffrey Robert Carney, President, CEO & Director]

Yes. I mean, there's a number of factors that I could go into. I mean, one is just making sure that we have confidence in the sales force to get out there and do their job. And there's pockets that are doing really well, and there are some other areas that aren't doing as well. And so we know that we can do it and we can grow faster, and we've got parts of the markets that are doing that. So we're sharing those insights and successes where they're -- and certain regions are stronger than others. And I think that learning is starting to go through the organization, and it's really focused on the gamut side of the story, and that's our biggest value proposition we bring to our company. And so we've got pockets that are doing really, really well on that and others that have some improvements to make. So I think you'll see the rest of the country come up to speed and to be able to pass the other regions and continue to compete with each other a little bit to drive that growth. But the other thing is there's so many things going on in our company right now from an execution standpoint, and I could list them all right now, but it would take a long time. So we're just -- it's almost like a Microsoft release, where you're getting -- we're making the job easier for the consultant, and we're giving them more tools, better products, differentiated capabilities, better systems and just making their job more effective and more easy to implement.

[Gary Ho, Analyst]

Great. That's helpful. Second maybe for Rhonda. Thanks for the regulatory update. Just on the DSC side, specifically. Have you had chats with regulators or you're thinking within the firm like what the phase-out period may look like? And just overall, maybe were you surprised by the non-banning of the [indiscernible]?

[Rhonda Goldberg]

Well, we don't know yet what that transition period will be. We'll certainly see that in the rule proposals that are published in September. If we look back to the previous consultation paper on embedded commission, there, the regulators had contemplated a 3-year transition. But again, that was when the contemplation was more broad to not just pick up DSC but also trailing commission. So my expectation is that the transition will not be that long. But again, we'll have to wait until we see those rule proposals shortly in September. I believe the CSA, I think, really tries to be reflective on the feedback they received, a broad feedback from the industry, ultimately decided to retain trailing commission, I believe, because they were influenced by the feedback that for some segments of client, that this would be the more appropriate, suitable option. And certainly, the reform, while trailers remain, really are predicated on the mitigation of those complex and ensuring that it is the most suitable option for the client.

[Gary Ho, Analyst]

Got it. And then my last question, maybe for Luke. We appreciate the added cash flow disclosure. So when I look at the cash flow from, say, normalized for seasonality, I get to a run rate of roughly $200 million per quarter now kind of over the last 12 months. And your current dividend is roughly 67% of that. Just kind of compared it to kind of 76% of that when I did the same calculation for 2017. So my question is twofold. Is there a payout on cash flow that you would look at before considering a dividend increase? And second, how would you prioritize paying down debt, which I think you're doing, potential share buyback and dividend increases?

[Luke Gould, Executive VP of Finance & CFO]

Good question, Gary. We're -- it's everything. We all are interested in seeing dividend increases. We take it really seriously, and we're very mindful that on any basis, we're approaching record all-time high earnings on a sustainable basis. So I know for this management team and our board, it's something that we're evaluating, having regard to our confidence in the business, which is very high, as well as investing activities that we have to -- and help build our business over the long term and other considerations. So I think you're anchoring to our payout rate. Both on an earnings basis and on a cash basis, it's the right place to be. And I would like to let you know that we're very mindful of the level of earnings we're at and what we believe is an upward trajectory. So in the coming quarters, we'll continue to be evaluating the dividend.

[Gary Ho, Analyst]

And then on prioritizing the different buckets?

[Luke Gould, Executive VP of Finance & CFO]

Yes. Priority #1 is, again, to maintain financial flexibly and help make sure we're set up to build the business. We think there's obviously a rich future for this business and a lot of great investment opportunities for us to build. So that's really part #1, is making sure that we've got the financial flexibility and wherewithal to take advantage of those opportunities that would make the business stronger. So as far as some of the priorities you listed on debt repayment or other things, we just did make a number of actions earlier this month to really shore up our indebtedness. There was a great opportunity to address the 30-year space for the third time in 18 months, and we've done so at what, we believe, are very attractive rates. And we are taking out the 2019 debt that we had coming due next week, and the results of that is we have a very, very strong balance sheet and we have no repayment coming due for quite some time, almost a decade. And we also are well situated to launch debt if something transformation comes along by addressing the 5-year space [indiscernible] space in the market. So if you're asking the priority on shareholder -- giving money back to shareholders versus creditors, I'd say priority #1 is to maintain financial flexibly. And this team's quite bullish on the future of the business, and that's priority #1. But dividend increases is something that we're obviously looking at and will continue to monitor.

[Operator]

Your next question is from Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, Analyst]

First question I had was for Barry. The multi-start fund launch, I think right now, you've got roughly about $140 million in AUM, and I'm assuming most of that or a good chunk of that is going to be sales. Just curious about how big you think it can get over the next 3 years. And given the newness of the product, like is it a very long kind of a teaching period to get advisers comfortable with the product?

[Barry Sean McInerney, President & CEO]

Thanks, Geoff. It's a good question. It certainly is -- it's certainly an educational sell in that it's new and advisers have to be educated as to the use of leverage and shorting and, most importantly, as we always do, what's the appropriate role of this new product in an overall portfolio. So great discussions being had. Money is coming in modestly every day, but it's going to start to accelerate. But we feel the reason they accelerate is the timing is perfect because, as we know, we can never predict these things. But probably, the consensus is that we're in the later innings of the equity market's boom. And with rising interest rates, fixed income also is going to be a little under siege in terms of producing returns going forward that they have in the past. So the discussions we're having are holistic as well to, say, to the advisers. Listen, at times, there's a tendency to raise cash, and that's just not a good thing to do because no one can time the market. So here is a great strategy with a -- that has low correlation to both equities and bonds that you can put a slice into your portfolio and smooth out again the return patterns for your clients for years to come. And I think I've mentioned in prior calls, it's -- the liquid alternative space in the U.S. really took off after financial crises. Luckily, here in Canada, we're going to -- we're all introducing products. We're living in an environment that's becoming more volatile. That could show great benefit to have this. In the U.S., it was after the financial crisis where a lot of individual investors noticed that high net worth and institutionals weren't as hurt as much because they had access to alternatives. And so liquid alternatives, which is really alternative return patterns wrapped in a mutual fund, took off in the U.S And it's, by many measures, it's approaching $1 trillion after 10 years. So we're usually at 10:1 ratio between Canada and the U.S So you can say we'll be -- it could be a $100 billion industry in short order here in Canada. Some argue it might be higher in Canada in steady state because we don't have as broad diversification tools Canadians do versus as they do in the U.S So suffice to say we're very excited about the product. I think it's going to grow very fast. It is educational sell, new for a lot of advisers, and part of our value proposition again at Mackenzie to go out and talk about the portfolio holistically, "Here's how this can be used in the portfolio." And our team has done this for several years now in terms of other products that -- they're not easy. There's some complexity to them, but they really benefit the investor. And therefore, we have a good rhythm to educate advisers quickly as to benefit. And early days, but we're very encouraged by the flows to date.

[Geoffrey Kwan, Analyst]

Okay. My second question is for Jeff. Are you able to talk about the brand relaunch in terms of what you're going to do in terms of is it marketing and stuff like that? Because I'm guessing it's probably a little bit more focused on trying to capture that high net worth investor. And any sort of expectation on the sales impact?

[Jeffrey Robert Carney, President, CEO & Director]

Yes, I'd love to tell you what it is today, but we haven't even told our teams across the country yet, so I can't take you under the hood right now. But I can tell you that we're really excited about the positioning of it. And you sort of nailed it in your question that this is a way to tell our story from a high net worth and mass affluent space, and that's exactly what we'll be targeting with the campaigns we're running on TV and on other media. And so this is to sort of remind the market that we have all these skills and make sure that the Canadian fabric actually understand that and that we're targeting the, like I said, the mass affluent and high net worth clients. And so we got a great support from the board, and we're investing a great amount of money to make sure that it is noticed and changed and respected and brought into the industry. So we can't wait to launch it, and you let me know if we did a good job.

[Geoffrey Kwan, Analyst]

I'm sorry. Did you, Jeff, provide the date previously on when it's going to start, like September 1 or October?

[Jeffrey Robert Carney, President, CEO & Director]

Yes. We haven't given a date out. We want to tell our team first.

[Geoffrey Kwan, Analyst]

Okay. And just one last question in terms of trying to capture that high net worth or more affluent-type client. Has this required much in the way of changes to consultant education on how to win this type of business, how to service this type of client, in other words, if these types of people you're trying to target maybe have a different profile than the existing clients that you deal with?

[Jeffrey Robert Carney, President, CEO & Director]

Great question. It's a journey. And so what we're -- we are doing a lot of training. We just had our -- all of our senior management in, all 70 managers that run our operations across the country and the distribution operation. And that was what we talked about, how do we make sure that they have the skill set and the demeanor to be able to serve mass affluent and high net worth clients. And so we put a number of programs together. There'll be more coming to help build their confidence that they have the skills to do that, and we'll be implementing that shortly. So it's a journey. Some are more ready and some need more training, but it's -- the confidence they're going to have is because they have the skills to serve those clients through the training we've given them. And as you know, we're doing increased training beyond the CFP, and that's already up and running with our IG University. So it's -- confidence comes from knowledge and experience and practice and being in front of clients and knowing that you can succeed at that. And so we just -- we teach -- what we're doing is trying to measure -- like for each consultant, bring in 5 and try to find a way to find 5. Once you find 5, you can find 10. Once you find 10, you can find 20, and then you're up to 50. And it's just practice. And so it's getting them in front of clients that have that kind of economic money and given the confidence in the products and the service to go with it.

[Operator]

The next question is from Graham Ryding from TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Could I start with Investors Group, just the consultant -- the size of the team? There's a little bit of attrition the last couple of quarters or year-to-date. I'm just wondering, is there any color there on sort of why the numbers continue to trend down and maybe just some perspective there?

[Jeffrey Robert Carney, President, CEO & Director]

Yes. I mean, we're around 2,100. We're doing a lot of structural work. We're encouraging more teaming as well. And so I think you'll see 2,000, or around 2,000 is going to be the number. We're not going to get up to 2,500 or 3,000 unless something changes over time. But we really want to expand the teams within the 2,000 and make sure that they have more resources within each all of those teams to bring the very best to our clients. And we're seeing a lot of that happening now. And so the broader the skill sets within the team, then the more expertise they have. And that's how to serve the high net worth clients.

[Graham Ryding, Research Analyst of Financial Services]

Okay, got it. The rebranding initiative that's going to happen in the second half, should we expect this to be spread out over both Q3 and Q4? Or is there one quarter in particular where you think you'd be spending a bit more on this rebranding initiative?

[Jeffrey Robert Carney, President, CEO & Director]

I can tell you it won't be in the middle of the Canadian summer, but you should think about it in the fall. It will be in the fall.

[Graham Ryding, Research Analyst of Financial Services]

Okay, got it. And then last question on IG, which is the admin fee component -- like your management fee seems to be fairly steady, but the admin fee has been trending down a little bit as a percentage of average AUM by about 3 basis points a year. Is that a deliberate move? Or is there something happening in here, and your mix is causing that to come down?

[Luke Gould, Executive VP of Finance & CFO]

Graham, it's Luke. You should look at those pieces, management and admin, together, and what we've got happening is there are certain admin fees that are charged on a bundled product where it's embedded in the management fees in the unbundled. So if you look at that in aggregate, it's trending fine, but what you see is it moved from bundled to unbundled.

[Graham Ryding, Research Analyst of Financial Services]

Yes, definitely. And then my last question, if I could, is just on the regulatory side of things. There is already -- there was a shift in the industry sort of away from commission funds towards fee-based funds. So I guess this is a question for Rhonda. Now that we've got these changes out there, do you expect that trend to continue or, perhaps, slow down? Or are the changes that are being asked amongst the distribution side of the industry sufficient now that you could possibly see a continued shift away from embedded commissions?

[Rhonda Goldberg]

I believe we're going to continue to see that trend away from embedded commission. The ban, of course, on DSC and low load, not just what is already an industry trend, perhaps, a little bit more. And while trailing commissions remain, as I indicated, those Client-Focused Reforms do add a heightened degree of expectation around the adviser making that choice. So from a suitability perspective, from a conflicts of interest perspective, remember, suitability, particularly, leads to identifying and considering the cost and the impact of cost overall to the client. And that's where the embedded commission will likely, not always, be deemed as the best choice for the client.

[Operator]

[Operator Instructions] And your next question is from Scott Chan from Canaccord Genuity.

[Scott Chan]

Just going back to the IG consultants. Jeff, maybe on the recruitment side, has anything changed in that respect? And also, you talked about like more teams within that network. Is there like a potential to acquire teams going forward in terms of what Luke was saying, in terms of potentially acquisitions going forward?

[Jeffrey Robert Carney, President, CEO & Director]

No. No, it's more -- we've got basically the 2,100 teams today, and we want to grow those teams and make the 2,000 as best as we can make them. And if we can accomplish all of that and there's a chance to go to 2,500, we'll go to 2,500. But right now, we want to make sure that we're focused on the 2,000 and monetizing their skills and their opportunities in the communities that they're serving. We're measuring market share by postal code. We're measuring everything. And we're really diving into where the biggest opportunity is for us with those mass affluent and high net worth consumers. And then -- and probably, it skews more to urban than it does to rural. I mean, we're pretty strong in rural in market share. We're higher than we are in urban, and so most of this will be an urban story. And you'll see that -- how that plays out over time through our brand spend and then through ongoing increases as we go forward to continue to drive share of wallet and through share of voice in the communities. And so think of it as the productivity for the teams is going up, and it's going up in a combination of all the efforts we're making across the company to make their jobs easier, better performance, new products, all the things that are happening, better systems, better brand, everything else, and then accelerating their skills at the same time. So you can see how that can compound itself over time and should be a really good story for our clients because they're getting broader capabilities of breadth and then ultimately, a better outcome for the return on income and what they're trying to achieve in their lives.

[Scott Chan]

Okay, good. And maybe for you and Barry. Over the last couple of days, there's been a lot of -- not chatter, but some of the funding companies have offers. [indiscernible] offered 0% index and Verizon this morning is offering 0% total return solutions on ETFs. Does [indiscernible] respond to that? What's the kind of initial reaction? And kind of what are your thoughts on kind of this fee trend that we're seeing more recently in the industry, not only here but in the U.S.?

[Jeffrey Robert Carney, President, CEO & Director]

Yes, Barry can answer that.

[Barry Sean McInerney, President & CEO]

Yes, it's a good question. I mean, certainly, at IGM, we're focused on living our best solutions, and the flows into our multi-asset both at IG and Mackenzie, very, very high. So we don't get too concerned with occasional trends here and there of a single ETF or single fund. It's just a building block. So I won't comment on our competitors. But for us, we're focused on delivering the best returns for our clients. And so we looked at all of our individual components that build solutions for our clients and the pricing of such is competitive. It's always going to be competitive for us. And it doesn't reflect necessarily the subcomponents of 1 or 2 elements of it that are priced, for whatever reason, at extremely low value. We remain very bullish on the industry, too. I mean, we looked at Canada, U.S., globally. The asset management investment industry, $80 trillion, grows every decade. It grows -- the capital markets, which, on average, go up, they go down sometimes, but on average, they go up. Savings rates are robust. Baby boomers, millennials in developed countries like Canada and the U.S. have to continue to save, save more, save longer. We are, as you know, participating in China now, and the growth there is absolutely breathtaking in terms of the savings rates and retirement industry that continues to drive along at record pace. So it's a really positive industry but more focused on solutions and multi-asset, which is reflected, again, across our IGM clientele. And so that's our focus. And we don't get particularly fussed about noise here and there, as you suggested, on some pricing here and there and some individual funds or ETFs either here or south of the border.

[Scott Chan]

All right. And Barry, you just mentioned China. And just in terms of China AMC, is there any kind of maybe comment on year-to-date assets within that entity or...

[Barry Sean McInerney, President & CEO]

Yes, they're just ticking along. We're always respectful of disclosing their AUM with the same page as their parent company because they have different disclosure patterns in China. So I think the last disclosure we had was end of the year. They're up 4% year-over-year. So that was in 2017. In the year, as I mentioned in prior calls, it has some choppiness to it, the capital markets, some new regulations that try to clamp down and ensure there's proper risk management as the industry, which is still in its infancy, becomes more institutionalized. CAMC was strong on the gate first quarter in 2018, new product launches, launched the first robo-advisor in China, just doing what they always do, doing a very good job. The CSI 300 is probably [indiscernible] Shanghai. It's an emerging market, so it's a little volatile. It was up the first quarter, then it came down, I think, over 20% from its peak today. So that happened with a bit of -- a little bit of trade wars noise going on, but that's temporary, we feel, sort of event. We remain just extremely bullish on China, the industry. I've mentioned before the third pillar. Their RSP is scheduled to come on board in China next year. There's just so many growth catalysts that are occurring. But just -- as we've always mentioned, our forecast of 15%, 20% growth for the industry year-over-year on average is -- we're still holding to it, but it's not going to be 15%, 20% every year just because China has more -- increased volatility given -- again, it's always difficult to view them as emerging market because it's the second largest economy in the world, second largest stock market in the world, but they're still emerging, and therefore, there's some element of volatility -- heightened volatility vis-a-vis a developed country that you're just going to have to experience.

[Operator]

You next question is from Paul Holden from CIBC.

[Paul David Holden]

So when I look at the AUA for Investors Group, I noticed an increasing rate of change in terms of third-party products that's included in AUA, still a low base, but it seems like the rate of change is picking up. So wondering if that's an intentional part of strategy or maybe just sort of a byproduct of more fee-based account. Either way, maybe you can talk about that trend a little bit.

[Jeffrey Robert Carney, President, CEO & Director]

Yes. I mean, I think it's an early indication of us winning mass affluent and high net worth accounts and bringing those in. And then those -- ultimately, you don't think that the securities generally end up in our mutual funds because we want to diversify the client's assets and make sure they're exposed to the right markets and giving them great tools and opportunities to use Mackenzie's products there. And so it's -- and third party as well. So it's really -- think of it like a funnel that's feeding all the time and that it ultimately is zapping our economics through the mutual fund.

[Paul David Holden]

Understand. That's interesting. And then related to that topic, the CSA -- I guess it was announced that they're going to review the affiliated distribution manufacturer relationship with some potential proposed changes. So wondering if you can comment on what you think may or may not transpire or your view on why affiliated distribution manufacturing is a fair model for the end investor?

[Rhonda Goldberg]

Well, currently, what we've heard -- it's a great question. What we've heard from the CSA, really, clearly is 3 things: that conflicts of interest has to be addressed in the best interest of clients; suitability must put the client first; and third, and this is really where I think the question lies, firms must hold themselves out in terms of the products and services they offer, and then they must do that. And that's where, I believe, the CSA has, perhaps, focused for firms that may certainly say that they offer both proprietary and third party but, in fact, have not been necessarily making those third-party products as accessible or have not otherwise you've seen from the flows in some firms. But that's not what is happening in actuality. So I believe that the focus of affiliated firms is from that perspective, how are you holding yourself out and then demonstrate that. So certainly, for Investors Group, we're very clear how we hold ourselves out. And that will be for all firms going forward, demonstrating that what you say you offer, you offer. And the regulations that have been proposed, those Client-Focused Reforms, do contemplate disclosure, public disclosure around any restrictions or limitations on both products and services.

[Paul David Holden]

All right. That's a helpful answer. And then I want to ask you on insurance sales being noisy the last 1.5 years, 2 years or so because of some tax changes. Hearing that, that's probably likely going to settle down starting Q3 as you review that insurance sales, IG should start resuming more of the growth trajectory maybe starting next quarter?

[Jeffrey Robert Carney, President, CEO & Director]

Yes, I'd expect that.

[Paul David Holden]

Okay, good. And then I know you don't want to give us too many details on the rebrand. But would it be fair for us to assume that maybe that rebrand or repositioning include more holistic financial planning, so might include a greater proportion of sales such as insurance and other financial service products?

[Jeffrey Robert Carney, President, CEO & Director]

Yes. I mean, we want to -- I don't want to tell you the whole story, but we want to show the breadth of our offering. It is no question.

[Paul David Holden]

Okay, okay. Fair enough. We'll learn more as the quarters go on.

[Jeffrey Robert Carney, President, CEO & Director]

It's grounded in our value proposition, which is gamma. And then our gamma is grounded in the quality of the CFPs that we have across our company. And that's going to be the story.

[Paul David Holden]

Okay. So as we think about the IG story long term, I should assume that the mix of financial services sold is going to, at least at the margin, include a little less investment fund and a little bit more of everything else in terms of mix.

[Jeffrey Robert Carney, President, CEO & Director]

No, no, no. It's more -- we can -- we just brought on BlackRock on our platform. We just brought on -- I mean, we can hire anybody we want. We spend a lot of money on third-party products and Mackenzie as well. And so we've got a big product offering they can go after. And it's really back to -- you were talking -- as the regulation conversation earlier, how many products do you want to have? And so we -- that's what we monitor. And then mostly, we want our consultants to use solutions-based products that are holistic and solving the beta needs of clients. And so our challenge is really that we're filling up these buckets of investment firms that we're using in our own. And so we got to continue to find new ways to find partners as we go forward because there's a lot of money coming into the company, and we want to find the right solutions for them, but we want also to be diversified in those approvals as well so that there's not a concentration risk on one process.

[Operator]

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Potter.

[Keith Potter, Senior Vice President Finance & Treasurer]

Thank you, Donna. And at this point, we'll conclude the call and just like to thank everyone for participating today.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.