IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2022-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Third Quarter 2022 Analyst Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kyle Martens, Treasurer and Head of Investor Relations. Please go ahead.

[Kyle Martens, executive]

Thank you, Sachi. Good morning, everyone, and welcome to IGM Financial's 2022 third quarter earnings call. Joining me on the call today are: James O'Sullivan, President and CEO of IGM Financial; Damon Murchison, President and CEO of IG Wealth Management; Luke Gould, President and CEO of Mackenzie Investments; and Keith Potter, Executive Vice President and CFO of IGM Financial.

Before we get started, I would like to draw your attention to our cautions concerning forward-looking statements on Slide 3 of the presentation. Slide 4 summarizes non-IFRS financial measures and other financial measures used in this material. And on Slide 5, we provide a list of documents that are available to the public on our website and on SEDAR related to the third quarter results for IGM Financial.

And with that, I'll turn it over to James.

[James O'Sullivan, executive]

Well, good morning, everyone. I will take us to Slide 7 to start with the IGM highlights for the third quarter. Earnings per share of $0.91 was the third best Q3 on record, a strong outcome. AUM&A ended the quarter relatively unchanged compared to June 30th, down only 1.6%. That said, we continue to operate in a challenging macroeconomic environment with continued market volatility. Mackenzie's net redemptions of $819 million are in line with the industry results for Q3, and I'll speak more to the industry operating environment on a coming slide.

At IG Wealth, net inflows were a solid $406 million during Q3, demonstrating the strength and resilience of this operating platform. Northleaf maintained its trend of AUM growth during the third quarter. And while we don't include our AUM and [ floats ] from strategic investments in our reported numbers, we do believe it's important to highlight to our shareholders a growth path these firms are on.

Last quarter, we reduced 2022 full year expense growth guidance to no more than 3%, which compares to our initial guidance of 5% in February. We believe this is the prudent path to be disciplined in our expense management during this period of heightened uncertainty in the market. We have begun our planning for 2023. While we will not be providing expense guidance today for 2023, you should expect the planning to be guided by similar considerations to those that have driven the current fiscal year. Prudent and caution remain important watchwords.

Turning to Slide 8. We show our client investment returns alongside major equity and fixed income indices. Third quarter was another volatile quarter in the financial markets. Our client returns started the quarter in positive territory, but by September 30, we're effectively back to where they started.

Equity markets were generally down across the board during the quarter, with China and Asia the most impacted, while fixed income markets held steady. Strengthening U.S. dollar helped our AUM as it has the average Canadian investor with an allocation to U.S. capital markets. October was a much better month for global equity markets, leading to a positive 3.1% average return for our client’s last month.

Turning to Slide 9 on the overall industry net sales. The industry experienced broad-based long-term fund net redemptions across asset classes, totaling $17.6 billion during the quarter, the worst Q3 on record. Industry asset manager peers overall experienced $8.5 billion of net redemptions, down sizably from the record $9.1 billion net inflows last year.

Turning to Slide 10 on IGM's results for the third quarter. Net earnings were $216 million and earnings per share were $0.91.

Slide 11 highlights net earnings by business segment, which Keith will review in detail during his remarks towards the end of the call. At a high level, earnings and troughs are 3 main operating companies, reflect the year-over-year decline in average AUM that put downward pressure on revenues, while a meaningful component of expenses are fixed in the short term.

Turning to Slide 12. AUM&A declined 8% to 12% across IG Wealth Management, IPC and Mackenzie during the 12 months ended September 30, 2022. However, both ChinaAMC and Northleaf have grown their AUM over the last 12 months, up 8% and 24%, respectively.

Turning to Slide 13 on net flows. IG Wealth net flows continue to be solid, and these results are being achieved during challenging markets that are quite different from the record-setting industry environment in 2021. This demonstrates the leading client and advisor value proposition at IG Wealth. Mackenzie's sale results are in line with the industry outflows during Q3. And Northleaf continues to attract new capital to the firm with $291 million of new commitments during the third quarter.

Overall, while market and macroeconomic factors are impacting our results, I am pleased with the underlying performance of our businesses and their positions within their industries. Equally, I am struck by the commitment and determination of our leaders, employees and advisors to navigate these times. I'm confident that we will emerge from this environment even stronger and even more resilient.

With that, I'll turn it over to Damon.

[Damon Murchison, executive]

Thank you, James, and good morning, everyone. Turning to Slide 15 in IG Wealth Management's third quarter highlights. We ended the quarter with AUA of $105 billion, a decrease of 0.4% during the quarter as a result of modest financial market declines. Cost inflows of $2.8 billion were the second best third quarter in our history, second only to the record high in Q3 2001. We achieved our eighth consecutive quarter of positive net flows at IG Wealth with $406 million during Q3. In this environment, we're naturally seeing a slight uptick in client assets held in cash, HISAs and GICs, as some clients take time to put new money to work into long-term solutions. This is to be expected and it's a natural part of the journey as we work with our clients to put their money to work in today's volatile capital markets.

IG's redemption rate over the last 12 months remains well below the industry and ended the quarter up slightly at 8.9%, while the industry redemption rate increased to 15.5%. Our positive net flows continued into October with positive net inflows of $150 million. We continue to see strong high net worth and mass affluent new client acquisition, with inflows from newly acquired clients over $500,000, totaling $401 million in Q3.

Turning to Slide 16. You can see the Q3 2022 gross, and net flows remained solid relative to the past 10 years, especially in light of this year's volatile capital markets. And on a year-to-date basis, IG Wealth has achieved the second highest gross and net flows in over 20 years at $9.8 billion and $2.3 billion, respectively.

On the chart on the right, you can see visually what I spoke to on the prior slide. We are achieving solid net flows at IG Wealth, while seeing short-term products like cash play a larger role due to the current market environment.

We're also pleased that our positive net flows continued into the first month of the fourth quarter, which demonstrates both the resilience of our business model and the attractiveness of our value proposition centered around financial planning in the marketplace.

Turning to Slide 17. As a reminder, this slide demonstrates the mechanics behind our net flows and how they can materialize into IGM Investment Solutions after first arriving as cash, GICs, HISAs, third-party funds and securities. We're pleased to see solid client inflows as we continue to gain share of [ wallet ] from our existing clients, acquire new clients, and recruit experienced financial planners to IG.

Given the current market environment, it's natural and prudent for advisors to build short-term positions and dollar cost average into the markets over time. With this in mind, we fully expect there to come a quarter where AUM growth exceeds AUA growth noticeably as short-term money is redeployed as a function of our clients' financial plans.

Turning to Slide 18. I'll reiterate that during the quarter, Q3 2022, we achieved its second-best gross inflows in our history at $2.8 billion, and our net inflows remain solid. We firmly believe we are winning market share through new client acquisition and greater share of wallet with our trailing 12-month net flows rate of 2.9% to end the quarter.

On Slide 19, we highlight how IG Wealth clients tend to remain committed to their financial plans throughout periods of market volatility. IG's wealth last 12-month redemption rate of 8.9% remains low, while the overall industry redemption rate for long-term funds on the other hand, has experienced a sharp increase during the third quarter, reaching 15.5% at the end of September.

Turn to Slide 20. This highlights our momentum in high net worth client acquisition, which continues to be significant contributor to our overall gross and net flows at IG Wealth. Growth flows from newly acquired clients over $500,000 remain significantly higher than what we've experienced from 2017 to 2020. Our advisors continue to engage regularly with their existing clients while still acquiring new clients throughout this market environment. We believe this demonstrates the attractiveness of our value proposition and the planning expertise that our financial advisors offer to high net worth Canadians.

Lastly, on Slide 21, this shows our productivity by advisor experience. Both our new advisors and most experienced advisor practices are continuing to deliver strong productivity numbers as measured here by gross inflows per advisor. We've undertaken a number of initiatives the past 5 years to drive productivity gains and expect continued momentum in future quarters.

Now I'll turn the call over to Luke Gould.

[Luke Gould, executive]

Great. Thanks, Damon. Good morning, everybody. I'll take the Slide 23 and review Mackenzie's Q3 results. Now first, total AUM of $180.5 billion was down 2.3% in the quarter due to negative investment returns of 1.2% and negative -- net outflows of $890 million. The second point, investment fund net redemptions were $680 million, reflecting a net redemption rate in line with industry peers, as described earlier by James.

Third, we're very pleased to report that Mackenzie's overall advisor perception study rank improved to second in the 2022 advisor perception study by Environics. We continue to be ranked #2 in advisor sales penetration overall and across all channels [indiscernible], MFDA, and insurance. And we also maintained our rank of second in brand equity.

On point 4, I'd highlight we had 2 fund launches in the quarter. We launched the Mackenzie Inflation Focus Fund in September. This fund is a balanced fund co-managed by the resource and fixed income teams, and is designed to provide inflation resilience through tactical allocations and different inflationary environments. We also launched the Mackenzie Bluewater Next Gen Growth Fund. This is a global equity fund that seeks to invest in dominant businesses underpinned by next-generation products, services and business models. And in the coming slides, I'm also going to profile continued strong business development at Northleaf with AUM up 5% in the quarter and year-to-date fundraising of $2.5 billion, leading the AUM growth of 18.5% to $23 billion year-to-date.

On Page 24, you can see October Q3 and year-to-date investment fund sales results. As mentioned earlier, in profile in the next slide, our net sales results are in line with industry peers and gross sales declines were also consistent. During the third quarter, as profiled earlier by James, we continue to see in the industry significant migration to safety with meaningful flows to GICs, other deposit products and high interest savings account offerings. My overall observation on this would be in the context of Canadian's portfolios. This net flow is relatively small and Canadians generally and universally remain committed to their financial plans. You'll see in the coming slides that we see improved investment performance during the quarter. With our boutique approach, we are fortunate to have diversity of products with compelling performance and features in categories that are very relevant in this environment, and we are leaning in on these offerings.

On Page 25, I've already summarized net flows and spoken to the industry environment. At the bottom in the left, you can see that falling record high net sales results and meaningful market share gains, we're currently maintaining market share. One of the product areas that's been depressed for us in this environment has been fixed income, where we've seen earlier success in several categories. We have solid relative performance in many of these products, but flows have been affected by industry sentiment. I'd also highlight in the bottom right that we had a noticeable improvement in the proportion of our assets in 4 and 5 star funds. I'd remind everybody that with our diversified boutique approach, we target to have 60% of assets in 4 and 5 star funds, and to consistently be above 40%. During the quarter, we did see rating increases in 3 of our 5 largest funds to 4 or 5 star.

On Slide 26, you can see our retail mutual fund AUM, investment performance and net sales by boutique. This boutique investment structure continues to offer diversification benefits to the company and excellent choice for advisers through market cycles. You can see with the asset-weighted percentiles and Morningstar range that we have strength across many of our boutiques. Some of the things we're currently emphasizing including inflation resilient mandates, which we offer across multiple boutiques and product offerings. This includes our newly launched inflation fund and other products managed by our resource team.

Infrastructure and tips offering within our ETFs offer inflation resilience, and we also have our infrastructure and other private offerings with Northleaf, which are very compelling during inflationary environments. I'd also profiled dividend and income mandates managed by our global equity and income team and our monthly income portfolios all have exceptional investment performance and are managed by our asset location team in that case the monthly income portfolios.

And I do want to highlight our Greenchip environmental products, which are currently our best sellers and are so relevant in this environment and have exceptional performance. And the last one I'd highlight that we're leaning into is Canadian Equity where we have strength across multiple boutiques and we do see demand in the marketplace.

Moving to Page 27, a few comments on ChinaAMC, starting with the slide on industry assets and flows. You can see on your left, industry assets of RMB 26 billion is relatively -- sorry, RMB 26 trillion is relatively unchanged in the quarter. While free markets experienced declines and actually meaningful declines, this was fully offset by continued significant contribution to long-term funds by Chinese citizens. At RMB 666 billion in the quarter, this represented an annualized net sales rate of 17% on long-term funds.

On the right, you can see ChinaAMC continues to gain market share within a high-growth market. You can see that we continue to be the second largest in the Chinese industry in long-term funds with 4.6% share of assets.

On Page 28, it focuses on ChinaAMC's growth in AUM, which continues to be strong. Long-term fund and overall total assets were essentially unchanged quarter-over-quarter in spite of financial market declines as a result of very significant net sales activity. For perspective, ChinaAMC's annualized net sales rate as a percent of long-term funds has been trending at over 25% over the past few quarters.

And turn to Page 29, you can see Northleaf Capital Partners $23.1 billion in AUM and the strong growth across private equity, private credit and infrastructure asset classes. As mentioned earlier, year-to-date, Northleaf has expanded AUM by 18.5%, driven by strong fundraising of $2.5 billion.

And I'll now turn the call to our CFO, Keith Potter.

[Keith Potter, executive]

Great. Thank you, Luke, and good morning, everyone. On Page 31, you can see our AUM&A. The chart on the left shows ending assets were down 1.2% during the quarter due to negative market returns, and it was a volatile quarter that started with strong results in July, but it did reverse course and we ended slightly negative. While markets are off to a positive start in October with client returns of 3.1%, we expect market volatility to persist in the near term, and we will continue to manage our business accordingly.

Slide 32 shows quarterly EBIT and millions of dollars on the left, and as a percentage of AUM&A on the right, I have a few comments here. First, on the left, you can see our overall revenue of $827.3 million is up from last quarter of $824.7 million even though average AUM&A is down 3.2%. And there's a few reasons for this.

First, net wealth and asset management revenue of $527.7 million is down only 1.3% relative to the AUM&A at 3.2% in the quarter and is driven by higher net asset management fee rates at Mackenzie. There's also 1 additional day in Q3 relative to Q2. We also had a better quarter in the mortgage insurance business with other financial planning revenue up $6 million. The second point on revenue is that the share of associate earnings and net investment income are up $8.6 million combined.

With respect to expenses, the combination of business development and operations and support is up 2.8% relative to 2021 and down 4% relative to last quarter as we stay focused on expense management. And on the right, you can see our adjusted EBIT margin as a percentage of AUM is up slightly relative to Q2 but down relative to Q3 2021.

Turning to Slide 33, we can see our consolidated earnings for IGM. I just have 3 comments on this slide. First, I'd point out that net investment income and other was $11.1 million in Q3 2022 and is driven mostly by interest income earned on cash as we experience a rising rate environment; and secondly, from favorable seed capital marks on certain mandates into small FX gains. Point 2, operations and support and business development expenses combined increased 2.8% year-over-year, as I mentioned, but I will point out that expense growth would have been under 2%, if not for a one-time item at IPC.

We maintain our full year 2022 expense guidance of no more than 3%. And as James mentioned earlier, we're in the middle of the 2023 planning process, and we'll provide guidance on 2023 expenses in the New Year. But I will reiterate that we continue to take a prudent approach like we have done in 2022. Lastly, on point 3, our dividend payout rate on the last 12-month basis is 70% of cash earnings.

Turning to Slide 34. You can see a summary of IG Wealth AUA and the key revenue and expense margins. On the top right, our advisory fee revenue rate was down 0.6 basis points this quarter, and this is primarily driven by the mix shift of over $600 million of AUA into cash GICs and HISA in the quarter. We do not charge an advisory fee on this amount, but we do earn a spread on cash, just not to the same level as the advisory fee rate on long-term solutions.

We expect to generate a higher spread on cash balances in Q4 and into Q1, which will put upward pressure on the advisory fee rate. Having said that, as we continue -- we would continue to expect some slight downward pressure of about 0.5 basis points per quarter as investment returns improve, and we make progress in the high net worth market. Product and program fee rates decreased slightly in Q3 from some targeted fee rate changes announced in June and certain IG funds as part of their prospectus renewal process, but we would expect this line to stay relatively flat going forward, as it has for the past several quarters.

And with regard to asset-based compensation rates, I would highlight that we continue our efforts to drive productivity growth through our network. We did harmonize the support available to our regional leaders in Q3, which shifted the geography of about $1.3 million from sales-based compensation into the asset-based compensation line, and this had approximately a 0.5 basis point impact on the asset-based compensation rate this quarter, and the reduction in sales-based compensation for the period is not noticeable in the expenses as it would have been capitalized and amortized.

So just to be clear, this is a small change. It does not impact the total amount of compensation paid by just the geography. As we look forward, a 0.5 basis point per quarter increase in this rate is reasonable expectation for the remainder of '22 -- 2022, as DSC units continued to mature. And just as a reminder, all DSC units will mature by the end of 2023 and we'll alleviate some of the increase here.

On Slide 35, you can see IG overall earnings of $109.5 million, down 22% relative to Q3 2021. It's primarily driven by lower AUM&A and the impact it's had on revenue. Also, we continue to remain focused on managing expense growth and the combined business development and operations and support was up 2% from Q3 2021, trending below our full year guidance for IGM of no more than 3% growth.

Moving to Slide 36, you can see Mackenzie's AUM by client and product type as well as net revenue rates. I have one comment on this slide, and they're really on the right, focusing on the blue line. You can see the net management fee rate for third-party clients, excluding Canada Life at 82 basis points. The increase of 1.5 basis points quarter-over-quarter is primarily driven by lower deferred selling commission expense, which are netted within this line, as well as the seasonal impact on how asset-based compensation is paid to dealers.

As I mentioned last quarter, Mackenzie stopped selling DSC and low-load options, and therefore, expense for Q3 was 0 versus $2.3 million last quarter. And other than this, we'd expect this rate to stay fairly stable going forward, subject to any major shifts in retail versus institutional or client asset class shifts.

Turning to Slide 37 where we show asset management segmented profitability. Just one brief highlight under point 1. The operations and support business development expense combined were down 0.1% year-over-year and business development expenses were down primarily due to lower variable costs related to sales linked compensation items.

Slide 38 is ChinaAMC's results. On the left, total AUM of RMB 1.73 trillion is up 10% from last year. And at the bottom, you can see long-term funds were up 17% from last year, in the dark blue stack, driven by continued net sales in industry and for ChinaAMC. And with respect to earnings on the right, I'd point out that Q3 2022 earnings included an after-tax $2 million negative impact from seed capital marks. And that's in the context of a 14% decline in the CSI 300 in the quarter. And so, normalizing for this earnings would have been closer to $16.7 million.

Now moving to Slide 39. I have a few comments first on IPC. Other than markets, the year-over-year decline in earnings is primarily driven by a $2.3 million pre-tax nonrecurring expense, and a mutual fund pricing change, which accounted for about $1.2 million. Second, on Wealthsimple valuation, it's unchanged this quarter. We've seen public market peer valuations stabilize, and Wealthsimple growth is also well in line with our expectations. And finally, in the table at the bottom, we've reflected the upcoming purchase of an additional 13.9% stake in ChinaAMC for $1.15 billion. And along with that transaction, the sale of part of our Great-West Life's [ stake ], and we do expect this to close in 2022.

And lastly on Slide 40, you can see our typical disclosure on some of the parts at the October 31st closing price of $36.47.The implied PE multiple for IG and Mackenzie based upon expected 2023 earnings is 6.5x. I'd also highlight in the second column from the right, unallocated capital and other, where you can see we have excess capital of $772 million or around $197 million pro forma the ChinaAMC transaction close.

And that will conclude my remarks, and we'll open up for questions.

[Operator]

[Operator Instructions] The first question is from Nick Priebe from CIBC Capital Markets.

[Nikolaus Priebe, analyst]

[indiscernible] the question on IG Wealth. From a segmentation perspective, when you break down net flows between high net worth and non-high net worth, is there any discernible difference evident between those 2 client categories with respect to the resiliency of flows in a volatile market like the one we've seen this year? I suppose another way of asking is, are you seeing a lower redemption rate from high net worth clients in that channel?

[Damon Murchison, executive]

I would say that for the high net worth part of our business, you see resiliency in a sense that the reduction rates are pretty consistent across the board for all segments, but you see resiliency in a sense that they generally have more cash to deploy. So a lot of the cash positions would come from that high net worth segment. And then we take a long-term approach to -- particularly in this market, the dollar average cost, into their long-term positions. So that generally leads to, once again, a pretty good redemption rate as to where we are today.

[Nikolaus Priebe, analyst]

And then just one other point of clarification. On the increase in the proportion of Mackenzie fund assets that are rated 4 or 5 stars by Morningstar, as you noted in your prepared remarks that took a bit of a step up in the quarter. But if I look at the proportion of fund assets that are performing above median on a trailing 12-month basis that was essentially unchanged sequentially. So was the increase in the 4 and 5 star fund assets. Was that just a product of a few larger funds being pushed from 3 to 4 stars in the quarter? Any additional color you could provide maybe on that?

[Damon Murchison, executive]

Yes. For sure, Nick, yes. The largest one -- So as you know, the Morningstar ratings is a combination of the 10 to 5 and 3 year returns and the risk adjusted. Where we saw the improvement was, first of all, our Canadian growth mandate, which did very good in the quarter and were pushed up, and that was to 4 and 5 stores in A&F, respectively. Our global dividend, which is our third largest fund was upgraded and [ IV ] foreign equity has actually performed very well in this environment and had upgrades.

[Operator]

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

[Geoffrey Kwan, analyst]

James, just wanted to ask you about the ChinaAMC transaction, just more broadly, though. IAs -- what sort of appetite would you have to acquire the remaining 10% stake by that other shareholder if that were to occur? Would that have any change in terms of how ChinaAMC might operate and, call it, strategize given it would only then just be you and [ CIBC ] as the shareholders?

[James O'Sullivan, executive]

I think pro forma, our acquisition of power's approximately 14% stake in the property. I think from a size perspective, I think we've got it about right. I mean it gives us meaningful exposure to ChinaAMC. It gives us meaningful exposure to the Chinese economy. But on the other hand, from a risk management perspective, it will be about 15% of consolidated earnings. So that's really what we're balancing here. We want exposure to a great property and a height, what we believe will continue to be a high-growth market. But we do look at this overall from a risk management perspective and 15% contribution to consolidated earnings feels about right. So that would be my take on that 10%.

[Geoffrey Kwan, analyst]

And then just my second question was, Luke, there's been generally a greater trend of trying to sell alternative strategies, private equity funds, those sorts of things in covering different asset classes to qualified retail investors. Is this something you would like to do with Mackenzie to further differentiate yourself kind of in the market? And if so, do you see Northleaf as capable of achieving this or much -- you need to partner or even acquire other players?

[Luke Gould, executive]

Right now -- great question, Geoff. So we've – since -- we actually celebrate an anniversary on Friday, was the 2-year anniversary of our Northleaf acquisition. Since then, we've launched 4 products, now covering all 3 of their asset classes, private equity, private credit infrastructure. And you remember, we launched the interval fund on private credit earlier this year. So right now, we're out there actively proving those products. We're so pleased with Northleaf as a partner and what they offer. We don't have any plans to expand beyond Northleaf, and we're out there right now educating advisors and work with dealers to promote these products.

And as mentioned, we think these products, all 3 of them, those categories are still relevant in this environment. So we view ourselves as a pioneer in bringing a private to retail. We do call it the missing [ metal ]. Institutions for so long have had access to it, to private markets, and retail has not. And we're still excited about the future for these products. We think it's going to be a big part of Mackenzie, and a big part of Canadian's portfolios going forward. So, it’s a great question, and we're leading in on this one.

[Operator]

The next question is from Scott Chan from Canaccord Genuity.

[Scott Chan, analyst]

Just maybe a bit of clarity on the net investment income. If I kind of look back in past quarters, they kind of range between $2.5 million to, call it over $3 million, and the last 2 quarters were negative. And you spoke that majority of the income came from excess capital. Was that from the unallocated capital that will be reduced with ChinaAMC? I'm just trying to figure, in a rising environment, how sustainable that line might be near term, and what could be a normalized rate going forward?

[Keith Potter, executive]

Yes, the $11 million this quarter, I would say the majority of it would just be coming from interest income on cash. You could look at our balance sheet, we have about $1 billion in cash on the balance sheet. You can call that $7 million of the $11 million, and the rest would have come from some favorable seed capital marks and some small FX gains, as I mentioned. So as you think about -- as we finalize the ChinaAMC transaction, about half that cash will be put to work, to finalize that transaction. But as rates have risen, we'll continue to earn that interest income on the remaining cash balance.

[Scott Chan, analyst]

And then you talked in your opening remarks about Investors Group, or IG, the quarter being better in mortgage and insurance. And I remember last quarter, you kind of telegraphed that -- sorry, that mortgages might be weak again in terms of pre-payments with higher rates. Maybe you can talk, is it more insurance that was better in the quarter, or maybe an update on both those kind of product lines within IG in the quarter?

[Keith Potter, executive]

Yes, sure. So I'll start with the mortgage business. And we did have $8.3 million in the quarter versus $4.5 million. One of the biggest difference is, we didn't have any institutional sales where you recognize gains and losses upfront. And if you recall last quarter, we had a loss of $2.8 million as this commitment costs with rising rates. So that's one of the main differences this quarter. Prepayment penalties were quite in line with Q2. I mean, the clients just aren't breaking mortgages to renew into higher rates. So we expect that to continue going forward.

If you think about the mortgage business, subject to our funding mix, $6 million to $8 million per quarter is a reasonable way to think about it. And then on the insurance side, we did have a better quarter of insurances up by approximately $3 million. I just had some larger case insurance that we wrote this quarter. You can also see that flowing through the other product commission line that's up a little bit as well. So that's -- those are those 2 items.

[Scott Chan, analyst]

And just last question on ChinaAMC and maybe on the industry. Very helpful in terms of what you provided in Q3. Obviously, the CSI was down over 14%. And your commentary on net flows were 17% annualized which helped protect ChinaAMC as well in terms of assets in the quarter. And it seems like that trend is so opposite versus what we see in North America when markets are down, flows accelerate, especially in China going into long-term funds. So, was there any special dynamic in the quarter that drove that net flows? Or is it more just that low penetration and better industry dynamics that we're seeing there?

[Luke Gould, executive]

Good question. We view this -- We do this as secular. Right now, China's building retirement system, this is an industry that's in its infancy still, in spite of being a bit larger than Canada's already. And so this type of contribution is -- we expect it to continue. It's a growing industry, and the Chinese are contributing to their savings, and they're going to continue to do that. So that's been our mantra, their building retirement system. There's a number of initiatives that are going to promote further individual savings, like the individual retirement accounts that have been approved just last year. And ChinaAMC is going to be a part of that growth, and we're excited for it.

[Operator]

[Operator Instructions] Next question is from Graham Ryding from TD Securities.

[Graham Ryding, analyst]

I'll start with a question for Damon. But it's more of an industry question, so James or Luke, if you want to chime in as well by all means. But Slide 19, you show that IG Wealth continues to outperform the industry with respect to redemption rates. But it does look like the industry overall has not seen the redemptions like we saw back in the global financial crisis or even the recent peak in 2019. Is it just a matter of time before the industry gets back to those levels? Or do you think there's something structurally that's changed here within the financial advice industry or investors more willing to stay the course now relative to past cycles?

[Damon Murchison, executive]

Yes. What we're seeing is that -- generally speaking, investors are more informed than ever before, and they're willing to stay the course more than we have seen in the past. But this is different. Usually, when this happens, there's some place to also hide. And there's been no place to hide, but to stay invested, and that includes real estate. Real estate has always been the biggest substitute in our industry. And certainly, it's not a place to hide right now. So advisors across the country, and particularly at IG Wealth, we're doing a great job of talking to our clients and making sure that they understand what is happening in context of their long-term plan, and that's why we stress test it, so that they're informed. And when they're informed, they can make informed decisions. And that's what we're seeing.

[Luke Gould, executive]

Yes, I think I'd add to.ZThat mantra I said earlier, generally people are sticking to the plan. There's some reallocation to perceive safety. And I would reinforce that perceived safety is perceived in the context of inflation. People are not preserving their wealth by moving to cash and cash substitutes right now. So we think Canadians are being responsible. And that's -- Slide 19 positions it well. Will it go up to 18%, 19% as an industry rate? It is still rising, but I don't think it's going to get there at this time.

[Graham Ryding, analyst]

Luke, I’ll stay with you, just your -- the fund performance side of things. We saw some improvement with your 4 or 5 star funds. You're targeting 60%. Is that a new metric? Or have you always targeted that? And have you been above that level in the past, or would that be a milestone?

[Luke Gould, executive]

Yes. That's been our target for about 7 years now -- 7 or 8 years. And yes, with our boutique approach, I'll first back up by saying, in Canada, CFSC categories, the categories against which we'are evaluated, they're very broad. So you've got a global equity cavity -- There's -- category. There's no global equity large-cap growth category or global equity large-cap value. As a consequence of that, when you look at our boutique approach, we -- if we ever had something above 60%, we'd actually be raising the alarm bell saying, something is wrong. People are talking to each other. We got group finger. We got concentration.

So we purposely targeted 60%. We were there about 4 quarters ago. We're at about 61%, and that is our target. And we've actually said to ourselves, if we're doing all the controllables right -- So when you look at the advisor perception study and kind of the 42 metrics, if we're doing all the controllables right, and we consistently got between 40% and 60% of our assets in 4 and 5 star funds, which we should have with this boutique approach, and trying to have investment excellence everywhere, then we can be a consistent top 3 net seller in this industry.

So that's been -- our target is a range of 40% to 60%, and 60% is our target. And if we ever found ourselves at the 70%, 80% of our assets, 4 and 5 star, given the way categories are constructed in this country, we would be ringing the alarm bell saying, how is everything doing so well, are our boutiques talking to each other and sharing best ideas, which is something they certainly don't do at their autonomous boutiques.

[Graham Ryding, analyst]

One more, if I could. Keith, just -- you made a comment, I think, on just the asset-based comp level at IG going up 0.5 basis points per quarter. Does that persist until the end of 2023? Or is that just for this year?

[Keith Potter, executive]

Yes. We talked about in the past the -- as we -- as markets move up and rise again, and we continue to shift our mix to high net worth, we had guided in past quarters that we'd expect it to tick up above 0.5 basis points per quarter. And then, when you combine that with the impact from the maturing DSC units -- So, there's a number of variables though that can influence this line item. There's the -- obviously, the shift in client mix that I just talked about. There's also investment returns, and we saw that happened in Q2. When markets fell, we actually had clients shifting peers. And so, that's another thing that can influence that line item. And then the other thing I just spoke to is the mix shift between -- really right now between cash GICs and our long-term solutions. And that as well can put -- impact that line.

So the -- really at the end of the day, I'd say, yes, a 0.5 basis point impact with -- is the asset-based comp. Is it really going to come from the -- the 0.5 basis point impact is really going to come from -- the 0.5 basis points is going to come from the…

[James O'Sullivan, executive]

Why don’t we take the next question, operator, and we'll come back to this.

[Operator]

The next question is from James Shanahan from Edward Jones.

[James Shanahan, analyst]

I'm going to apologize in advance because you may have mentioned this and I missed it. Can you please catch me up on the timing related to the closing of the additional interest in Chin AMC and the sale of Great-West Lifeco shares?

[James O'Sullivan, executive]

We've been working hard at it, made great progress, and we fully expect the transaction to close in Q4.

[James Shanahan, analyst]

And my follow-up question is related to the financial advisors. I noticed that there was a decline in the number of financial advisers with the firm for less than 4 years. I was curious perhaps what was happening there. I -- my understanding was that you had reinitiated efforts to recruit and train advisors, and this appears to be perhaps a modest setback, and just would like a quick update on the strategy there for recruitment and development?

[Damon Murchison, executive]

So yes -- no, we are recruiting advisors, but our strategy is changed, in a sense that it's not quantity, it's quality. We're very selective in who we bring to the organization, delivering advisors that really want to specialize in financial planning within their communities and make sure that they focus on providing advice beyond an investment advice to their clientele.

And we're quite pleased with where we are with our network. Our -- size of our network has been -- is quite steady. And when you take a look at the numbers, you'll see that overall, the mix has changed. And we really added a significant number of associates to our team. We believe the future is smaller number of teams, but larger teams where it gives them more capability to provide broader advice to their clientele. So we're -- like I said, we're very pleased with the size of our network and the trend of where we're going.

[Luke Gould, executive]

One thing I'd add on the disclosures. We disclosed advisor practices with less than 4 years and greater than 4 years. The way that we've defined the less than 4 years is in terms of industry experience. When IG brings in an experience to recruit from a competitor, it goes right into the greater than 4-year bucket.

[James Shanahan, analyst]

That's interesting. I wasn't aware of that. If I could ask one more quick question. Has the firm disclosed publicly the percentage of client accounts or client assets that are handled by the National Service Center?

[Keith Potter, executive]

Yes, we've been public that the fact that we've got over 230,000 accounts at the National Service Center, and it's something that, quite frankly, we're going to look to grow over time because that allows us to ensure that we're serving these clients, and generally speaking, are more advice light and want a little bit more of a digital experience and want quick advice when they need it. It allows us to service them appropriately, and the best way for them -- and it allows us to free up our advisors and once again, provide more capacity for them to focus on providing the advice that high net worth Canadians need, which is more complex, and it takes more time and more of a human touch.

[Operator]

The next question is from Jaeme Gloyn from National Bank Financial.

[Jaeme Gloyn, analyst]

First question, just digging into the client types and not so much focused on high net worth clients but more on your average household, let's say. And looking at the savings rates declining, both in the U.S. and here in Canada. But I just want to get a sense as to the performance of that average Canadian households. What are you seeing from their perspective on net flows, either in the IG or the Mackenzie business?

[Damon Murchison, executive]

I'll start off, and then Luke can chime in. What we're seeing across our segments are a few things. Obviously, as you move more to high net worth, you're dealing with individuals at higher disposable income and their savings rate tends to be higher. So you're bringing in more cash right now. And I've already mentioned that for Nick's question. But above and beyond that for all segments, what we're seeing is that it's always been the Canadian way to diversify your portfolio but always -- also to diversify your adviser.

And what is taking place with COVID. And now with the markets and inflation and interest rates, it's given a lot of our clients really the opportunity to juxtapose their advisors and who's providing them advice, particularly advice beyond investment advice. And what we're seeing right now is there's a consolidation of advisors within all segments. So for us, it's been an opportunity to capture greater share of wallet with our existing clients. So while savings rate -- while their savings rates might be in the 1% or 2% a little bit lower than over the previous years, there's still a great opportunity to bring in new assets with existing clients as well as obviously new client acquisition.

[Luke Gould, executive]

Actually, I build on what Damon said, so a few things. One, there's certainly not only a difference in savings rate by household wealth, but also by age. And one thing that -- we've been not surprised by that, we observed is, our people are aging and entering 60s and 70s. There's still contributions that are happening. So we are actually building products, and a lot of what we do is about managing people through decumulation. But I would put out -- we actually see contributions across ages. But I want to start with your first comment about savings rates declining.

We actually are big fans of investor economics as a firm and strategic insight in that group. And right now, the contribution rate to Canadian savings that's being forecast by industrial economics is about 3% of assets per year. We obviously declared that one of our North Stars, that's kind of maintain market share for us if we've got a net sales rate of 3%. But they're not seeing a decline in contribution rate to Canadian savings over time. Last year was obviously above average in terms of contributions to the industry into savings, given the pandemic, and a lot of what we've experienced. But the outlook that they have and that we share is that savings rates will continue to be very healthy in Canada for the next decade and a net contribution rate of 3% per year is where we anchor our thoughts.

[Jaeme Gloyn, analyst]

Second one, the M&A environment has the pipeline of potential opportunities increased given what we've seen as a reduction in valuations? Or is it sort of a case where your currency has declined and that also sort of streamlined the potential opportunities or pipelines available to you in the M&A front and thinking about your growth through that strategy?

[Keith Potter, executive]

I do not think that the opportunity set has increased at all. I think we're still in that stage of the market where buyers see value at one price and sellers see value at another price. And so you see the volume of transactions kind of fall precipitously. And -- this is true in multiple markets, including obviously the housing market in this country. And I think it's still the case that there's -- my observation would be there's still a very large gap. It may be as large as I've ever seen between public company valuations and private market valuations generally. And public valuations reset quickly as rates rose.

And we know that it takes private markets a little bit longer for values to reset. But ultimately, I think that will happen. So I think this environment actually could persist a bit longer, frankly, where it's -- or you don't see a high volume of transactions and you don't see a lot of M&A.

[Operator]

This concludes the question-and-answer session. I'd like to turn the conference back over to Kyle Martens for any closing comments.

[Kyle Martens, executive]

Thank you, Sachi, and thank you, everyone, for joining us on the call this morning. And I certainly hope everyone has a great weekend. Sachi, with that we -- I'll ask you that you please close out today's call.

[Operator]

Certainly. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.