IGM Financial Inc

TSX:IGM

Earnings Call Analysis

IGM Financial Q3 2023: Steady Growth Amid Challenges

In the third quarter of 2023, IGM Financial posted an adjusted earnings per share (EPS) of CAD 0.88, fueled by strong results from core businesses IG Wealth and Mackenzie. The company's operating Assets Under Management and Administration (AUM&A) reached CAD 253 billion, with a total including strategic investments of CAD 400 billion—a 32% increase year-over-year. This growth reflects robust organic progress, the doubling of an equity interest in ChinaAMC, and a new stake in Rockefeller Capital Management. Although the firm saw net outflows of CAD 549 million, key business areas like Northleaf secured CAD 1.3 billion in new commitments, and ChinaAMC generated approximately CAD 15 billion in net flows. IG Wealth's assets under administration (AUA) ended the quarter at CAD 114.2 billion despite market downturns, with net outflows a modest CAD 18 million. Expense growth was well-contained, at 0.6% year-to-date, aligning with the full year guidance to cap at 2%.

Driving Adviser Productivity & Client Experience

IG Wealth Management (IG Wealth) continues to excel in driving adviser productivity alongside an exceptional client experience. The company's Investment Executive dealer report card included a notable Net Promoter Score, which places IG Wealth in the upper echelon among full-service brokerage competitors. This demonstrates their commitment to reinforcing their market position through investing in technology and supporting clients and advisers with comprehensive financial planning tools.

IG Wealth's Private Company Advisory Business Launch

The unveiling of IG Wealth's new private company advisory business marks a pivotal step in differentiating the company. This service provides strategic transaction advisory and succession planning for owners of small and medium-sized enterprises. It's a strategic play to deepen relationships and further integrate financial planning and business valuation, leveraging expertise from partnerships like Rockefeller to create additional value for clients.

Rockefeller's Steady Progress

Rockefeller Capital Management maintained a steady performance, manifesting robust organic and inorganic growth that balanced out negative market impacts, leading to a 14% year-over-year increase in client assets. Moreover, they attracted larger-than-expected asset bases from new adviser teams, keeping pace with targeted growth levels. This demonstrates Rockefeller's ability to operate effectively in line with strategic expectations.

Wealthsimple Capitalizes on Market Position

Wealthsimple fortified its role within the Canadian wealth management landscape with a 7% quarterly and 42% annual growth in Assets Under Administration (AUA). The platform's user base nearly reached 2.3 million, surging more than 13% year over year, indicating a successful implementation of their growth strategy.

Mackenzie's Performance and Market Position

Mackenzie Investments displayed resilience with Assets Under Management (AUM) reducing marginally due to investment losses, and net redemptions in line with the industry. The annual Adviser Perception Study results placed them third overall, with continued high ranks in adviser sales penetration and brand equity across distribution channels. Mackenzie is staying focused on driving share gains and optimizing net flow to stay competitive in a volatile market.

ChinaAMC and Northleaf's Expansion

China Asset Management Co., Ltd. (ChinaAMC) showed significant strength with a 5% growth in mutual fund AUM despite market setbacks, largely bolstered by remarkable net sales. Their market share has increased from 4.6% to 5%, emphasizing ChinaAMC's robust market position amidst turbulence. Additionally, Northleaf Capital Partners showcased an 11.6% year-to-date rise in AUM, reflecting consistent strategic gains and diversification in product offerings.

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Third Quarter 2023 Analyst Call and Webcast. As a reminder, all participants are in listen-only mode, and 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, Ariel, and good morning, everyone, and welcome to IGM Financial's 2023 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.Slides 4 and 5 summarize non-IFRS financial measures and other financial measures that are used in this material.And on Slide 6, we provide a list of documents that are available on our website related to IGM Financial's third quarter results.I'll turn it over to James.

[James O'Sullivan, executive]

All right. Thank you, Kyle. Good morning, everyone, and thank you for joining us once again.We'll start with Slide 8 to cover some of the highlights for the third quarter. Adjusted EPS of CAD 0.88, up sequentially and driven by strong results in our core businesses, IG Wealth and Mackenzie.Our operating company's AUM&A stood at about CAD 253 billion at the end of September. Now when we add our proportionate share of our strategic investments AUM&A, that was CAD 400 billion at the end of Q3, up a full 32% year-over-year. The increase was driven by organic growth at our operating companies and strategic investments as well as through the assets added with our doubling of our equity interest in ChinaAMC and the acquisition of our 20.5% equity interest in Rockefeller Capital Management.Our reported net outflows were CAD 549 million during the quarter. While not included in this metric, we do think it important to note the strong growth in our other businesses. For example, Northleaf had CAD 1.3 billion of new commitments during the quarter, and ChinaAMC generated a truly remarkable investment funds net flows of approximately CAD 15 billion, in Canadian dollar terms, during the quarter.Year-to-date growth in our operations, support and business development expenses has been managed to just 0.6%. This truly is a testament to our continued prudent expense management as well as us finding efficiencies across the organization and thoughtfully using these savings to fund attractive growth initiatives. As we work through the last quarter of 2023, we are reiterating our full year expense growth guidance of no more than 2%.Finally, in about a month we look forward to hosting the investment community at our Investor Day in downtown Toronto.Turning to Slide 9. While the first half of 2023 delivered positive client returns, driven by generally strong equity and fixed income markets, the third quarter put a halt to this momentum as economic uncertainty once again took hold. The October markets have proven no more favorable, and we expect volatility and uncertainty over the balance of the year and into the beginning of 2024.Turning to Slide 10. The industry operating environment remained soft during the third quarter as the combined effects of recent market volatility, the impact of higher interest rates and high inflation continued to weigh on sentiment and savings levels. Canadians are reviewing their financial picture in light of elevated interest rates. Paying down floating-rate and other high-cost debt is being prioritized by many Canadians across wealth segments. Savings are also being consumed to support consumption during this period of higher inflation.We expect these factors to continue as headwinds for overall industry net sales during the coming quarters. However, our businesses continue to compete well through this environment, where good financial planning and financial advice is highly valued.Slide 11 presents IGM's consolidated average AUM&A and earnings results, both of which I spoke to in my opening comments.Slide 12 highlights earnings across our core operating companies and strategic investments. I'd remind that our earnings pickup from ChinaAMC and Lifeco include the impact of the transactions that closed earlier this year, where we doubled our ownership position in ChinaAMC and decreased our stake in Great-West Lifeco to 2.4%. Our earnings pickup for Lifeco continues to be based on consensus estimates. In this quarter, it includes an CAD 8 million true-up for last quarter as Lifeco continues to report after IGM Financial.Turning to Slide 13, Q3 ending AUM&A at our operating companies was up 6% over the past 12 months. The growth in our proportionate share of our strategic investments AUM&A includes both the investments we've made in recent quarters as well as strong underlying asset growth at each of these companies. I'd note that ChinaAMC's AUM grew by approximately 5% over the last year in local currency. However, this increase was offset by the depreciation of the yuan relative to the Canadian dollar over the same time period.Slide 14 breaks down IDM's net flows by company, along with Northleaf's fundraising activity during the third quarter.Turning to Slide 15, I want to remind our stakeholders of our upcoming Investor Day on December 5 in downtown Toronto. The half-day event beginning in the morning will focus on the strategy of IGM; its core wealth and asset management companies, IG Wealth and Mackenzie; and our 4 strategic investment companies, Wealth Managers, Rockefeller Capital Management and Wealthsimple, and asset managers, ChinaAMC and Northleaf. We look forward to showcasing how well we are positioned for sustainable, profitable growth. Please visit IGM's Investor Relations website to register. We look forward to your participation either in person or virtually.With that, I'll turn the call over to Damon.

[Damon Murchison, executive]

Thank you, James, and good morning, everyone.Turning to Slide 17 and Wealth Management's third quarter highlights, including IG Wealth, Rockefeller and Wealthsimple. IG Wealth ended the quarter with AUA of CAD 114.2 billion, a decrease of 2.2%, driven by financial markets.Gross inflows of CAD 3.1 billion represent another strong quarter. Net outflows were just CAD 18 million during the third quarter, as the dynamics that we experienced last quarter continued through Q3. I'll speak to this on the next slide. IG's gross outflows as a percentage of average AUA over the last 12 months remained well below the industry and ended the quarter at 10.6%, while the industry redemption rate was 16%.On a later slide, I'll also provide an update on our 2 strategic investment companies that are focused on wealth management, Rockefeller and Wealthsimple. Both firms posted strong results of their own in the third quarter.Turning to Slide 18. You can see IG Wealth's Q3 flows. To put our quarterly flows into context, I'll make a few points. Firstly, our gross inflows remain strong. But as with what took place in the second quarter, many of the redemptions that we saw in Q3 were partial in nature. Proceeds from these redemptions were used by our clients to pay down debt and to fund their lifestyles, given the inflationary environment. When interest rates are high and economic uncertainty remains, it can be prudent financial strategy to adjust leverage and reinforce financial flexibility.Secondly, while the nature of redemptions remains an industry story, what sets IG apart is that we're not singly focused on investing our clients' money. We're focused on all aspects of their financial lives and fostering lifelong intergenerational relationships. On a later slide, I'll provide further example of this as I speak to our new private company advisory business.Turning to Slide 19. At the top right, you will see that our IGM solutions as a percentage of total AUA remains strong and client cash, GICs and HISA positions continue to represent an opportunity as our advisers to execute their clients' financial plans, including dollar cost averaging back into markets over time.Our trailing 12-month net flows rate of 0.4% supports our continued belief that we are winning market share through new client acquisition and greater share of wallet.Lastly, we continue to deliver strong relative investment performance, with 61% of our assets ranked 4- or 5-star by Morningstar and 92% rated 3 stars or higher.Turning to Slide 20. Our client value proposition continues to resonate, as demonstrated by our success with new client acquisition, particularly with clients with access to over CAD 500,000. During the third quarter, we had CAD 493 million in gross flows from newly acquired clients with over CAD 500,000, which has nearly tripled over the past 5 years and up 20% versus Q3 last year.Gross inflows from newly acquired clients over CAD 1 million represented over 25% of our newly acquired clients during the quarter, a significant increase of 14% during [ Q3 2018 ].Our sales growth within the high net worth segments during the third quarter was exceptional, but we'd like to remind everyone that while over the long term we continue to expect solid growth in these client segments, quarter-to-quarter growth can be lumpy, and this can be seen on the chart on the right-hand part of this slide. That said, our continued progress and growth in the high net worth segment remains a testament to our strong client value proposition and our ability to execute our high net worth strategy.Turning to Slide 21. This details the productivity of our advisers, which continues to be very strong.Slide 22 is further validation of our success in executing against initiatives that drive adviser productivity, long-term business success that are all centered around our adviser and client experience. Once again this year, IG Wealth posted high ratings in the Investment Executive dealer report card, including a Net Promoter Score that continues to place us among the top half as it relates to the full-service brokerage arms of the Big Five banks. The bottom of the slide illustrates the categories where IG Wealth rated #1 position in the industry.We believe these categories are very important, as they illustrate our focus on investing in technology, supporting our clients and advisers with tools that elevate our comprehensive financial planning capabilities, ensuring our advisers have the products and solutions to meet the needs of high net worth Canadians and make sure that we have ongoing business and skill development for advisers to keep them growing in front of their clients with the process, skill and knowledge they need to foster long-term intergenerational relationships.On Slide 23, I'm proud to spend a few moments on the launch of IG Wealth's private company advisory business. This business is intended to provide our clients who own small and medium-sized businesses with strategic transaction advisory services as well as support their succession plan. We view this type of business as a differentiator as we continue to grow and move deeper into the high net worth segments.Having the skills and capabilities to offer these services to our clients will help to cement relationships, providing an opportunity for advisers to incorporate business evaluation and monetization into our clients' overall financial plans and open the door to further engage small and medium-sized business owners across the country. As we develop this business, we see this as a great example of a real opportunity to leverage the knowledge and learnings of Rockefeller.Turning to Slide 24, I'll provide a few updates to Rockefeller's progress during the quarter and year-to-date. Client assets were relatively flat during the quarter, as strong organic and inorganic growth were offset by negative market returns. On a year-to-date basis, client assets have grown approximately 14%. Year-to-date organic growth has driven CAD 3.1 billion in client assets, or approximately CAD 1 billion a quarter, on average.4 new adviser teams were added during the quarter. Adviser team growth remains on track to reach the CAD 120 million acquired production target as laid out on the April Rockefeller call. The teams that have joined Rockefeller to date are averaging a larger asset base than initially forecasted.As we have said when we announced our investment in Rockefeller, they just need to keep doing what they're doing. They execute very well, and their results are in line with our expectations for the quarter.Turning to Slide 25, the third quarter was another solid quarter for Wealthsimple, as they continue to reinforce themselves as an important part of the Canadian wealth management ecosystem. Wealthsimple's AUA in Q3 advanced 7% and is up 42% year-over-year. The new clients served is approaching 2.3 million and represents a year-over-year increase of over 13%. Wealthsimple continues to deliver strong results as they execute against their strategy, which you will hear more about in our upcoming Investor Day.With that, I'll turn it over to Luke Gould.

[Luke Gould, executive]

Great. Thanks, Damon. Good morning, everyone.So turning to Page 27, a few comments in the quarter. In Point 1, you can see our ending AUM was down 3.6%, driven primarily by investment returns.In Point 2, investment funds experienced net redemptions of CAD 698 million during the quarter, which is in line with the soft industry environment.On Point 3, we received the results of the annual Adviser Perception Study at the end of the quarter that was conducted during April and May of this year. We're proud of the results, which continue to demonstrate our strong position as a market leader in Canadian asset management. Our overall score was third, and this is our seventh consecutive year rank in top 3. We also continue to rank second in terms of adviser sales penetration. That's the percent of advisers actively selling our products, and we have this rank across all distribution channels. And we also continue to rank #2 in brand equity.As we continue to focus on winning in Canadian retail, we remain committed to the success of clients and advisers. Our consistently strong scores in the Adviser Perception Study are a function of the focus and hard work of the Mackenzie team and doing our best to deliver on the 43 underlying dimensions of the study that measures what matters to financial advisers from a product provider.On Point 4, as mentioned by James earlier, ChinaAMC long-term fund AUM growth was 5% in the quarter in the context of slight market declines, and this was as a result of continuing very strong net flows of CNY 78 billion, or CAD 15 billion, during the quarter. This followed net sales of CNY 61 billion in Q2, or CAD 10 billion, and reflects an annualized net sales rate of 40% of assets. This also represents strong market share gains, representing 30% of the healthy industry net sales of CNY 273 billion during the quarter.And lastly, Northleaf delivered CAD 1.3 billion in new sales commitments across multiple product offerings. And I do want to highlight Northleaf has averaged a consistent CAD 1 billion in new commitments each quarter since we began our partnership with them 11 quarters ago.Turning to Slide 28, you can see the trended history of Mackenzie's net flows. During the quarter, we experienced outflows that were in line with the industry. And on the right-hand side of the slide, you can see a continuation of the last 2 quarters, signs of stabilization within markets that remain volatile, but we don't see an improvement yet.Our gross sales were up 17% from last year, and we are encouraged by slight gains in our share of industry gross sales.We continue to know that our business is well positioned. We're focused on the right things at Mackenzie to drive share gains and produce significant net flows when the industry rebounds.Turning to Page 29, you can see Mackenzie's Q3 operating results. Our results for the quarter, as mentioned, were in line with the industry and in line with expectations given the environment. And you can see our net sales rate in relation to the industry in the bottom left.On this slide, I do want to highlight the table in the top middle, which shows the composition of our overall net sales by product type and distribution channel. I'd first direct you to Slide 4, Institutional -- sorry, Line 4, Institutional investment funds, which you can see had net sales of CAD 7 million in the quarter. And I did want to comment that this reflects strong net sales from our new relationship with Primerica, which were offset by moving to safety in line with the industry elsewhere.Also in the sixth row, Institutional SMA, we had good net flows into sub-advisory accounts that we sub-advise to ChinaAMC that were offset by net redemptions and other products, in line with the industry.And overall, you can see we had a slight improvement in net redemptions, to CAD 692 million, up from CAD 819 million last year.Turning to Page 30, you can see our retail mutual fund AUM investment performance in net sales by boutique. We continue to demonstrate the benefits and strengths of our boutique structure with the performance and broad range of highly relevant investment options across operating environments. While economic uncertainty and industry trends continue to influence our sales, we also continue to see strength based on the asset-weighted percentiles and Morningstar ratings across several of our boutiques.In terms of boutiques where we are gaining market share and have noteworthy net flows relative to peers, Greenchip, Bluewater, Global Equity & Income and the U.S. growth mandates within our sub-advised are contributing. I'd also highlight that we have strong emerging 1- and 3-year performance in many of our boutiques, and this includes our Global Quant Equity boutique, where our emerging markets mandates are not only top in Canada but also among the top in the world in the 1-, 3- and 5-year periods. We were actively promoting these boutiques in both Canadian retail and also to global institutional clients.Turn to Page 31, I'd highlight in the left that the Chinese mutual fund industry total AUM decreased by 1% in the quarter, as net inflows of CNY 128 billion were offset by slight market declines. This is in contrast to ChinaAMC's mutual fund growth of 5%, which I highlighted earlier and will speak to on the next slide.I do want to remark also on the right-hand side of Page 31, you can see ChinaAMC's market position remains very strong as the second largest fund manager in terms of long-term mutual funds, and I do want to highlight that market share has increased year-over-year from 4.6% to 5%.Turning to Page 32. ChinaAMC continues to show its strength and ability to drive AUM growth even within a market of uncertainty. Through the leverage created by its brand, distribution reach and breadth of capabilities, we saw strong net sales of CNY 78 billion, or CAD 15 billion, in the quarter. And as mentioned earlier, this is an annualized net sales rate of 40% of assets and also follows CAD 10 billion in net sales in Q2. This drove the noteworthy market share gains reviewed on the last slide, and the net sales were diversified across a number of thematic product offerings.And then turning to Page 33, you can see Northleaf's AUM now stands at CAD 26.9 billion, up 11.6% year-to-date, driven by new commitments of CAD 1.3 billion in the quarter and CAD 2.8 billion year-to-date. As mentioned, new commitments have averaged CAD 1 billion consistently over the 11 quarters since we started our partnership with Northleaf, and flows continue to be diversified across Northleaf's private equity, infrastructure and private credit offerings.And I'll turn the call over to Keith Potter.

[Keith Potter, executive]

Thank you, Luke, and good morning, everyone.On Slide 35, you can see our AUM&A. The chart on the left shows ending assets were down 3% during the quarter, while average assets remained relatively flat.Slide 36 shows our EBIT in millions of dollars on the left and percentage of AUM&A on the right. I have a few comments on the left chart on adjusted EBIT. First, the proportionate share of associated earnings and net investment income was down in Q3 relative to Q2, with lower earnings from Lifeco, ChinaAMC and Northleaf partially offset by Rockefeller. Second, wealth management fees at IG and net management fees at Mackenzie are up in Q3 relative to Q2. And finally, you can see at the bottom we had a decrease in expenses from Q2, primarily from lower seasonal spend such as conferences and travel and entertainment.On the right, you can see adjusted EBIT margin is up versus last quarter and in line with Q3 2022.Turning to Slide 37, we have our consolidated earnings at IGM. On Point 2, operations and support and development expenses combined increased 3.6% year-over-year, consistent with our expectations, and we are maintaining our guidance of no more than 2% growth for the year.On Point 3, as a reminder, discontinued operations includes IPC's earnings and the short-term financing expense for Rockefeller. Just a couple of points here. First, IPC's earnings were approximately CAD 4.5 million in the quarter, and the difference is just over CAD 6 million, as interest expense on the short-term facility, and that would be on an after-tax basis. Also, as a reminder, we intend to pay down the facility with the closing of the IPC transaction, which is expected during the fourth quarter.The key profitability drivers for IG on Page 38 are in line with our expectations and past guidance.On Slide 39, you can see IG's overall earnings of CAD 113.3 million is up 3.4% relative to Q3 2022, primarily due to higher average AUM&A and the impact it had on revenue as well as slightly higher contributions from other financial planning revenue and, more specifically, the mortgage business. Finally, the combination of business development and operations and support expense were up 3.7% year-over-year.Moving to Slide 40, you can see Mackenzie's AUM by client and product type as well as net revenue rates. I don't have much to say on this slide. But main point, focusing on the blue line on the right, you can see net management fee rate for third-party clients, excluding Canada Life, was 81.1 basis points and was up slightly due to having 1 extra day in the quarter to earn revenue, while trailer fees are paid based on the number of months in the year and not the number of days.Turning to Slide 41, you can see Mackenzie's earnings of CAD 56.5 million were down 3.4% relative to Q3 2022. On Point 1, operations and support and business development expense were up 3.5% relative to 2022, and this is partly due to the lower sales-linked compensation expense in the comparative period during 2022.Slide 42 has ChinaAMC results. On the left, total AUM of RMB 1.8 trillion was up 1.3% quarter-over-quarter. Long-term investment fund AUM was up 5.2% quarter-over-quarter, driven by positive net flows which more than offset negative market returns, as Luke discussed. With respect to earnings on the right, the sequential decrease is in line with our guidance provided last quarter of approximately 10% and is driven primarily from the fee adjustments and the exchange rate that I spoke to on our Q2 call.Turning to Slide 43. Here, you can see a breakdown of earnings and fair values of our strategic investments and unallocated capital. I have 3 main comments on this slide. First, you can see Lifeco earnings are down from Q3 2022, which reflects our lower ownership of 2.4% in 2023 relative to 4% in 2022 and the negative true-up of CAD 8 million from last quarter that James mentioned.Second, I spoke to you on the call -- spoke on the last quarter, we expected lower earnings for Northleaf for the quarter due to growth-oriented investments made in the business. In Q3, there was also a year-end tax accrual impacting results by approximately CAD 1 million. We do expect earnings to improve in Q4 due to higher revenue from invested capital and seasonally lower expenses. And looking forward to Q4, we'd expect something closer to CAD 3 million for our proportionate share of Northleaf's associated earnings after noncontrolling interests.Partially offsetting these points that I just spoke to was positive earnings contribution from Rockefeller.Finally, on Slide 44, we present our typical sum-of-the-parts view. I'd remind that the equity value ascribed to discontinued operations represents the CAD 575 million estimated sale price of IPC, less the CAD 550 million bridge financing facility. And as I mentioned, we expect this transaction to close during the fourth quarter.And with that, I'll ask the operator to open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Nick Priebe, of CIBC Capital Markets.

[Nikolaus Priebe, analyst]

I think you highlighted that China AMC's net sales rate on long-term funds was about 40% on an annualized basis in the quarter. That's a big number. And it looks like the broader industry experienced a more moderate net sales rate than that on long-term funds. So can I just ask you to expand on what the company is doing differently than its competitors? Like, what's driving those market share gains?

[Luke Gould, executive]

Nick, I'll take this one. It's Luke. So first, the position of ChinaAMC is much like Mackenzie. It's very broad in its capabilities and offerings across asset classes and across product types. And it's also very broad in its diverse distribution. So that's kind of the starting point.Right now, index-oriented products are selling very well across a number of thematic products. So things like technology. One of their most popular funds last quarter was gaming and animation. But these exposures are doing very well for ChinaAMC, and it's really leveraging the breadth of its offering combined with the breath of distribution to gain share.

[Nikolaus Priebe, analyst]

Okay. Maybe just stepping back for a moment. In light of recent expense reductions that were made earlier this year and the continued challenging revenue environment in North America, I'm just wondering how you're thinking about expense growth at the enterprise-wide level for 2024. Like, should we be thinking about a similar level of growth to 2023?

[Keith Potter, executive]

It's Keith. Thanks, Nick. At this point in time, we're really continuing to be focused on diligent expense management, but also making sure we're investing in the company and investing in those things to have the client value proposition and grow. So I think that thinking about 2024, we'd still be planning for some level of expense growth. But again, we're going to be prudent in that level. We typically provide specific guidance in February, and we'll provide an update at the upcoming Investor Day.

[Operator]

Our next question comes from Tom MacKinnon, of BMO Capital.

[Tom MacKinnon, analyst]

Just a couple of questions. Good financial planning revenue in IG, and I think it's related to mortgage. Was there anything unusual in the quarter there? Like, it doesn't look as if there's a lot of increasing kind of mortgage activity, but maybe you can elaborate a little bit on that.

[Keith Potter, executive]

It's Keith here. I'll take that. I think it was a solid quarter across the mortgage business as well as the insurance business. So insurance had a good quarter as well, Tom.The mortgage banking business, there were a few things going on, I would say. I would say net interest income is kind of in line with expectations, but there were loss on sales, there was some fair value adjustments that created a little bit of variability in the period. I would say kind of on a go-forward basis we had, call it, a CAD 10 million contribution this quarter. Probably something closer to CAD 7 million I would say would be more of a normalized number there for you, just given some of the fair value adjustments that we saw this quarter.Do expect the business, though, to be volatile given the interest rate environment, with rates kind of rising and falling over the coming quarters. But overall, it's solid across the business.

[Tom MacKinnon, analyst]

And Rockefeller, too. How should we be thinking about that? Like, it looks like the ending assets were the same quarter-over-quarter. Yet, last quarter it was a loss of [ CAD 2 million ], and this quarter it was a gain of CAD 1.1 million. So any way of helping us gauge what we should be expecting from Rockefeller, going forward?

[Keith Potter, executive]

When you look at the ending assets during the period, it was actually kind of a reverse fee. So you can think about the average assets being higher this quarter. Key drivers of growth in terms of bringing on new advisers, continuing to onboard and gaining organic growth, I think that's what you saw this quarter. So there's nothing special standing out there.But I would note, as we look to the end of September and into October, assets at levels across all wealth and asset managers have taken a hit due to market. So expect that as we head into fourth quarter, that asset levels are lower than what they were. So Tom, I'd be looking at something that would be lower than this quarter just based on that.The other thing I would just mention is I did mention on the last call that there's an equity-based compensation program being finalized. It's not finalized yet, and I will update, but I would look at something closer to between where they were last quarter and where they are this quarter as a reasonable estimate at this point.

[Tom MacKinnon, analyst]

Okay. And if I could just squeeze one more, the launch of the private company advisory. Like, expenses associated with that? Or was this sort of planned? I think when you had your expense saves, you were going to put half back into the business. Is this one of the beneficiaries of that strategy?

[Damon Murchison, executive]

Tom, it's Damon. Yes, it's definitely one of the investments that we planned to make. This is a big addition to this business. And we believe that the business will be self-funding when it's up and running and it's full scale.At the end of the day, what this allows us to do is tap into the small and medium-sized business monetization opportunity that is present in this country right now with the aging population. You're looking at 3/4 of the small and medium-sized businesses in this country will be sold within the next 10 years, and that's going to generate significant wealth that's not in the system, estimated over CAD 2 trillion. This allows us to add value to our small and medium-sized business clients by valuing and monetizing their business, and it allows us to attract new small and medium-sized business clients that aren't currently in our ecosystem.

[Operator]

Our next question comes from Geoffrey Kwan, of RBC.

[Geoffrey Kwan, analyst]

Maybe I'll start off just with Tom's question on the private company advisory side. I mean, it's just, I guess, another example of a new product or service that you've rolled out over the years. Just wondering if there's other product or service gaps that you'd like to be addressed, going forward.

[Damon Murchison, executive]

So the way that we see the opportunity, Geoff, in the country is, going forward, there's going to be key drivers that will determine the success of any type of wealth management organization. And it starts with tax planning and optimization, just given the high tax rates in this country and the future of tax rates. Number two is retirement planning and readiness because of the age of the population. Once again, because of the same age, it's all about estate planning and intergenerational wealth transfer. And then continuing on that wealth transfer theme, it is small and medium-sized business monetization. Along with those things, you have high net worth financial literacy and you have legacy planning and philanthropy. So when you look at those opportunities and those drivers in this country, you're going to be looking for our organization to align our services, our advice model and our products to those opportunities, going forward.

[Geoffrey Kwan, analyst]

Okay. Just my second question was on Slide 43, just where you show the fair value of the strategic investments. It was flat quarter-over-quarter. I know it's equity counted, but just wanted to, I guess, better understand what are some of the examples that would have the value of individual or collectively the group value changing, both up and down.

[Keith Potter, executive]

It's Keith here. Geoff, are you referring to the strategic investment, the portfolio there?

[Geoffrey Kwan, analyst]

Yes. I just wanted to take a look at the value that you had for Q3 versus Q2. It was largely flat quarter-over-quarter.

[Keith Potter, executive]

We would -- I mean, Lifeco is obviously we have a market value there. We fair-value through OCI Wealthsimple on a quarterly basis. And we spoke to ChinaAMC last quarter. So every single quarter, we would look at Wealthsimple, the performance of the business, public-traded companies' multiples and a number of other variety of valuation approaches. So that would be Wealthsimple.Northleaf, we've just maintained and used carrying value on that particular investment.And I spoke to last quarter ChinaAMC, where we'd look for inflection points within the business, the business growth and the industry. And as commented, and as you know, last quarter, we changed the fair value there.So I would say from quarter-to-quarter we'll continue to look and assess various views of value and would update on an ongoing basis. But with volatility from quarter-to-quarter, we're not going to be in a big hurry to move things around here, with the exception of Wealthsimple, where we do fair-value through OCI on a quarterly basis.

[Operator]

Our next question comes from Graham Ryding, of TD Securities.

[Graham Ryding, analyst]

Maybe I could start with James. Just thinking about sort of the industry long-term fund flows and, obviously, yourselves, what do we need to see here to get things moving positive in the right direction again? Is it really around interest rates coming lower and volatility in the markets becoming lower as well?

[James O'Sullivan, executive]

Thanks, Graham. Well, I mean, as I've said, I certainly think we need to see peak inflation, which we've seen; peak policy rates, which I believe we've seen; and we need to see the bond market settle down, and we've seen very little evidence of that. I do think that the sum of those 3 creates a more kind of constructive backdrop generally. But the point that Damon and I made with respect to the impact of ongoing inflation and higher interest rates on Canadians is one that is more persistent than those first 3 things.So our outlook here would be for another couple or few quarters of challenges for the industry. So I think 2024 is shaping up to be soft in the first half and stronger in the back half, and we'll see where it nets. But I think if we just look at consensus economic forecasts for how rates might move through 2024, I certainly see the potential indeed, if not the likelihood, for a substantially better back half of 2024.

[Graham Ryding, analyst]

Okay. Great. And would you expect sort of fixed income to be the asset class that retail investors start to move in first? Or is it not as simple as that?

[James O'Sullivan, executive]

I certainly think fixed income has become substantially more attractive as the curve has moved as it has moved. But our advisers at IG and indeed the advisers that Mackenzie serves are going to be having conversations with their clients. The large majority of the end clients served by our businesses have balanced portfolios. So we'd expect to see some movement in flows on both equity and fixed income.

[Graham Ryding, analyst]

Okay. Great. Damon, maybe I'll just jump to you with this private company advisory initiative. Do you know how much of your current AUM or your current high net worth AUM would be households with an entrepreneurial that's behind a small to medium-sized business?

[Damon Murchison, executive]

That's competitive intelligence right now. And we'll look to kind of share more of this at Investor Day, but I would say to you from a general perspective that the number of clients that we service that own small and medium-sized businesses is not large, but they make up a substantial portion of our assets.

[James O'Sullivan, executive]

The other thing that I'd point out is that as Damon succeeds, as he has succeeded, in moving IG more and more towards and into kind of the high net worth space, you're just going to encounter more and more business owners because it is -- this is a great country, but it's not an easy country to gain wealth in. Many of those with wealth own businesses.

[Graham Ryding, analyst]

Okay. So this is about positioning from your current client base, but also trying to increase your market share in that channel.

[Damon Murchison, executive]

I would look at it as a significant new client acquisition opportunity.

[Graham Ryding, analyst]

Okay. Great. And then Luke, just one last question, if I could. I guess, you talked about your perception ranking. What needs to be done in your view to get that ranking up to #2 or #1? And then is there, in your experience, a strong correlation there between that ranking and the market share of industry flows?

[Luke Gould, executive]

Great question. There really is that correlation. And again, there's many, many participants. We were tied for #2 last year. It's actually -- Fidelity has been a consistent #1, and EdgePoint is #2 currently. And right now, to get up there to the #1 spot, there's 43 dimensions in the study, 43 criteria that measures everything that matters to a financial adviser from a product provider, and we're trying to be the very best in every one of those. So for me, it's really about quality and operational excellence and how we're serving advisers and the products that we're bringing to them, and we're looking to be #1 in all those measures every day.

[Operator]

[Operator Instructions] Our next question comes from Jaeme Gloyn, of NBF.

[Jaeme Gloyn, analyst]

First question, just on the redemption rate in the IG Wealth business. Now I think it was reported around 10.6%. Still outperforming the industry, of course, but it is approaching your previous peaks. And so I'm just curious if there's anything different going on with that with your customer than in the past, and is that increase concerning to you as we look into the early part of '24, which James has said might be a little bit weak? A little bit more color on that, please.

[Damon Murchison, executive]

Jaeme, it's Damon. I would say that there's nothing specifically different that's going on with our clients. It's really a function of the fact that there's a -- everything is more expensive these days. And Canadians have debt. And when you do the math, it makes sense to pay down debt versus invest your marginal dollar, with rates where they are.And because we take a planning approach to everything we do with our clients, I mean, it's naturally going to lead us to make sure that we provide the type of advice that is going to benefit them long term. And that does mean paying down debt.So with the environment the way it is, we see this persisting for a few quarters. But at the same time, when you take a look at our business, with our existing clients we do see the redemptions are increasing. And obviously, that's a function of what I just talked about. But you also see that there is huge demand for the advice that we're providing. With Canadians going through what they are today, they're looking to sit down with advisers that are going to explain to them "how is this going to impact my financial future." And the fact that 28% of the new clients we brought in, in Q3 were CAD 1 million or more should show you that our value proposition resonates in the marketplace. So although it's a tough environment for our existing clients, it's a great time for us to acquire new clients.

[Jaeme Gloyn, analyst]

Just following up on that, would you -- like, in that redemption rate, are you seeing it more in your, I don't know, let's say, less wealthy clients compared to your more wealthy clients? Like, is there any sort of differentiation along your customer types?

[Damon Murchison, executive]

Yes, there is differentiation. I think the lower the value of the client's portfolio, the higher the redemption rate. Because they're stung more on -- they need the money to subsidize their lifestyle. As you move up to high net worth, they have more disposable income. Their partial redemptions a lot of times are to pay down debt. So if you were modeling it out, you would model out a higher redemption rate for the lower value.

[Jaeme Gloyn, analyst]

Okay. Good. Last question, just on the dealer report card rating. Steady increases from 2019 to 2022 for the industry and yourselves. What would cause the decrease in 2023? I see that you're outperforming, but I'm just curious as to what would have driven that rating lower this year?

[Damon Murchison, executive]

I think anytime you go back in the history of this study and look at a year that precedes a year where the market drops, you find advisers just -- they'll rate organizations tougher because the drop in the market immediately impacts their compensation, right? So you see that that is just typical of the industry, and I don't think that's going to change anything soon.

[Operator]

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

[Kyle Martens, executive]

Thank you, Ariel, and thank you, everyone, for joining in the call this morning. We certainly look forward to seeing many of you at our Investor Day in downtown Toronto on December 5.And Ariel, with that, we can close out today's call.

[Operator]

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