IGM Financial Inc

TSX:IGM

Earnings Call Transcript 2021-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Fourth Quarter 2021 Analyst Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]I would now like to turn the conference over to Keith Potter, Senior Vice President Finance. Please go ahead.

[Keith Potter, Head of Investor Relations & Treasurer]

Thank you, Ariel. And Good morning, everyone, and welcome to IGM Financials 2021 fourth 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; Barry McInerney, President and CEO of Mackenzie Investments; and Luke Gould, Executive Vice President and CFO of IGM Financial.Before we get started, I'd like to draw your attention to the cautions concerning forward-looking state statements on Slide 3 of the presentation. Slide 4 summarizes non-IFRS 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 related to the fourth quarter results for IGM Financial.I will now turn it over to James O'Sullivan.

[James O'Sullivan, President, CEO & Director]

Well, thank you, Keith, and Good morning, everyone. I'd like to start the call, if I may, by reviewing a few 2021 highlights. We've discussed on previous calls that this management team is here to build and grow our businesses and to grow our earnings. Today I'm very pleased to report that we accomplished both during 2021. Record high reported earnings per share of CAD 4.08 represents a meaningful breakout from historical profitability levels. Adjusted EPS of CAD 4.05 increased 27% year over year with strong growth from all 3 of our segments and across all of our businesses. Assets under management and advisement ended the year up 15% reaching a record high CAD 277 billion. Contributing to the growth of AUM&A were strong client investment returns of 11.9% as well as record high net flows of CAD 8.7 billion. Each of IG Wealth, IPC, and Mackenzie achieved strong net inflows.During May of 2021 Wealthsimple announced equity offerings as part of a financing round that resulted in roughly a CAD 900 million revaluation of IGM's equity interest in the company. And we recently announced that we will be acquiring Power Corporation of Canada's equity interest in ChinaAMC, doubling Mackenzie's current equity stake to 27.8%. We're proud of the results we've collectively accomplished for our clients and our shareholders during 2021. And so on behalf of the leadership team across IGM, I'd like to sincerely thank our employees, consultants, and advisors for their extraordinary efforts this past year and into 2022.And before getting into the results for the quarter, I'll take us to Slide 8 where I'll share a bit about our outlook and priorities for 2022. In terms of outlook, last year was clearly extraordinary for the asset and wealth management industries in Canada. Many records were broken. We have observed industry net sales slow during the final month of 2021 and January industry sales look similar. That said, Canadians still have a significant sum of money on the sidelines in cash and low-yielding financial instruments. Based on these observations, I fully expect to see an attractive yet perhaps more moderate operating environment as we head into 2022.And we have significant momentum in our companies that has continued into January. I've spoken about our commitment to delivering earnings growth many times in the past. We believe we delivered on that during 2021, and we intend to continue to deliver. Luke will walk you through the details of where we are investing and managing costs across our businesses. I'd also like to reiterate our capital allocation priorities. Our first priority is to continue investing in our businesses to position each of them for long-term growth and success. This comes through both organic growth investments and exploring business development opportunities, the focus on further building our wealth platforms in Canada and investing in our global asset management capabilities.We also view share buybacks as an important capital allocation priority as we head into 2022. Yesterday we announced our intention to file an NCIB this quarter, and we expect share repurchases under the planned NCIB to, at a minimum, offset the dilutive impact of stock options. Finally, we will consider increasing our common dividend over time as earnings continue to grow and our payoff ratio on cash earnings approaches 60%.Turning to Slide 9. For the fourth quarter of 2021 adjusted EPS of a CAD 1.08 is up 26% from adjusted EPS of CAD 0.86 last year. Reported EPS of a CAD 1.11 includes a CAD 7.7 million after-tax gain relating to an earn out on the sale of Personal Capital to Empower. This amount is incremental to the CAD 31.4 million gain that was recorded during the third quarter of 2020. AUM&A grew by 4.5% during the fourth quarter driven by strong client investment returns and total net flows of CAD 1.2 billion.I want to point out the RSP season has started off strong. We were pleased to report January 2022 investment fund net sales of CAD 1.2 billion and total net flows of CAD 1.1 billion last week. I'm also proud to announce that IGM has once again been recognized as one of Corporate Knights' Global 100 Most Sustainable Corporations. This is our third consecutive year being a part of the top 100, and IGM financial is ranked as the top-rated capital markets and asset management company globally and a top financial services firm in North America.Turning to Slide 10. Markets were strong in Q4 with significant returns in North America and Europe and stable overall returns in fixed income. Overall, IGM average client investment returns were positive 4.3% in the quarter and as I said 11.9% for the full year 2021. The new year has brought with it some market volatility, not unexpected, with most major equity indices and fixed income indices correcting for the month of January.Turning to Slide 11 on the industry operating environment. Q4 long-term mutual fund net sales were CAD 12.1 billion for the industry overall and CAD 5.9 billion for industry asset management peers. 2021 overall was an extraordinary year for the fund industry in terms of net sales and asset growth. Turning to slide 12 on IGM's results for the fourth quarter. Average AUM&A was up 1.7% sequentially and adjusted EPS increased 26% compared to last year.Slide 13 demonstrates how adjusted net earnings from each and every one of our businesses, IG Wealth, IPC, and Mackenzie, along with our proportionate share of affiliates Great-West Lifeco, ChinaAMC, and Northleaf, all increased meaningfully during both the fourth quarter and full-year 2021. Slide 14 outline outlines Q4 and full-year net flows for our operating companies each of IG, IPC, and Mackenzie reported strong net flows for the year and the fourth quarter. Within the institutional SMA category, I’d note CAD 576 million of net redemptions for Q4 was isolated to a single client.And with that I will turn it over to Damon and then Barry to discuss IG Wealth Management and Mackenzie's results.

[Damon Murchison, President & CEO of IG Wealth Management]

Thank you, James. Turn to Slide 16, in IG Wealth Management's fourth quarter highlights. We ended the quarter with AUM of CAD 119.6 billion, an increase of 4.9% during the quarter, driven by strong Q4 net inflows of CAD 1 billion, and client investment returns of 4.1%. We also experienced strong net sales in IGM products of CAD 493 million in the fourth quarter and CAD 2.2 billion for the full year. We continue to make strides in both the high net worth and massive market segments where inflows from newly-acquired clients over CAD 500,000 increased just shy of 50% during 2021.IG had terrific results in the quarter and for the full year 2021. And underpinning this success was our continued execution of our strategy and the investments we're making in the business. During the fourth quarter, we launched a new digital advisor application to deliver tailored client investment proposals with integrated compliance management, making our advisors more competitive in the marketplace and helping us address the new Client Focused Reform Requirement. I'll touch on this in greater detail in the coming slide. And we were very proud to be recognized as one of Canada's top 100 employers, which was based on several factors, including work atmosphere, overall benefits, training, communications, and community involvement.Turning to Slide 17. You can see the record high results for the fourth quarter and full-year 2021. Our strong momentum continued in January where we had another record month with net inflows of CAD 326 million and net sales into IGM managed products of CAD 424 million. January marked the 14th consecutive month of positive inflows for IG Wealth and 13th consecutive month of positive net sales into IGM products. The 12-month trailing line chart on the right shows a continued upward trajectory in both net sales and net flows.Turning to slide 18. Q4 2021 record high growth inflows were up 17% year-over-year. On the line chart, you'll see our trailing 12-month net flows rate has now reached 3.3%. Our client net inflows of approximately CAD 1 billion are broken down in more detail in the net flows table where you can see significant increase in net sales in the IGM products which were CAD 493 million during the fourth quarter. Slide 19 demonstrates a very strong year in new client acquisition and in particular clients over 500,000. We have CAD 1.7 billion in growth inflows from newly-acquired clients with over CAD 500,000, which represents 49% increase year-over-year and a 40% increase over the past 5 years. On the right-hand chart, you can see the trend of how we are executing on our increased focus on the mass affluent and high net worth segments relative to the mass market segments.Turning to Slide 20. Like last quarter, you'll see significant improvements in adviser productivity for both our new advisers and more experienced adviser practices. We're seeing our investments over the past several years pay off, and we continue to highlight some initiatives that we attribute to the increased productivity.Lastly, on Slide 21. New in the fourth quarter is the launch of a digital application, CapIntel, to deliver tailored client investment proposals. CapIntel provides our advisers access to a powerful investment analysis and proposal tool. Portfolio comparisons and product information is integrated with our sales force powered CRM to quickly and transparently deliver on-demand analysis and generate compliant and compelling investment proposals to our clients. CapIntel also helps monitor investment funds and equity holdings on an ongoing basis and notifies our advisers through their CRM of any significant changes to the investments that should be reviewed.For example, material changes reports, change in risk category, fund mergers and corporate actions. We're on the leading edge with this technology solution. CapIntel integrates with our leading adviser tools, enabling our advisers to efficiently address the expanded Know Your Client, Know Your Product and Suitability Requirements under the new Client Focused Reform. And most importantly, spend more time with their clients focused on their financial planning needs, which we believe will only accelerate our ability to drive new client acquisition, increased share of wallet, and adviser recruitment.Now I'll turn over to Barry McInerney to discuss Mackenzie's results.

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Thank you, Damon, and Good morning, everyone. I'll take us to Slide 23 to review Mackenzie's Q4 results. Total AUM as of December 31, 2021, reached a record high of CAD 210.3 billion, up 3.4% during the quarter with continued strong net sales and investment returns. Fourth quarter investment fund net sales of CAD 757 million were the second best on record. For the full year 2021, Mackenzie reported a record high CAD 5.4 billion investment fund net sales. Q4 marked our 21st consecutive quarter of positive retail investment fund net sales. And for 2022, we look forward to delivering continued strong results building on recent momentum.We have entered into a new long-term strategic partnership with Primerica where Mackenzie will serve as one of 2 exclusive investment solution providers to this fast-growing Canadian distributor. As part of the partnership, Mackenzie plans to launch a new suite of funds in the coming months that will be designed to address the specific needs of Primerica advisors and their clients. Late last month, we introduced the first-ever retail interval fund in Canada, combining Mackenzie's leading retail product expertise with Northleaf's robust private credit capabilities. I'll expand on this on the coming slide.Lastly, in January, Mackenzie announced the acquisition of Power Corporation of Canada's 13.9% equity interest in ChinaAMC. We believe this investment enhances IGM's growth profile and provides leading China asset management industry exposure within a public vehicle. The transaction will also simplify IGM and the Power group and strengthen distribution opportunities for Mackenzie in China as we become recognized as one of the leading foreign investors in the China asset management industry.Turning to Slide 24 where we outline a trended history of Mackenzie's net flows. 2021 was a year that will no doubt go down in the record books as a unique and special period in the Canadian investment fund industry. I already spoke to Mackenzie's record-breaking investment fund net sales last year, and in terms of gross sales, 2021 was also an all-time high for Mackenzie when we exclude historical sales into the Quadrus Group of Funds, which was sold to Canada Life in the very -- at the very end of 2020. And as you can see in the middle chart on the left, Mackenzie's fourth quarter investment fund net flows of CAD 757 million also stand out compared to past years. It was our second best Q4 on record, second only to the extraordinary fourth quarter of 2020. In January, Mackenzie reported solid investment fund net inflows of CAD 817 million, which includes CAD 675 million of inflows from Wealthsimple during the month. Excluding these amounts, investment fund net sales of CAD 142 million were still the second-best January in our history.Slide 25 summarizes Mackenzie's Q4 2021 operating results. Retail investment fund net flows of CAD 653 million was the second best on record and are well above the levels seen in 2019. Mackenzie continues to gain market share as demonstrated by our 9% long-term investment fund net sales rate as of December 31st. Within institutional SMA net sales, we had one client redeem CAD 667 million during Q2 2021. I'll remind you that this business is lumpy, and we have -- we had CAD 2 billion of net inflows during 2020 and overall CAD 300 million of net redemptions during 2021. And 51% of Mackenzie's AUM rated by Morningstar were in 4- or 5-star funds, in line with last quarter and 15 of our top 20 mutual funds were rated 4 or 5 stars for Series F.Slide 26 shows our retail mutual fund AUM, investment performance, and net sales across our investment boutiques. Our growth-oriented teams, global equity boutiques, and fixed income group continue to deliver strong relative performance. As well, the Greenchip boutique's flagship fund achieved its 3-year track record during the fourth quarter and earned its first 5-star rating. Our strong Q4 2021 retail net sales were spread across a number of investment boutiques, including the Growth, Bluewater, Fixed Income, and Sustainable teams. Looking ahead to 2022, we've seen products across a variety of investment boutiques attracting flows with our managed solutions Growth, Bluewater, Greenchip and Global Equity & Income teams generating strong net inflows during the month of January. Also during January, we expanded our product shelf with 2 new funds managed by the Bluewater team.Slide 27 highlights the growth catalysts we've identified at Mackenzie that are reshaping the global asset management industry. I'd like to spend a moment recapping select highlights in 2021 in these important areas. We continue to invest in and expand our sustainable investing capabilities, which attracted net inflows of over CAD 1 billion in the year. The new Mackenzie Northleaf interval fund I spoke to earlier is latest addition to our growing suite of accessible alternatives for retail financial advisers and their clients. While Offering Memorandum or OM products are typically only available to accredited investors, this new 81-102 nonredeemable investment fund will not have such restrictions. This flexibility, combined with a relatively low minimum investment requirement, delivers unprecedented access for Canadian retail investors to institutional private credit investments, a major step forward in our goal to democratize private markets for retail investors in Canada. Interval funds have been part of the U.S. market for quite some time, though recent demand for illiquid investment strategies has driven interval fund assets in the U.S. to grow by over sixfold since 2014. And finally, our ETF business continues to grow at a rapid pace and is the sixth largest in Canada in terms of AUM.Continuing on Slide 28, the growth in the Chinese mutual fund industry has continued with long-term mutual funds growing 34% over the last 12 months and 10.4% in the fourth quarter. Net sales drove most of this growth with a new -- rather with a net sales rate of roughly 25% over the past year. You can see net sales in Q4 alone were CNY1.2 trillion. ChinaAMC is a consistent top contender across all major asset classes and ranked second overall in terms of long-term mutual fund assets under management in China.And lastly, Slide 29 highlights Northleaf Capital Partners CAD 19.5 billion in assets under management across their private equity, private credit and infrastructure offerings. In 2021, Northleaf grew AUM by 34%, driven by strong fundraising of CAD 1.2 billion during the fourth quarter and CAD 5.5 billion for the year.I'll now turn the call over to Luke.

[Luke Gould, Executive VP & CFO]

Great. Thanks, Barry. Good morning, everybody. Moving to Page 31. I'll just highlight here that AUM&A increased by 4.8% in the period, driven by investment returns and strong net sales activity. We've circled the full year overall net sales rate and investment return rate. I'd also note that AUM&A declined by about 2% in January to CAD 270.7 billion and were up slightly from this in February. Where we are right now in average assets in Q1, we're looking pretty close to Q4.Going to Page 32, I just remarked that it was a very clean quarter. On the right, you can see the consolidated gross and net fee rates are stable at 124 basis points and 87 basis points, respectively, and unit costs as well are stable and obviously impacted by seasonality in Q4. I'd also remind that the acquisition of GLC occurred December 31, 2020, and that's the reason for the change of these rates in Q1.Slide 33 has IGM's consolidated statement of earnings. We have 3 highlights on this slide. First, we're pleased to have come in with operations and support and business development expenses about CAD 6 million better than our previous guidance. We've highlighted this in the first bullet point that these full-year expenses were up 2.2% relative to last year, and that compares to earlier guidance of 2.75%. Second, we've highlighted point 2 that we had an extra 800,000 average diluted shares outstanding as dilutions from in-the-money options increased due to share price increases in the period. As James mentioned, we are pleased to announce our normal course issuer bid yesterday, which we believe is a very good use of capital at this time and will be accretive to earnings and cash flow. Last 12-month trailing dividend payout rate is currently 67%. And as we indicated last quarter, we would consider dividend increases at levels closer to 60%.On to Page 34, you can see IG Wealth fee rates and expense rates as basis points of their respective drivers on the right. Only remark on this page is the change in advisory fees in Q4 reflected a much more normal level at 0.8 basis points decline and was driven by having a greater share of high net worth clients on the business. I'd remind that in Q3 the change was a bit higher as a result of the average client account balances increasing significantly by 4% in Q3 relative to Q2, which made many clients eligible for lower rates on their fee schedules. Going forward, we'd expect about 0.5 basis point decline per quarter if we keep on bringing on high net worth clientele at the rate that we have been.As you move to Page 35, you can see IG Wealth's income statement. Net earnings increased by 20% relative to last year. The only item I want to mark on here is you'll see a pull out on other financial planning revenues and related other product commissions on the right. You'll remember that these revenues consist largely of revenue from our mortgage and insurance product line, and we have a [ put a ] table that you can see. I'll just note that when you look at this revenue line, it was down relative to Q3 and last year, and you can see in the table that was as a result of lower mortgage income. As you look at the disclosure of mortgage income within our MD&A, you'll see that this was a result of lower gains on sale and fair value adjustments. And these 2 items were impacted by interest rate increases in the period. This was nonrecurring and was worth about CAD 2 million in the quarter versus Q3. When you look at table, you also see insurance and other revenues at CAD 32.9 million are up nicely in the quarter from last year as are the associated product commissions.Moving to Page 36, we want to highlight that we've made some disclosure enhancements in the period to profile McKinsey's sub-advisory relationship with Canada Life. On the chart on the left, you can see that we've segmented the institutional SMA line between the CAD 52.8 billion Canada Life relationship and the CAD 7.9 billion in other institutional assets. Beside the chart we've indicated the key metrics upon which we assess performance of these respective asset categories. For our sub-advisory relationships to IGM's wealth management firms and our sub-advisory relationship with Canada Life, we measure Mackenzie's share of their AUM, which you can see at the bottom are 69.9% and 49.2%, respectively. On the right, we've included within our supplemental disclosures, the assets under management within Canada Life's individual and group channels. Great-West Lifeco has made disclosure enhancements regularly and they publish these disclosures quarterly along with the net sales activity to these channels. I'd also note that in these disclosures, we've also identified the revenue associated with this Canada Life relationship. I'd also note, we are very pleased with the relationship with sub-advised assets increasing 11.9% since the GLC acquisition and a slight increase in Mackenzie's share of assets.Moving to Page 37. You can see Mackenzie's fee rates by client type, and you can see that we've reflected the enhanced disclosure of the Canada Life relationship here. I'd note that weighted average fees are very stable. And when you look at the top right, you can see on the third party, which is substantially retail, that fees are up very slightly in the quarter because of the strength in retail.On Page 38, Mackenzie's statement of income. I'll just highlight that Mackenzie's net earnings were up 60% from last year. Most of this improvement is as a result of the significant organic growth in the retail business. Average assets in retail are 25% year-over-year, and this reflects the net sales activity as well as investment returns in the year. You can see here that revenues were up 25.5%, just like the increase in the retail business. And due to the operating leverage and financial leverage inherent in the business, 25% increase in revenue translates into 60% growth in earnings.Moving to Page 39. We've also enhanced our disclosures on China Asset Management this quarter with quarterly reporting of ChinaAMC's AUM broken down by component. You saw earlier from Barry, the significant industry net sales activity into long-term funds in China in the quarter. ChinaAMC had a very strong quarter, and you can see here long-term mutual fund assets increased by 14% in the quarter as a result of the strong net sales activity and market share gains. On the right, we present IGM's share of ChinaAMC earnings. We highlight that on the strength of the growth in long-term fund assets and the operating leverage in the business, ChinaAMC's net earnings, excluding onetime unfavorable tax adjustment, increased by 24% from Q3 level to CAD 21 million. We've called out this CAD 4 million tax adjustment on the chart on the right. And I would remind, normalizing to this, ChinaAMC earnings are up 24% in the quarter and 80% in the last year.Moving to Slide 40, we highlight the earnings growth by company, and we highlight the relevant values of these strategic investments. We've highlighted a few of the items that are affected by the acquisition of ChinaAMC from our parent and the partial disposition of our stake in Great-West Lifeco to our parent company, and those transactions are on track to close in the second quarter. Under Wealthsimple and Portage, you'll see that we have a mark of CAD 1.291 billion on these investments. We've assessed the value of Wealthsimple at year-end, and we've kept the mark consistent with the value achieved in the May 2021 fundraising. In the appendix, we've provided the usual disclosures on Wealthsimple's business. And I'll just note, the company has been performing very well. The AUM is up over 50% since the last fundraising and the number of clients is also up 50% since the last fund raising.Moving to Page 41. You can see the sum of the parts view of IGM. Using the January 31, 2022 share price and deducting off what we view as conservative values for our strategic investments implies a P/E on IG and Mackenzie of 6.4x. We've circled these items and right below the 6.4%, we've put these multiples compared to the average multiples for global wealth and asset management peers of 14.3x and 12.1x, respectively. We see considerable value in IGM shares, particularly in relation to the strong earnings growth put on and the outlook for future growth. And as mentioned, we're very pleased to have announced our NCIB yesterday.Moving to Page 42. You can see guidance on our operations and support and business development expenses in 2022. Point one highlights, again, that we came in slightly better than our guidance in 2021. Under point 2, you can see we're guiding to 3% increase to fund growth initiatives, plus up to 2% for post-pandemic normalization activities. We've detailed in the sub-bullet the type of activities that this includes and would include conferences, travel and entertainment, and return to office expenses. Like each of you, we're going to navigate the year and actively manage these activities. We just want to provide you with some context on the maximum level that could come on during the period.Point 3 and 4 outline the growth initiatives we're investing in IG and Mackenzie within the 3%. Before commenting on this, I did want to acknowledge that like everybody else, we're not immune to inflationary pressures in many parts of our business. I note that we've managed this inflation through efficiencies in our operations. We also have slightly lower pension expense in the period. This 3% is entirely growth initiatives to drive revenues and includes many items that bring clear incremental near-term revenues like the setup of our multi-year product and distribution relationship with Primerica for Mackenzie and like investments in advanced financial planning capabilities at IG. I'd reiterate as Barry said, we're very excited for our partnership with Primerica. They distributed around CAD 16 billion in mutual funds and their business has been growing very nicely. In the bottom half of the page we provide the expense guidance by line and by company. Here I'll make a few points. First, we've indicated that retail, wholesale, and commissions within Mackenzie's business development line are anchored to CAD 2.75 billion in retail net sales and we provide the sensitivity for every CAD 1 billion change in net sales, and you can see further information on this in the appendix.This CAD 2.75 billion of mutual fund net sales would be a 5% net sales rate, which we believe is conservative, and we would expect in any circumstance to continue to gain noticeable market share in the period. Second, in the case of IPC, most of the increase relates to amortization and other costs related to the purchases of adviser practices that we'd expect to do in the period. Should these purchases occur, they come with earnings accretion right away, and you'll be able to see amortization of these prospective purchases within our disclosures. The last comment I'd make is when it comes to the travel and entertainment and conference expenses that may occur in the period, this would be in the business development lines.That concludes my comment. We'll open it up for question, Ariel.

[Operator]

[Operator Instructions] Our first question comes from Gary Ho of Desjardins Capital Markets.

[Gary Ho, Analyst]

Just the first question. Not sure if it's for Damon or Luke. Just on the advisory fees, 101.8 basis points, that's down 3.2 basis points year-over-year. And you're guiding to, I think, 0.5 basis point decline for quarter. I know you're acquiring high net worth clients with lower fees. That transition is still happening. So when you look at the gross sales that came through in Q4, can you give us an indicator of kind of what those advisory fees rate will be? Just wanted to see longer term where that could trend?

[Luke Gould, Executive VP & CFO]

Yes, sure. Gary, it's Luke. I'll take that one. Yes, so the 0.5 basis points, the 2 factors is really bring on clients who have lower fee rates in the high net worth categories. And you could see the slide that Damon presented showing the success we've had there. The other driver is going to be investment returns like you saw in Q3 that as client account balances rise that we have fee schedules for every client and every single day, people fall into the relevant categories. So 0.5 basis points a quarter is our best outlook for 2022, and we'll expect to track there and keep you update every single quarter on how we're doing.

[Gary Ho, Analyst]

But can you provide what the Q4 the new gross sales that you onboarded generated?

[Luke Gould, Executive VP & CFO]

I don't have that handy, Gary. And again, it's a separate fee rate for each and every client based upon on where their asset levels are and those rates change daily. So it's not as simple as saying, we brought these clients on and here's the fees that they attracted. But we will give guidance on the weighted average and with -- the extent to which we're hiring or acquiring high net worth right now, it's about 0.5 basis points is what we'd expect in terms of quarterly change.

[Gary Ho, Analyst]

Got it. And then, Luke, while I have you here, just on the expense guidance here, in particular the biz dev expense, and you reference to slide 45 in the appendix, and that's very helpful. So can you explain the drivers a bit more? Is it more gross sales or net sales? When I compare the slide versus last year's sensitivity, it just seems like the correlation in terms of percentages at least has been magnified a little bit, meaning lower growth drives a higher biz dev expense. I was under the impression that these hurdles would reset higher in '22.

[Luke Gould, Executive VP & CFO]

Great question, Gary. So, yes, turning to Page 45. So as Barry highlighted, we raised the bar every single year on the wholesaling commission and wholesaling commissions is a majority of this line item but not -- but it's a very small majority of the line. The other thing that we've done is this line is more variable to net sales as opposed to gross. And so we've given those sensitivities there. I'd also highlight when it comes to those post pandemic transition costs like travel and entertainment, conferences, etc. They're in this line as well. So what you're seeing here with our guidance, the sales commissions has come down. We've given the sensitivity of those sales commissions to different sales levels, and we do have the travel and entertainment and conference costs coming in. And as mentioned, we're going to navigate the year, and we've given a maximum that may come in as we now [ exit ] the pandemic.

[Gary Ho, Analyst]

So, Luke, if I paraphrase that correctly, if I look at that chart, the middle bar that you have, although the CAD 2.75 billion net sales is lower than the CAD 3.8 billion, that should be in and of itself a lower comp number but offsetting that is your travel and entertainment expectations for the year. That's why...

[Luke Gould, Executive VP & CFO]

Exactly, Gary. The wholesaling commissions has come down, and there's other costs post pandemic related that have come up. Exactly. And as I mentioned, those expenses may not be incurred, but we did want to give guidance to the maximum that we might incur as we navigate the pandemic.

[Gary Ho, Analyst]

Okay. That's helpful. And then maybe just one more question for me. James, high level on your comments on earnings growth. Given my last 2 questions just some fee compression on the advisory side and then you have the expense growth at 5%, if markets hum long where we are, no significant gains like last year, where are you most optimistic about driving that earnings higher?

[James O'Sullivan, President, CEO & Director]

Yes. Thanks, Gary. As I sit here today, I'm quite positive on the year. I believe we're going to have a strong year. And January counts. And, look, January's off to a great start, isn't it, with CAD 1.1 billion in flows. So my expectation would be for IG Wealth to not just hold its own from here but in fact to strengthen from here in terms of net flows. On the Mackenzie side clearly there's room for some moderation across the industry from 2021 levels, and so we are planning for that. And I reiterate what Luke said. We will be disciplined, I promise you, in expense growth. I've shared every quarter now our north star as I call it, which is that's a path to a higher share price for IGM Financial is through higher earnings. We are collectively committed to that, Gary. And then, look, my sense would be this overall, we have -- I think we provide rich disclosures. This is a relatively transparent business. I think your models will guide you well, and I think they will align with my qualitative words of a strong year lies ahead for IGM Financial.

[Operator]

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

[Geoffrey Kwan, Analyst]

James, first question was on M&A. If something came up that was an opportunity of size, how do you think about how much leverage you'd feel comfortable putting on the business?

[James O'Sullivan, President, CEO & Director]

That's a good question. I would feel very comfortable at 2x and I think pro forma ChinaAMC we're at roughly 1.35x. So there's clearly capacity for leverage. And I would not altogether rule out going somewhat higher, depending on the nature of the opportunity, the profile of the free cash flow, and our confidence in them. As I've said in the past, I think our highest priority from a capital management perspective is to properly position these businesses for long-term success. And so in that regard, strategic M&A is our first priority, and I would view debt capacity, surplus capital, and our remaining stake in 22 million odd shares in Great-West Lifeco as potential sources of funding as we further position these businesses for success.

[Geoffrey Kwan, Analyst]

Barry, I had a question just on the Primerica relationship. Can you clarify is it open architecture, and you and another asset manager have some sort of preferred access? Or is it just the 2 of you on the shelf? And the second part of that question is, the other asset manager I think has had a long-term preferred relationship with Primerica. So what aspirations do you have in terms of being able to gain material share from that other asset manager who, as mentioned, I think has been an incumbent at Primerica for decades?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. It's a great question. So you could expect going forward for Primerica that the fund options would be driven principally by the 2 partners, us and AGF. And so as Luke mentioned, it's a sizable platform, actually, CAD 16 billion of mutual funds, CAD 4 billion of [ seg ], and I believe last year they were CAD 1 billion net inflows on the mutual fund side. So they're growing. They have a nice niche markets in the lower mass affluent area. So we're really encouraged by it and excited by it. And look, as you know, we have experience Mackenzie and other strategic partners. Laurentian has been a long-standing partnership for us. So we know how to do this and develop branded products for them, multi-asset along the spectrum and single asset as well. And it gives the Primerica advisers choice now, right? So they have 2 leading investment firms, which is I think the intention of Primerica to provide that.So we -- if you look at the size of Primerica and the fact that going forward, the options would be driven principally by the 2 asset management companies, and we have very high aspirations -- all boats rise with the tide, right? -- in terms of AUM penetration. So you probably should look for this relationship for Mackenzie with Primerica to probably after 4 or 5 years exceed that Laurentian just because of the size and the growth trajectory of Primerica. So very exciting. We already know them well. We already have CAD 1 billion on their platform with Mackenzie mutual funds. So we know them very well over the years and great culture, great partner, and we'll be launching these new funds, both parties in the May-June timeframe.

[Geoffrey Kwan, Analyst]

And maybe one -- if I can sneak in one last question, maybe for Damon. On Slide 19, the flows from clients with less than CAD 100,000, is that legacy clients that are investing, or is it taking in new clients that have that less than CAD 100,000. And if it's maybe more so the latter, is that then a strategy of targeting high net worth but still willing to attract perhaps I guess less affluent clients that the company is sometimes attracted or targeted in the past?

[Damon Murchison, President & CEO of IG Wealth Management]

Yes, Geoff, it's a number of factors that would drive this number. First off, it is us bringing on new clients. And a lot of times, new clients, even though they might be a mass affluent and high net worth, they want to try you out. So they're not going to give you all their money, and they'll start with a little bit of money and get to know you and your team. The second is it would be some existing clients that we have that are already in that segment giving us some money. So there is some of that. And the third one is that we bring on and recruit new advisers. And new advisers want to bring their entire book over and some of their book is in that segment. So that's something that we're going to continue to drive. And we're going to continue to grow here, but at a far less rate than we would at the mass affluent and the high net worth segment.

[Operator]

Our next question comes from Graham Ryding of TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Luke, maybe I'll start with you. Just -- I know you don't give expense guidance more than sort of one year out, but I just want to make sure I'm sort of understanding the 2% piece that you flagged as sort of post-pandemic normalization. Should we interpret that, that when we look into 2023, that this 2% piece may not repeat, and this is arguably sort of a reset of your expenses that have been missing over the past 2 years?

[Luke Gould, Executive VP & CFO]

Yes, right on, Graham, you've got it. That's what it is, is a transition back to normal. Basically, it would be onetime.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. Jumping to your valuation of ChinaAMC on Slide 41. I think you're flagging at just over CAD 1.3 billion based off of a multiple. But last month, when you announced the transaction, you paid -- you agreed to pay CAD 1.15 billion. So how do we square that up? I guess, does that suggest that Power Corp might have left almost a couple of hundred million on the table through this transaction?

[Luke Gould, Executive VP & CFO]

Yes. No, the value established for the deal was fair between the parties. The last public comp or last comp we do have is 17.5 times next 12 months. And so this is really applying the next 12 months and as the company continues to grow, the value is going to continue to increase. And that's what you can see here is just basically marking to market the value for the growth in earnings that's happened. I would also highlight the value on Page 41 is obviously understated. This reflects 17.5x analyst estimates for next year, and that's before publishing the results that the company has actually put on and the outlook for the future that we have right now.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. Damon, I'll jump to you, if I could. Just looking at your Slide 17. But I guess my question is, are you still seeing evidence of AUA that's been brought in house that's ultimately translating into flows into the investment funds? Is that the message you're trying to get across on Slide 17?

[Damon Murchison, President & CEO of IG Wealth Management]

Yes. that's exactly the message we're trying to get across. At the end of the day, this business is growing. The momentum is accelerating. There's evidence that while there's -- the industry may be slowing down, we're speeding up. And the drivers of it are all the 4 aspects that you would look for in a wealth business. So #1, we're bringing on new clients. And a lot of them are in our targeted segments of mass affluent and high net worth. We're increasing our share of wallet of our existing clients. There's evidence that Canadians are consolidating their advisers. For a long time, they've diversified their advisers, but they're consolidating. And we're net benefactors of that. And we're recruiting advisers that want to be truly the best financial planners in their community.And we're strengthening our relationships with our existing clients, which is leading to our redemption rates where they are. So all of those things allow us to really bring in new money to the organization. And with all of the advancements we've made on our platform, on our pricing, and on our products, our advisers really are doing what's in the best interest of their clients and looking at their portfolios and figuring out where IG products fit in their overall plan and doing what's in the best interest of them. And in doing so, we have just a huge opportunity to drive flow and drive net sales.

[Operator]

Our next question comes from Julia Gul of National Bank Financial.

[Julia Gul, Associate]

A few questions. With respect to Mackenzie, what is the strategy to further penetrate the Wealthsimple channel? And could you potentially size the market opportunity there?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

It's Barry. I'll take that quick question, by the way. So Wealthsimple has become, gradually for Mackenzie, a nice strategic partner. And as you know, they embarked on launching some Wealthsimple branded ETFs about 1.5 years ago. We are solely manufacturing those for Wealthsimple. Those are -- we're the investment manager technically so they're our ETFs and our flows, but Wealthsimple-branded. And so we launched the fourth one last month in January, the green bond. So they decide if and when they wanted to manufacture more of their own Wealthsimple-branded product and we're the preferred provider in that regard. And so that -- those 4 funds now, I believe, are approximately CAD 1.3 billion or so in AUM, growing very nicely with nice flows every day, every week, which is good for liquidity for ETFs as well.Then also, as you noted in our prior remarks, last month in January, they also made a significant inflow into Mackenzie-branded ETF. And so we're here to help them and partner with them, obviously. And they probably have 3 to 4 preferred partners to use on ETFs. And as Luke made mention in the slides in the back, at Wealthsimple, their growth trajectory is very, very strong. So we're very pleased to continue to partner with them. We don't really put a figure in terms of what percentage of the shelf we might end up having and so that's their decision. But certainly, right now, we have a strong foothold on their platform. They're growing very fast. We're working well together, and we'd expect that growth to continue for us for the coming years.

[Julia Gul, Associate]

Right. And moving on to ChinaAMC, do you have any indication of what the potential dividend will look like in Q1? And separately, can you explain the CAD 4 million tax adjustment?

[Luke Gould, Executive VP & CFO]

Yes, I'll take that one. It's Luke. So on the dividend, we expect the payout rate to be similar to last year. So we will know that when declared. So I don't want to give guidance, but I would say you could extrapolate last 12-month earnings from 2020 and the dividend we earned then to last 12 months of 2021 and assume the payout rate will be the same. And on the tax, yes, that was -- basically it was an adjustment for a change in sales tax that occurred on the distribution of mutual funds in China. And so it was a onetime amount that was basically a true-up of a position, and that was worth CAD 4 million. That's IGM share of it. So that was a onetime item.

[Julia Gul, Associate]

All right. And so is that what's driving that huge step-up in the earnings? Or is that kind of new run rate?

[Luke Gould, Executive VP & CFO]

Yes, that's the run rate. So we've put in that extraordinary item just to disclose how the business was actually traveling. And so what you can see there on the period is long-term mutual fund assets were up 14% in the quarter from Q3. Revenues, you could think of as being up in line with that. And because of the operating leverage in the business, our earnings were up 24% relative to Q3. So that was all the strength of the long-term fund asset growth during the quarter. And again, that was 14% growth in long-term fund assets just in the quarter, all driven by net sale activity. So really good growth in China.

[Operator]

[Operator Instructions] Our next question comes from Scott Chan of Canaccord Genuity.

[Scott Chan]

Maybe I'll start with the last thoughts on ChinaAMC, just in terms of the earnings trajectory, and you kind of talked about a good amount to go forward and the significant operating leverage in the business. But when markets and assets are up, it's fine, but if it goes the other direction, is it fair to assume there's more negative operating leverage on the downside versus, say, your current business, if you kind of look at the forward earnings potential?

[Luke Gould, Executive VP & CFO]

Yes. Good question, Scott. So yes, we would expect to see that operating leverage just like you see at Mackenzie. I'd take you back to Page 28, and I'd highlight we've put this as industry net flows in China. As Barry said, the industry has been net selling at 25% of assets per year. And so when you look at the growth on Page 28 in long-term fund assets in that country, importantly, it's the net flows that have been driving that growth, not investment returns. And so when you look in the fourth quarter's growth, all of that was net sales growth. So certainly, there's operating leverage that's going to be impacted by financial markets. But right now, there's a lot of momentum with net contributions happening to mutual funds in that country.

[Scott Chan]

Okay. And then going back to the Canada Life and the new disclosure, it seems like your proportionate share on the shelf has been increasing modestly and is now below 50%. Is 50% the right number in that channel? Or is this something that can increase over time, similar to what we see at IG?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

It's Barry, Luke might chime in as well. Great question. So again, things are going very well at Canada Life early days. And I might add that it's such a competitive advantage, we believe, for Mackenzie to have these, we call them sisters and cousins, that we can manage money for because it allows us, obviously, to create more scale and stronger financial footing and ability to track and retain talent and launch products and greater seed capital, et cetera. So it's -- we're really fortunate to have IG and now Canada Life as 2 significant clients and partners for Mackenzie.Clearly, it's their decision how they use us. We're quite excited for 3 reasons. One is the retirement business as we -- when we announced this transaction initially with GLC coming into Mackenzie, we had very de minimis exposure to the Group Retirement business in Canada now we do via Canada Life. And second of all, you've probably heard from Canada Life, they're really leaning in on their wealth business. And so obviously, we supervise quite a bit for them in the wealth area. And so as they grow, we'll grow and then obviously, the said funds and the balance sheet. So all told, it just allow us to -- diversifies our portfolio and diversifies our channels. And -- but the percentage is we -- with all of our clients, Simple and otherwise, we at Mackenzie work hard, produce good results and bring new ideas, right, in terms of the innovation and growth catalysts and where we think the industry is going, and more importantly, where advisers and their client needs may find themselves in fact same as institutional investors. So that relationship is very robust in exchange of ideas and best practices. And we'll just -- the percentage just lands naturally where depending on their business strategy and -- but the partnership is early days as it couldn't be stronger.

[Scott Chan]

And then, Barry, maybe one last question for you. Just going back to the Primerica [Technical difficulty] bank agreement and I think that's been several years on that front. I wanted to maybe size up the opportunity. You talked about getting to LB's level in 4 to 5 years. And what is LB's level right now? And how is that -- how has that trended over time of the partnership?

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. Thank you. Great question. I failed to say, of course, that our relationship with Laurentian just couldn't be stronger. It's just fantastic, Rania and her whole team. And we're about CAD 4 billion now, Mackenzie's AUM with Laurentian, CAD 4 billion. And so that started out for us to, obviously, zero market share to work with them a partnership to get us up to a sort of a steady state level on their shelf. So that probably took 3, 4, 5 years to get there. So -- and that's growing. We had a nice year last year with Laurentian and more to come this year. And obviously, wealth is important for their multichannel strategy.But Primerica is pure wealth play, a bigger wealth business than Laurentian and growing, as Laurentian is, but Primerica has been putting on some heavy assets lately. So net-net, you probably -- you should see probably after 4 or 5 years, and after 10 years, obviously, the Primerica relationship will be much bigger. And the fees are good for us. Think of them somewhere between a retail institutional client, just like Laurentian. So it's a good win-win for both parties. And we're just keen to get going.And so we wanted to be -- we didn't want to trumpet too much because this is for them, we want to work hard for them and gain their trust and gain market share and traction on the shelf as with our partner, AGF. And so -- but look forward to probably to match their CAD 4 billion-ish in 3 to 4 years, surpass Laurentian, simply because of the size of the wealth business at Primerica. And we're open to other strategic partners. It's a unique model that we think Mackenzie instills that we have now to do these types of relationships.

[Scott Chan]

And just a follow-up. When does that partnership starts between the -- agreement start officially midyear? Or is it something that...

[Barry Sean McInerney, President & CEO of Mackenzie Investments]

Yes. The agreement is all signed and we're already working hard at Mackenzie with technology and hiring, getting sales support in place and launching the -- building the products. So we'll be looking forward for midyear, at the latest, probably June-ish for the flows that come in because the funds, the new model we launched in June, July. But everything's signed in agreement and we're just -- we're already working in partnership with them, getting it already over the next 3, 4 months.

[Operator]

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

[Keith Potter, Head of Investor Relations & Treasurer]

Thank you, Ariel. At IGM, we're really looking forward to continued strong momentum across our businesses in 2022. We thank you for joining the call today, and I hope you all have a great weekend. Ariel, with that, we'll close up the call.

[Operator]

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