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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by. This is the conference operator. Welcome to the IGM Financial Third Quarter 2021 Earnings Results 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.
Thank you very much, and good morning, everyone, and welcome to IGM Financial's 2021 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; 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 our cautions concerning forward-looking statements on Slide 3. Slide 4 summarizes non-IFRS financial measures. And on Slide 5, we provide a list of documents that are available to the public on our website related to third quarter results for IGM Financial.And with that, I'll turn over to James.
Well, good morning, everyone. We'll start on Slide 7, highlights for Q3. I would start by saying that strong operating momentum is translating into strong earnings growth with contributions from all business segments. We achieved record high AUM&A of $265.2 billion in the quarter, driven by strong net flows and more modest client investment returns this quarter.We also experienced record high investment fund net flows of $1.7 billion and total net flows of $1.9 billion, which include record highs for both IG Wealth and Mackenzie. And following the second quarter's record high EPS, I'm pleased to report a new record high in the company's history of $1.13 for this quarter, up 26% from adjusted EPS of $0.90 last year.Finally, the IGM Board declared a common share dividend of $56.25 per share, which provides an attractive dividend yield of 4.5%. Luke will address our thinking around future dividend increases in more detail in his remarks.Overall, I am focused on ensuring IGM has an appropriate level of capital allocation flexibility and the clear path to sustained dividend increases, as our earnings continue to grow.Turning to Slide 8, on investment returns. Markets were a bit mixed in Q3, where we saw most equity markets decline slightly during the month of September. Overall, IGM average client investment returns were positive 0.5% in the third quarter and 7.8% year-to-date, September 30, 2021. We have since seen markets and average client investment returns rise in October, up 2% in the month, which is a good start for the fourth quarter.Turning to Slide 9. Third quarter long term mutual fund net sales were $24.5 billion for the total industry and $9.9 billion for industry asset management peers. Following a record Q1 and Q2, full year 2021 is shaping up to be the best fund industry net sales in Canadian history.Turning to Slide 10 on IGM's results for the third quarter. Average AUM&A of $267.4 billion increased $72.5 billion or 37% year-over-year, including approximately $30 billion related to the acquisition of GLC and Greenchip, which closed in December of last year. As I mentioned, Q3 2021 EPS of $1.13 is an all-time record high and it's up 41% from last year and 26% on an adjusted basis.As a reminder, adjustments to 2020 Q3 earnings included the gain on sale of Personal Capital, offset by restructuring costs related to our technology transformation and acquisition of GLC.Slide 11, then, highlights net earnings contributions from each of our segments. I'm very pleased to see that IGMs year-over-year increase in net earnings has been driven by strong results across all of our business segments. We're seeing strong earnings growth at our operating companies, including IG Wealth, IPC and Mackenzie, and the same holds true across our strategic investments. You'll hear more on the strong fundamentals of these businesses in remarks from Damon, Barry and Luke.Slide 12. Similar to the earnings growth story, we're seeing strong momentum and record net flows across all of our Wealth Management and Asset Management segments.And with that, I'll turn it over to Damon.
Thank you, James. Good morning, everyone. Turning to Slide 14 in IG Wealth management's third quarter highlights. We ended the quarter with AUA of $114 billion. It's an increase of 1.6% during the quarter, driven by record high Q3 net inflows of $1 billion and client investment returns of 0.7%. We also experienced strong net sales in the IGM products of $641 million.Our strong momentum continued in October, where we had another record month with net inflows of $312 million and net sales in the IGM managed products of $171 million. This represented the 12th consecutive month of positive net sales in the IGM products and the 13th consecutive month of positive net flows.As I commented last quarter, we continue to see a significant and positive impact from our business transformation efforts to enhance our advisor and client experience, and we're certainly not done. This quarter, we partnered with CapIntel to implement leading technology to help our advisers execute on client investment plans, including client facing proposals, built-in compliance support. The partnership is trying to help drive advisor efficiency, improve our client experience and allow us to meet the new client-focused reform requirements coming in January.We're also proud to have announced the launch of our new IG Climate Action Portfolios, furthering our work on ESG and adding to our strong roster of managed solutions. And finally, efforts to enhance the IG Wealth Management solutions are paying off with 47% of our AUM either 4 star or 5 star and 80% of our AUM rated 3 stars or better.Turning to Slide 15. You can see the very strong results in the first 10 months of the year, including October's record net inflows of $312 million. The 12-month trailing line chart on the right continues to demonstrate the clear and evident momentum in our total net flows and net sales into IGM products.Turning to Slide 16. Q3 record high gross inflows were up nearly 50% year-over-year. On the line chart, you'll see our 12-month trailing net flows rate has now reached 3% and our client net inflows of $1 billion are broken down in more detail in the net flows table, where you can see significant improvement in net sales in the IGM products of $641 million.Like I have in previous quarters, I'll use Slide 17 to speak to the mechanics of our AUA growth and net flows by investment product category. Starting with the second column on the left, you can see that our Q3 net inflows of $1 billion were primarily made up of $668 million of cash and short-term savings and $339 million of third-party in-kind transfers from other dealers. Third column shows the significant outflow from these categories that resulted in net sales in the IGM managed solutions and Mackenzie funds totaling $641 million. We expect to see this clear momentum continue as we acquire new client relationships and we work with our existing clients on comprehensive financial planning in delivering high quality managed solutions.Turning to Slide 18. Similar to last quarter, you'll see significant improvements in our advisor network productivity, a key KPI for us for both our new advisers and more experienced advisor practices. We are seeing our investments over the past several years paying off and we continue to highlight some of the initiatives, which are seen on the right, that have attributed to the increased productivity.On Slide 19, we demonstrate another strong quarter in acquiring new clients over $500,000. Similar to Q2, we had $443 million in gross and net inflows from newly acquired clients over $500,000, which represents a 67% increase year-over-year and nearly a 500% increase over the past 5 years. On the right-hand chart, you can see our increased focus on the mass affluent and high net worth segments along with the reduced focus on the mass market has resulted in a trailing 12 month flows of over $1.6 billion.Turning to Slide 20. This highlights our new suite of climate action portfolios that provide clients with the opportunity to both support and take advantage of the global transition to net-zero emission. Our new portfolios align with the goal to reach net-zero emissions by 2050. The portfolios will invest in both equity and fixed income securities, offering our clients a suite of single solutions addressing different investment outcomes for protecting capital, to providing income, to focus on long-term investment growth. Portfolios will allocate investments to 1 or more climate related approaches, which include best-in-class companies with leading climate practices, thematic allocations to green solutions, lower emitters of GHG emissions and the employment of stewardship practices to prioritize climate policies and outcomes. With these portfolios, our clients can feel confident that their investments will strive to positively impact the world around them, while taking advantage of emerging investment opportunities in the sustainability space.Before I turn the call over to Barry, I'll quickly touch on the positive impact of our ongoing efforts to further enhance our investment products in managed solutions on Slide 21.I mentioned on a prior call, our recent expansion of high-profile to include new private market investments, which is one of the many actions we've taken to evolve our investment product offering, which we believe is now industry-leading is now being recognized as both the strength internally by our own measures and by third-party through the third-party dealer report card survey conducted annually by the Investment Executive.I'd also like to highlight our strong investment performance as measured by Morningstar. As of September 30, we had 47% of our assets rated 4 or 5 star and 80% rated 3 stars or better. Given where we started the year with 17% of our assets rated 4 or 5 star, we're pleased with our trajectory as it ranks us among the top firms in the industry.Lastly, we created and filled a new role of Chief Investment Strategist for IG Wealth Management with the hiring of Philip Petursson. This important new role reports directly to myself and will lead our thought leadership, both internally in the organization with our advisers and high net worth clients and externally with the media into all Canadian. This is an ideal complement to our comprehensive financial planning approach.The IGM's the IG Edge stems from our ability to build long-term stable relationships with our clients and our expertise is building, monitoring and executing personal financial plan that leverage well-constructed managed solutions. Our managed solutions are built around leading global asset managers that focus on both public and private asset classes and all of this is supported by valuable insights on the capital markets and global economy.We are excited about what we're able to bring to the table today and how it's allowing us to compete, and we even have more plans for next year, so stay tuned.So with that, I'll turn it over to Barry McInerney.
Thank you very much, Damon, and good morning, everyone. I'll take us to Slide 23 to review Mackenzie's Q3 results. Total AUM reached a record quarter-end high of $203.3 billion at September 30, up 0.8% during the quarter with slightly positive capital market returns and continued strong net sales.Q3 marked our 20th consecutive quarter of positive retail investment fund net sales and total net sales were $782 million, a record high third quarter. Mackenzie's momentum continues to be supported by both mutual funds and ETFs and is diversified across all major asset classes and categories.We continue to gain market share from competitors in the Canadian retail channel and we received the 2021 Environics Advisor Perception Study results, which also highlighted Mackenzie's leading market position across all dimensions important to Canadian financial advisers, including another year-over-year increase in advisor sales penetration.During the quarter, we also launched a number of new products targeting the retail segment along the 5 themes or growth catalysts we've identified previously.Finally, we were thrilled to announce earlier this week that Mackenzie has joined the net-zero asset managers initiative, building on our existing strong commitment to climate. I'll speak more to these last 2 points on the coming slide.Turning to Slide 24. The strong net sales we reported on our last call has continued into the third and fourth quarter with our investment fund net sales remaining at nearly $7 billion on a 12-month trailing basis. Given the very strong Q4 results last year, the comparative period for October and the remainder of the fourth quarter of 2021 will be a very high bar. We were pleased though with October investment fund net sales of $282 million reported earlier this week.I should also mention as you review October sales that total net sales were impacted by net flow of about $350 million from a single institutional account.Slide 25 summarizes Mackenzie's Q3 2021 operating results. Retail mutual fund gross sales increased 24% year-over-year. Mackenzie continues to gain market share, as demonstrated by our 10% long-term investment fund net sales rate as of September 30 and 51% of Mackenzie's AUM rated by Morningstar were in 4- or 5-star funds and 17 of our top 20 funds 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. We continue to see strong overall performance in our growth-oriented boutiques, while our global quantitative and multi-asset teams have delivered strong outperformance over the past 6 months. Our strong retail net sales are coming from a wide variety of boutiques, including equity, fixed income and multi-asset teams and our third-party managers category, which includes ChinaAMC has also attracted strong inflows.And finally, Slide 27 highlights the growth catalyst we've identified of Mackenzie that are reshaping the global asset management industry. This quarter, I'll provide a few highlights across 3 of these themes: Sustainable Investing, Alternatives and China.Our momentum continues in sustainable investing with $3.8 billion in AUM as of September 30. On our last call, I mentioned that we had launched our new Betterworld investment boutique and we followed that with 4 new product launches in this space. The first 2 launches, bring the Betterworld's team's deep sustainable investing expertise to Mackenzie's distribution for the first time in both Canadian equities and global equities. We also launched the Mackenzie Global Sustainable Bond ETF and the Mackenzie global green bond mutual fund, both managed by Mackenzie's fixed income team.As I mentioned earlier Mackenzie is now a signatory to the global net-zero asset managers initiative, which builds on our existing commitments, including being a founding signatory to Climate Engagement Canada and signatory to the Responsible Investment Associations or RIA statement on climate change.Moving to alternatives and private investments. Before getting into this quarter's achievements, I'd like to take a moment to comment on the breadth of Mackenzie's capabilities and products in this rapidly growing area. Mackenzie's investment organization has a long rich history of bringing private market investments to IG Wealth Management's clientele in the form of private real estate and private mortgages. Mackenzie manages $6.4 billion in these categories as of September 30.As a reminder, back in 2018, Mackenzie made history bringing Canada's first ever liquid alternative strategies to the retail market based on the regulators' alternative framework proposal for conventional mutual funds. Today, Mackenzie manages over $4 billion in liquid alternative strategies and asset classes.And last fall, Mackenzie entered into a strategic relationship with a leading global private markets manager, Northleaf Capital Partners. Within the first 6 months of the partnership, we collaborate to bring Northeast private credit investing capabilities to Canadian retail advisers and clients in a new way. Last month, we launched Mackenzie Northleaf private infrastructure fund. We have plans to bring all 3 of Northleaf private markets programs to retail with private equity up next. Northleaf itself had another very strong quarter of fundraising with $1.1 billion completed during Q3, growing their total AUM to $18.6 billion.Finally, we launched 2 new mutual funds to further help Canadians seeking to gain investment exposure to the Chinese capital markets. These 2 products will be sub-advised by ChinaAMC and they join our highly successful Mackenzie ChinaAMC, all China equity fund to create a suite of products addressing the investment opportunities in the second-largest economy and second largest capital markets in the world.Overall, we continue to innovate as advisers look for new ideas and solutions for their clients, and over the past 3 years Mackenzie has generated $5.5 billion of gross inflows from new products launched during that period and $3.2 billion year-to-date 2021.I'll now turn the call over to Luke.
Great. Thanks, Barry. Good morning, everybody. I'll turn to Page 29. I don't have much to say on the slide. I'll just highlight the chart on the left, there was a very strong quarter with average AUM&A up 4.7% in Q3 relative to Q2. I'd also note that we published October results on Wednesday. And assets, as you can see at the bottom left, were up 2.2% to $271.1 billion from September. And if you eyeball the chart and where assets are trending, so far, you'll see we're on-track to see continued growth in average assets in Q4 as net flows continue to be very strong and financial markets have been favorable in October and into November.Turn to Page 30. I just highlight the business is behaving the way you'd expect it to. On the right, you can see with the dark blue box that the net revenue rate of 87 basis points was very stable relative to Q1 and Q2. On the bottom right, you can see unit costs have declined based upon greater scale and based on seasonality expenses, and in the middle, you can see the result is that EBIT margin as basis points of AUM&A has increased to 48 basis points. I'd also remind as you look at this chart on the right that the acquisition of GLC occurred January 1 this year, and that's the reason for the change in rates in Q1 '21.Going to Page 31, you can see our consolidated income statement. As mentioned, our EPS of $1.13 is a record high and is up 26% from last year and 14% in the second quarter. The only point I'd call out on the P&L and you can see we've highlighted this point one on the right, is business development expenses of $71.2 million in the quarter. You'll see this is up slightly from last year and down to $8 million from Q2. I'd note that we do have an element of discretionary expense in this line. And as you can see the pull up box on the right, we produced our full year guidance on this line by $13.5 million and you'll see the full details on Slide 43 in the appendix. This is worth about $0.04 per share after tax. I'd also remind you in thinking about the future, there is some seasonality in this line, so we would expect it to be a bit higher in Q4 relative to Q3.On Page 32, you can see on the right IG Wealth's revenue and expenses as basis points is the relevant driver. The 1 item I'd highlight on this slide is the advisory fee rate and a top rate of 102.6 basis points, down 1.6 basis points in the quarter. You'll remember that our advisory fee rates are schedules that very based upon the level of AUA in client accounts and we actually accrue at the client level every single day versus the -- based upon the asset level in their account. With the ongoing change in composition of our clientele towards high net worth, we've guided to a decline of close to 0.7 basis points in the quarter.I would remind during Q3, there was a meaningful increase in client about account values with average AUA up almost 5% from Q2. These higher account values are what led to this 1.6 basis point reduction in the quarter, and we view this type of price reduction will always be very healthy given it's based upon the significant growth in client account balances.Turning to Page 33. You can see IG Wealth statements of earnings are $140.9 million in earnings in the third quarter of 2021, is a record high, and we're up 20% from last year and 8% from Q2. The only line I'd highlight again is business development and you can see in this other business development line, we have a colored box on the right that most of the decline in full year expense guidance for IGM is coming from IG Wealth and we've reduced our guidance here by $12 million in this other business development line item.I'd remind, you we have discretion in this line on sales and promotional activities and the business and new client acquisition, as you've seen are performing very well. When you're thinking about our spend here, we guide you to consider all of these 4 advisory and business development lines together and would highlight our people are very motivated and very resource to serve their clients well and to acquire new ones.On Page 34, I'll turn to Mackenzie's results. And in the chart on the right, you can see our net management fee rates. If you look at that yellow line, you'll see the weighted average fee rate of third parties have continued to increase up to 54.7 basis point, and this is a result of strength in retail and strength in equity and balanced offerings, which tend to have higher fees.And if you look at Page 35, you've seen this chart before, there's a lot of detail on it, and we do seek to use this slide to let you know how business development expenses will travel based upon the volumes that are being put on at Mackenzie. If you look at the chart on the left, you'll see that Mackenzie continues to put on very strong sales results and for expense guidance we've anchored to $4.1 billion in retail mutual fund net sales for the full year.On that chart on the left, you'll see that the light blue line and you'll see this trending towards $4.1 billion, which would be about $800 million in mutual fund sales during the fourth quarter. As you could extrapolate from the 4 bars way over on the right-hand side of the chart and you look at that third row from the bottom, business development expense, where we've guided to about $4.1 billion would result in a full year expense of about $92 million and that is a reduction expense guidance of about $4 million from what we published in the second quarter.Going to Page 36, you can see Mackenzie's statement of earnings. At the bottom, you can see the Q3 results of $71 million is a record high and it was up 47% from last year and 26% from Q2. And I would remind there is a lot of operating leverage in Mackenzie's business and its net selling very well. So we would expect strong earnings growth to continue.Turning to Page 37. Just a few quick remarks on China and Northleaf. On the left, you can see our Q3 '21 earnings of $17 million from ChinaAMC are up 62% from last year and 15% from Q2. As you know, ChinaAMC is a consistent leader in the Chinese domestic asset management industry, and it's been maintaining share and maintaining market position within a very high growth market. You remember that half of the global net flows into the asset management industry in the next decade are expected to come from China. And while there certainly will be volatility for us along the way, we are very excited about the future of ChinaAMC and are very excited about our business relationship with them.On the right, you can see the year-to-date growth in Northleaf AUM. Q3 was another quarter of fundraising in excess of $1 billion, bringing year-to-date fund raising to $4.3 billion and driving AUM growth to 27%. I'd highlight for you that revenue growth in these fund raisings comes not at the time the business is committed, but comes at the time that the money is invested and put to work. So we do have a good line of sight into revenue and earnings growth over the coming quarters as a result of this fund-raising activity.Turning to Page 38. This slide intended to highlight our strategic investment and to demonstrate that these investments are conservatively worth $4.6 billion at September 30. I'm going to highlight some of the metrics on the next page.Turn to Page 39, you can see the sum of the parts view to our underlying businesses. I'd first highlight that everything on the slide is anchored to 2021, expected earnings and we have it repositioned to 2022. I'd make 2 quick comments, the first on China, which you can see is the fifth column from the right. We approach valuation from a standpoint of our entry multiple when we did the acquisition 4 years ago at 17.5x next 12-month earnings. And we've applied this multiple to analyst consensus for 2021, and this consensus obviously was before you having the information on the Q3 results we posted today. I'd also note that we did do our acquisition on the basis of 17.5x next 12-month earnings. So this we view as a very conservative view of the value of ChinaAMC to actually apply that multiple to 2021 expected.And in the bottom left, as we typically do, we've taken our $40 million share price when we went to press. We deducted off conservative value of each of our strategic investments from the market cap and we've done this to arrive at an implied PE multiple for IG and Mackenzie relative to their peers. You'll see this approach would suggest that there is room for multiple expansion. These businesses have significant momentum and have posted solid earnings growth that we're very excited about.And then turning to Page 40. With the significant growth we've seen in earnings, we did want to give some context on the dividend, which you'll see we maintained at $0.5625 this quarter. On the top left, we remind that traditionally, we've considered increases at a payout rate of around 60% to 65% of earnings. You can see here at the bottom left table that we've introduced a new measure, cash earnings to profile the earnings distributable.There is currently about $150 million difference between reported earnings and cash earnings, and this reflects 2 things. First, the difference between the sales commissions we pay and our commission amortization. And with rising sales activity, this delta between the commission amortization and commissions paid has risen. And second, the difference between our proportionate share in the earnings of Great-West, ChinaAMC, Northleaf and the dividends that we received from them. You'll see in the third point is in the top left we highlight that we would consider recommending a dividend increase at a payout rate closer to 60% of cash earnings and you can see in the table at the bottom, we're currently running at 71%.On the right, in the top we've given a bit of context on our choice. And I'd point out a few thing. First, as you all know and you can see in the chart on the right, our payout rate is unconventionally high, relative to other Canadian financial service firms and global asset and wealth managers. And most important is point 3, we see many alternative productive use for capital deployment. This includes reinvest in the business, includes M&A and include share repurchases. So there's a lot of room for us to deploy this capital and to create shareholder value and that is a big consideration for us in addressing the dividend.On closing, I would highlight and reinforce, we're very committed to growing our earnings and we're very committed to growing our dividend over time and we're feeling confident about the future.That concludes my comments. Ariel, I'll turn it over for questions.
[Operator Instructions] Our first question comes from Nik Priebe of CIBC Capital Markets.
Wanted to start with a question on the accelerating growth of the earnings contribution from ChinaAMC in the quarter. Any additional color or granularity you can provide on the performance of that business, maybe with respect to the net flows rate as a percentage of AUM, how that compares to the industry, anything notable on investment performance? It's clearly a lot of momentum there. I'm trying to get a better read on what some of the key drivers have been?
Nik, this is Luke, and I'll probably turn over to Barry as well. I'd highlight, we've seen in the last -- the last 5 or 6 quarters have been very strong in terms of net flows into the Chinese asset management industry. So long-term funds, we've seen a net sales rate of 30% per year and ChinaAMC, as mentioned, has been maintaining market share and maintaining rank during a rapidly growing environment. In the third quarter, in spite of the volatility, we did continue to see very strong contribution from net flows, and that's led to consistent asset growth in long-term funds during the period. And as you also know, there is operating leverage in this business and that is leading to the strong earnings growth results that we're seeing put on. I'll turn it to Barry.
Great question, Nik. I'll just add a couple of points. It's important to recognize for ChinaAMC as well ahead -- a very strong business strategy and model, we think, well positioned for today and the future growth just as we will see -- as we saw the industry in North America evolve. What I'm talking about is that they're multi-channel. So Luke's point of very strong retail flows continue for ChinaAMC, but they're also strong institutional and they're also strong in online. So they have really 3 main channels that all are doing very well. They also actually look a bit like Mackenzie to their multi-vehicle. So clearly, mutual funds doing very well as we report and measure on an ongoing basis. The institutional separate managed accounts, SMAs, obviously continue to grow very well. And they are actually -- we tend to forget about this, they're the #1 ETF provider in China with a very strong growing industry ETFs, as we know how strong that's growing globally. So they're #1 in China onshore and offshore.And then finally, they're just a terrific culture, well resourced, over 200 investment professionals, investment-led organization. So they're really research-oriented on the ground, fundamental focus and actually we share in that research with them on a regular basis, which is very helpful for us. So just a 20-year firm that has really has a business model and a framework and structure and the culture that you see now, what we have seen for years and years now, but it's just probably becoming more of a focus for you all because of their increasingly meaningful impact for earnings. So really remain very excited by ChinaAMC in our investment in the future of that -- of that firm in the industry in China.
Understood. Okay. That's helpful. And then maybe on the domestic front, net flows have remained consistently positive, not only on a quarterly basis, but month as well. We've seen industry sales remain elevated, but I think that's benefited to some extent from higher consumer savings and improvement in household balance sheets as a result of the pandemic. I just wanted to get your read on the sustainability of that trend at a macro level. Do you see that momentum extending beyond the RSP season next year or is it -- is it a bit too early to say?
Again, great question. I'll start and might have others chime in as it is a very important topic for us obviously at IGM. But you're spot on. You've seen us in Canada and other developed countries, where savings rates are much higher, obviously because of the pandemic, and spending is down, obviously to your point, which has strengthened personal balance sheets. But that spending also has also resulted in quite a reduction in industry redemption rates. So higher flows and lower redemption rates obviously result in much higher net flows, and so us across IGM operating companies are seeing obviously very nice gross flow increases year-over-year, but you may have noticed our net flows are even proportionately higher than the gross, because of the higher gross and low redemptions.We're thinking this could be Sustainable; we're not sure at the levels that they are right now, obviously, as the economy continues to recover, global synchronization of opening up the economies and getting back to some normalcy in terms of expenditures and consumer consumption. We think we think though that there is going to be an increased focus on retirement and savings in Canada and maybe other countries as well. So therefore that savings rate we think can continue to be higher than it was pre-pandemic. Not sure where it's going to land, but we think it's going to be higher. And the redemption rates we'll see if they come up a little bit, but again because of the potential increased focus on savings and by the way, just enormous amount of cash on the sidelines of liquidity, that can come into the investment funds industry, which we think it will. We think should bode well, well into 2022 and beyond. So we can't predict on the levels -- record levels that we're seeing in the industry today continuing at that level, but we think they will continue at a higher level for many years to come.
Barry, it's Luke. I'd add to Nik. As Barry said, the money, like you mentioned in your question on savings rate, the money that went to demand deposits in 2020 was profound. It was about $250 billion. And that movement in demand deposits or the contribution of the demand deposits by Canadian have just continued consistently through every single month of 2021. So there's a lot of fuel to keep this fair going. All those demand deposits are earning nothing and they're earning less than money -- nothing when inflation is included. And across organizations, we're working hard with Canadians to put that money to work and so there's a lot more fuel there to keep these strong investment funds flows that are going.
Our next question comes from Geoff Kwan of RBC Capital Markets.
My first question was just on Slide 19. I was trying to take a look at the part where gross flows from less than $100,000 accounts had been declining for a number of years, but still a decent amount, and has been actually increasing lately. Just want to focus on the high-net-worth part of the market, just curious around whether it is dynamics driving growth from some of the less affluent customers?
Geoff, it's Damon, here. So in terms of [Technical Difficulty] to those segments. So we're talking about doctors, lawyers, other professionals. And part of our strategy is certainly to connect with those individuals early on in their careers. And it does mean that early on, they will have lower portfolios in terms of dollar amount, but the opportunity long term is huge. So a lot of that growth would be because we are doing a good job, really finding people that we want to focus on, but early on and then working with them on their plans as they start their careers and start a family and buy a house and do all the things that you would normally do.
Okay, perfect. And then just more broadly in terms of the progress that you've made on the gross sales side for each of high net worth and then also just the overall business. When you take a look at where you are today, if we can use the baseball analogy, like what inning do you think you're in versus what you would view as being kind of full productivity of the consultant base?
Yes, I'd say that we are in the second or third inning, and here is the rationale. First of all, we are still in the fourth year of a 5-year transformation with the fifth year being next year. So there is still a lot of things that we need to do, to continue to improve our advisor and client experience, continue to connect our systems, continue to make sure that -- that we make sure that our advisers are the most efficient in the industry, so we free up capacity. And with that, we are just going to get better at doing what we do.When you take a look at our results, what is the most encouraging are they're broad-based. So we're doing a good job in terms of acquiring new clients, particularly in the mass affluent high net worth space, as you just mentioned. We're doing a very good job of working with our existing clients and share of wallet. A lot of Canadians have diversified their advisers. And right now we are finding that, quite frankly, a lot of the competition is not stepping up. And if our clients have 1 or 2 other advisers, they're consolidating with us, which is great.We're also doing a great job in recruiting experienced advisers. For a lot of advisers, they see the benefits now, particularly with the client-focused reforms and everything that's taking place with regulation and partnering with the firm that can add value to their business and help them compete in their markets, particularly against the competition, which tends to be fierce in this country.And then because we're doing such a good job with our clients, our retention rates are dropping. So we're doing a good job and certainly we're losing less clients than we have in the past. So we feel quite comfortable about where we're -- our ability to compete and how we're positioned right now.
Maybe ask another way is, from a net sales, as a percentage of AUM, where do you think that you can get to, again, if you're having full productivity out of the network?
Right. So if the forecast of net savings rate for the country is around 3% and its forecasted to continue to be around 3%, and there'll be ebbs and flows in that. Right now, you can see that we're at that number. We feel quite confident in our ability to punch above that weight and 3% plus that's what this business is built to do. Ultimately, we are building a business that we want to be stable and resilient that performs over various different market cycles and is going to gain share, and particularly gain share in the mass affluent and high net worth market. So punching above 3% net sales, the percentage of AUM is something that is our focus.
Okay. And just, if I can sneak in one last question is, high net worth tends to be stickier assets. Do you expect then the redemption rate to decline over time versus historically what we've seen at IG Wealth? And also to on another dynamic, with boomers retiring and kind of maybe spending a little bit more and therefore the savings are going to be less and therefore have higher redemptions. Like how do you think net-net these factors or any others that you see kind of impact the redemption rate versus what we've seen historically?
Well, I think if you're building your business properly, I think mass affluent and high net worth, our focus is on making sure that our retention -- our retention rate is obviously as solid as always possible. IG has always had a history of having retention rate that had been lower than the industry, and I think everyone knows that. These levels, obviously, right now we're in a different circumstance, but we believe that and feel confident that we can continue to do a great job.Now as it relates to the aging population and deaccumulation, this is the key here. So as long as you have a sales force that is diversified and you have a sales force where you're bringing on new talent and you can continue to do that, we feel quite comfortable that we'll have a nice mix of clients. The first question you asked, I talked about bringing on young professionals, that's a prime example of what the future looks like. We're going to have obviously a significant amount of money in the industry, pass on from generation to generation. And our organization has proven over decades that we're leaders in really working with multi-generational families. And not only having the grandparents, but having the parents, having the kids, having the grandparents, that puts us in a great position to capitalize on the movement of these assets through generation to generation.
And Geoff, it's Luke on the -- just on the quantitative of that. You could see our gross outflow rate, our redemption rate overall is trending at 9%, trending down. You remember that about 5% of that redemption rate is really structural. It's fulfillment of the product. It's people who -- they're saving with us for a long-term, which may include retirement. So we view that obviously as a core at 5% to 5.5%. Everything above that, you can think of as being competitive on some front, and so I'd guide that even with baby boomers retiring, our rate of 8% is clearly achievable for us overall. And that is where we trended in the best of our times and we think that potential is available for us now.
Our next question comes from Gary Ho of Desjardins Capital Markets.
First question just on the expense guidance update. It looks like the biggest decline is within IG's biz dev expense line. Maybe can you comment on kind of what drove that in particular? I think, Luke, you mentioned some discretionary spend. Were these costs pushed out? And just wanted to see what changes were made relative to the budget at the beginning of the year? And as a related question, can we also expect this 2% to 3% overall expense growth as we look out to fiscal '22?
Good question, Gary. I'll start with the last part. On '22 and beyond, right now, we guide to that territory. 3% is probably a good starting point to think in '22. And on our February call, we'll have finished our planning for the year and we'll give -- we'll get much more robust guidance into 2022 and beyond. On IG's other business development expenses, yes, as mentioned, as you know the things that are in that particular line, it includes sales, marketing, promotion, our facilities for our financial planners, training, technology, all the things that support on the ground business development and serving of clientele. And I'd note that that is one of the 4 lines that concerns what we've called advisory business development. The other lines are things like sales commission, asset-based comp and other product commissions.So the $12 million reduction in guidance that you see, you could do that as reflecting mostly discretionary sales and promotional activities, but it's quite a small amount in the context of the broader spend that we have on advisory business development.I'd also note Q4, the guidance we've given does have healthy spend in Q4. So I would guide you that you can take the expense guidance for reduction we've given you to the bank. But I would note, there is seasonality coming in Q4 and you'll see when you do the math, the guidance for Q4 is quite a healthy level of spend in this particular line. And I would also highlight -- as we've considered our activities and what we're spending on, the business is doing really, really well. And we think we're spending at a high enough level of doing the right things and we didn't have to go any further in this period.
Great. And then maybe moving on to Slide 40, where you laid out the roadmap for common dividend increase. Luke, when you do the math on maybe at 3Q annualized number as opposed to LTM, you would get to a number that's closer to 60% payout. I just want to be clear that you are looking at it when you decide -- it is on an LTM basis? And then maybe on the same slide, maybe for James, how do you decide between dividend increases versus buyback or some of the other initiatives that you listed on that page?
Yes, I'll start and I'll turn to James, Gary. So yes, you're quite right. On our guidance and the spelling out, where we consider recommending a dividend increase, we would be anchored to last 12 month, not in quarter annualized. And that removes the impact of seasonality, and that's what you should consider is last 12 months. And I'll turn it to James.
Gary, we, as we've said before, we believe we're in for an active M&A environment, given confidence levels, -- given the macro environment generally. And so we are thinking actively about deploying capital in M&A. And as we've discussed before from a wealth management perspective, we view that industry organized -- around the world, it's organized kind of nationally or regionally. So our aspirations in wealth management would be very much focused in Canada, particularly in high net worth and ultra-high net worth segment. And then on the asset management side for Mackenzie, of course, it's a statement of the obvious, but Mackenzie very clearly participates in a global industry and is competing in Canada against global giants.So for Mackenzie, we were prepared to look more broadly geographically. If we can enhance its capabilities that could be -- it could be in Canada or outside Canada. So M&A is something we're certainly thinking about, but buybacks too are going to be part of the tool kit. But I would say at this point, more focused on M&A opportunities than buybacks.
Great. And then maybe just follow on to that. James, just on the M&A side. For Mackenzie, that's mostly in Canada or are you looking at global as well? And then a related part of that, obviously very strong on the retail side. On the institutional side, any interest in buying institutional managers?
Yes, I'll start and I'll let Barry -- I'll let Barry add. But, Mackenzie very clearly participates in, competes in what is truly a global industry. And we need to be mindful of that. It's not a Canadian industry, it's truly a global industry. And so when we think about kind of positioning Mackenzie 3 to 5 years out, we think about how do we make it a stronger competitor in what is today a global industry. And so yes, for Mackenzie, we will be looking more broadly than just to Canada geographically for opportunities to both enhance its investment management capabilities and perhaps some distribution will come with it. And I'll let Barry add to that answer.
Great. James, you got it spot on. It is really a combination of the fact that we -- we like to continue where we think we have gaps. I don't think we have gaps right now, but we're always looking for strong global investment capabilities to bring to Canada. Northleaf obviously is based in Canada, but they're preeminently global; Greenchip the same. As you know, we've lifted out a team in Boston, wonderful institutional quality quant team. They're doing very well. Up to $5 billion AUM last 3 years. We've got a team in Dublin, a team in Hong Kong from legacy IGM, and they are just terrific, mostly compete in institutional world. So we're always looking for investment. Talent capabilities, as James mentioned, anywhere around the world, that's irrespective of borders. And then we can bring it into our obviously robust Canadian retail business. But also as James has mentioned, our institutional business were -- we love our business and it really provides diversified sources of revenue. We do it in a very targeted and limited fashion in terms of a handful of capabilities that we think are of interest to global institutional investors in Canada, United States, Europe and Asia, and so we continue along that journey. So yes, if there's anything that could help us speed it up a little bit, we'd certainly be able to for consideration.
Okay, great. And then just my last question. I know there is some talk around -- on these lease retail flows. I'm just wondering, the impact of higher rates or rates trending higher. If the rate environment can persist, we know the story on the household debt. Would clients favor paying down debt versus increasing the savings rate? Is that a risk to elevated flows? I don't know if that's a question for Damon or Barry?
I'll start and everyone likes to jump in on those, Geoff. But I'll just speak from Mackenzie's perspective and probably might be different on the Wealth side. But on the asset management side, again we -- first of all, we have, as you know, a multi-boutique model with really a variety of building blocks. And so what I've been saying personally and Mackenzie is saying personally is to help advisers start that journey of a more future-oriented portfolio for their clients, and that's why we've been bringing alternatives to the marketplace, not just liquid but now private alternatives. And obviously, even if inflation is not transitory, we've got a lot of building blocks to put a strategic allocation of the portfolio to help to immunize some of the potential long-term effects of inflation such as infrastructure, of course. We've got tips, we've got commodities, we've got REITs, we've got a whole plethora.So that's just one thing on -- and I want to mention on the Mackenzie side, we actually performed fairly well irrespective of the economic environment. Inf fact, as we told, last March of 2020, we probably perform when markets are choppy or downwards, because we have a lot of protective downside.In terms of impact on flows, I'm not sure if that would -- Geoff, that would impact on our thesis that savings rates will be sustainably higher than pre-COVID, albeit maybe not as high as today. Again, that focus on savings and retirement for all Canadians, more so going forward should be irrespective of the economic environment.And I'll put a little bit of plug as I always do, these transitory inflation trends are -- we're getting through them. They're going to take a little while, right, well into 2022, and they hurt some segments of the population. So we got to be mindful of that. But long-term secular trends in developed countries like Canada is actually for low rates and low inflation going for demographic and technology productivity improvement reason. So probably something just continue to think through, long, long-term. Obviously, short and mid-term might be different. So I'll turn it over to anybody else who wants to comment, but I think...
Yes, it's Damon, I'll jump in. And I'll say that this is why we're in business. Questions like this is all about financial planning and how we work with our clients and we're involved in helping our clients make the right decision as it relates to paying down debt or investing or doing both.The good news is, as you direct your efforts towards high net worth, high net worth individual generally understand debt and understand how to use debt positively. So for us, we have not seen any issues with flows, nor do we anticipate any issues with flows. Obviously, when you're talking about higher rates, it has more to do with market and the environment and how do people feel about investing. But we feel quite at -- it is not going to get in the way in terms of our future flows.
Our next question comes from Tom MacKinnon of BMO Capital Markets.
Just a quick one here. Luke, I think you said in terms of looking for business development expenses for 2022, that is 3% increase over 2021 would be appropriate? How should we be looking at operations and support for IG Wealth and Mackenzie?
That's a good question, Tom. So my guidance would be on 3%, could be overall. The overall ops and support in particular, business development will obviously be variable. There is some variability with Mackenzie wholesale and commissions in particular, but that 3% is meant to be an overall and in particular in ops and support. And so it's a very good question and -- and I clarify for everybody on 3%. It's -- we're focused firstly and foremostly on ops and support expenses. And Tom, as mentioned earlier too, in February, you can expect us to give much clearer guidance once we finalize our plans by line item.
And that business development expense will be a function to though of -- there is some variable element in it as well. So if the gross sales continue to be strong, we expect that business development expense portion of that overall could be actually higher than the 3%?
Yes. Yes, for sure, Tom. And the key elements of variability, so there is 1 key variable item in that line, which is Mackenzie wholesale and commission. And we'd expect to continue like we've done on Page 35 to give you guidance on how it's working. And you heard very early in the year when we launched this guidance and enhanced this disclosure, remind that we reset the bar every year, and the bar rises. And so will help you understand how 2022 will behave based upon different sales levels, and so that -- there is that element that is variable. There is some discretionary advertising and other promotional stuff in there and we will be finalizing that in giving guidance. And then a bunch of the stuff in that line is more fixed and we would give the same type of guidance as we have on ops and support. So that's the 1 item that we will help you understand is the variabilities to Mackenzie wholesale and commission, and we would remind that we do reset the bar every year on that one.
Our next question comes from Graham Ryding of TD Securities.
Perhaps, James, I'll target this one for you. I'm just thinking about IPC. Can you talk about the business model there and how it compares to IG Wealth? And is there any thought towards potentially bringing IPC into IG Wealth? Is there a value creation opportunity there perhaps?
It's a good question. But I think the answer is no. It is a very different business model. These are -- with very different -- you have advisers who have a different contractual relationship, of course with IPC than IG Wealth advisers would have with IG Wealth. You have a very, very different grid. You have a very different allocation of expenses.So I do view the businesses as being quite a bit different. In many respects IG Wealth is a unique and I think it is uniquely successful model within the industry. But I think what you should anticipate with IPC -- and look, it's executing well here as you can see from the results, but there is a big push on as we speak to purchase practices, convert books where it makes sense to more of a salary plus bonus model as opposed to the current quite high grid payouts. And they're also exploring, indeed more than exploring sort of to execute on an ICPM model, where money is being managed on a discretionary basis.So as I've said earlier, I like IPC because I think this industry is in for a lot of change over the next several years as generation of advisers who helped build this industry in the '80s and '90s approach retirement and think about succession and what they're going to do with their books. I think new industry architecture, new economic models are going to emerge and we very much view IPC as our opportunity to experiment and participate in those new models. But to go back to the core of your question, as we sit here today, I do view the 2 models as quite a bit different. Each has their own strategy and each we think can achieve very significant growth in years to come.
Damon, I'll jump to you. IG, you're showing good sales growth momentum and you gave us some advisor productivity numbers there, which show some increases. We're still seeing some attrition in the number of your advisers, sort of, particularly at the greater than 4 years' experience level. Can you just provide a little bit of color on what we're seeing there? Is that just a reflection of natural attrition not being replaced with the advisers that you're recruiting into IG Wealth?
Yes, first off, I would say that it's important that everyone understands we're focused on quality, not quantity, and our KPIs are all-around productivity and not the size of our sales force. But the numbers you are seeing, it's just natural attrition. We continue to work with our existing advisers and make sure that we're focused and make sure that they have everything they need to really attack the massive growth and the high net worth segment of the marketplace. And we like the fact that we're leaner, quite frankly, than we have been in the past, let's say, over the last 3 or 4 years, because it's really allowed us to focus our efforts. At the same time, we've done a very, very good job recruiting. And we're really attracting experienced advisers that really want to focus on planning and really want to enable their business and their teams and their clients to have an elevated experience. So we feel quite confident and excited about what the future of our sales force looks like.
And Graham, one thing I'd add too, if you look at the supplemental disclosure, we've got the line with the consultant practices, and you can think of that as being the practice owner. We've got another line called associate and those are employees of the practice and they're all licensed professionals or financial planner, they're serving clients. So we guide you as well to look at those 2 lines together as far as the force of people who are serving the clientele there. And so you'll see that consultant practice, so the consultant owner has declined by 7, I believe this quarter, while the same time the associate has risen by 12. So when you look at the actual for serving clients, it has been growing slightly.
Okay. Understood your point. My last question would just be Northleaf fund raising this quarter. Could you give us some color on how much that -- I think it was $1.1 billion. How much is third-party versus commitments from Great-West or IG?
Yes, we're very pleased to say that we're actually seeing good -- and you've seen the price being brought to market, really good support of Northleaf across the group of companies. And we're on plan there. But in spite of that, substantively all of this fund raising is from outside the group and it is well diversified across private equity, private credit and infrastructure. And I'd say one of the bright lights that we're seeing is well that the Northleaf team is excited about is we're starting to see more foreign clientele within the numbers. Traditionally, Northleaf has been -- their investments have been global, but their clientele has been primarily Canadian. And so that's one change that we've seen in 2021 that's very healthy, is they're executing well on their vision of having a lot more clientele outside of Canada.
[Operator Instructions] Our next question comes from Scott Chan of Canaccord Genuity.
Maybe just going back to Northleaf. The asset growth has been impressive, almost 25% since you acquired it. What proportion of those commitments, I guess year-to-date would be within versus kind of external? And I'm just trying to get a sense on looking forward in terms of Northleaf model your solutions and kind of the stability and growth within that?
Yes. Of the $4.3 billion, you can think of the group having furnished around $500 million, $600 million of that. So substantively, all of that -- that new business has come from third parties, and we see that growth continuing. And we're going to obviously support Northleaf with all we've got, and you can see us actively putting Northleaf into our managed solutions, launching products of Mackenzie, and Great-West Life is also supporting them wherever they can. But the bigger opportunity is obviously with third party business and the team at Northleaf is very focused on growing their clientele and, as I mentioned, growing their clientele outside of Canada, which is a huge opportunity for them.
In the earnings of Northleaf, it seemed a punt above your original guidance. Is there like an updated guidance that we should think about for 2022? Because it seems like the asset is probably attracting a bit better than you expected in my view.
Yes, it's great. We've got very good line of sight on the revenues from this business. And so when you see the fundraising, as highlighted in Page 37, those are new commitments. The revenue comes on when the money is put to work and invested. And so we have these treatments in hand and the revenues are going to grow and the earnings are going to grow as the money is invested. So right now, our original guidance for 2021 was $10 million contribution from Northleaf, and I'd guide you for 2022, you can probably expect about double that, so about $20 million. And that is a function of all the business activities they've put on this year.
That's super helpful. And just back to the SG&A question for 2022. I just want to make sure -- and I know you're going to refine it next quarter, but are you talking about total 3%, including business development and operations and support, acknowledging that business development has that variability?
Yes, that's right. So you can think of it as being 3% overall with the qualifier on business development and the fact that Mackenzie wholesale and commissions are in there.
And just lastly, James, just on the capital. You talked about NCIB or share repurchases being a bit lower on the priority. When do you expect to renew your NCIB or initiate one, I was just wondering?
Yes. No, you're correct. There is not one right now, but let's see how the next several months unfold in terms of capital deployment. But that's certainly something we're thinking about for some time in 2022.
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Potter for any closing remarks.
Thank you, Ariel, and thanks to all of you who joined the call today. We wish you a great upcoming weekend. And Ariel, with that we'll close out the call.
Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.