CI Financial Corp (CIXX) 2005 Q3 法說會逐字稿

Please be advised that this conference call is being recorded. Good afternoon. Welcome to the CI Fund Management Inc. third quarter results conference call for April 6, 2005. Your host for today will be William Holland, President and CEO of CI Fund Management. Mr. Holland, please go ahead.

Welcome to our third quarter conference call. Before I get started, I would just like to ask you to pay some attention to this disclaimer, because we will be making forward-looking statements and using some non-GAAP measurements.

I'm actually very pleased with our results, as well as our positioning in all aspects of our business today. Before Steve recaps the third quarter financials, I would like to give you a brief update starting with a recap of the RSP season. From an industry perspective we saw a continuation of many of the trends that we have seen for the last little while.

IPIC (ph) reported long-term sales of approximately $10 billion. The top five firms got 70% of that business. The top 10 got 93% of the business, increasing market share again as they have had for the longest period of time. Banks continue to dominate sales. The sales have mostly come into income, dividend and balance funds. Canadian funds U.S. and global have continued to be net redemptions, although I see an end to that trend, at least some signs of it. Structured products were very strong early on, but they are now showing some signs of topping out.

On a relative basis CI did exceptionally well. Our net sales were just over $1 billion. We finished third in net sales behind the Royal Bank MTD. We actually finished first in net sales in the entire country in March. The first time we have led the country in sales in a little over four years. This chart also shows that the -- some of the independent companies continue to struggle to get back into net sales.

To give you some perspective on the sales, the $972 million that CI sold during the January, February, March period was the best RSP season we have had in five years. And if you look at the gross sales at almost $2.8 billion it marks a steady increase from 2001. And gross sales, as we have talked about in the past, is so important because as -- it decreases the average age of our assets if we continue to roll out gross sales.

And one of the things we have looked at recently, is we have looked at our gross sales since the market high of 2000. And our gross sales have amounted to almost $32 billion. Our assets in 2000 were just over $20 billion. So when you look at the amount of gross sales you see that our assets are not aging at the rate at which many people think that they are, just because we did so much sales in the 1999, 2000 period.

I would like to spend a minute just talking about our positioning today. CI leads the industry with five-star Morningstar rated funds. We have 63 funds that have a five-star ranking. In every single asset class we had either a four or five-star rated fund. The next closest competitor to us has only 20 five-star funds. We have very strong performance in Canadian equities with Jerry Coleman, Kim Shannon, Eric Bushel and David Picton, all generating top decile and top quartile results.

Our net sales from a breadth perspective has also been very positive. In fact, if you look at all of the top 10 funds of CI's in February, all 10 of them were in net sales, with the industry average being usually about four or five. Our average quartile ranking of our top 10 funds was 1.6, where the industry average, or our peer group rating was approximately 2.6.

And then finally, just wrapping up, to look at our assets at the end of March, the end of March we had mutual fund and seg funds assets of about 47.4 billion. And that was up 3.8% on a year-to-date basis, and 9.6% if you look out over the last 12 months. What I would like to do now is turn the meeting over to Steve MacPhail who will go through some of the financial highlights of the third quarter.

I assume most of you have had a chance to review our financial statements that we released today at noon, so I'm just going to focus on some of the highlights. Net income for the quarter was 81.2 million, or $0.28 per share. This is slightly down from last year for the same quarter. However, it is important to remind you that CI is one of only a few companies that accounts for its option expense on an accrual basis, which is determined by CI's share price at the end of the quarter. The result is that quarterly earnings can be distorted by whether or not CI's share price went up or down. CI's share price went down in the third quarter last year, resulting in a reversal to option expense and actually increasing net income by 4.2 million.

This quarter the rise in CI share price, which is good for shareholders I might add, resulted in an increase to the option expense and reduced net income by 5.8 million. Adjusting net income for the option accrual, shows net income up 5% to 87 million, or $0.30 a share. EBITDA adjusted for the option accrual was 154.4 million, or $0.52 a share for the quarter, up 11% from 139.1 million in the prior year.

From an operating perspective, our average retail managed assets, which include our mutual funds, segregated funds, Assante funds, and structured products were up 11% year-over-year. Administered assets, which are predominantly assets at the Assante and IQON dealership, but also include institutional assets at BPI Global Asset Management were 20.4 billion, up 17% from the prior year.

Our operating margin continued to be strong at 112 basis points, down only slightly despite our reducing management fees on certain Clarica and Assante funds. Where we continue to make impressive gains is with our fund operating expenses which were down 21% from 29 to 23 basis points.

To help you dissect our earnings a little more, this chart titled, Earnings Analysis, factors out a number of expenses to get to what I will call operating earnings, which is non-GAAP, but useful just the same. From a reported net income of 81.2 million, we adjusted for redemption and performance fees, amortization of deferred sales charges, gains on marketable securities, and the option expense. This results in operating earnings of 82.5 million, or $0.28 per share, up from 78.9 million or $0.27 per share in the prior year calculated on a similar basis.

Our operating margin for the quarter, as mentioned, was 112 basis points. Management fees were down 4 basis points, reflecting fee reductions and our asset mix. Net SG&A on the asset management business was down 3 basis points to 9 basis points as was portfolio management expense which declined from 16 basis points to 15 basis points. Trailer fees rose 2 basis points as a result of the higher proportion of front end load funds.

Looking specifically at our net SG&A expense, so that is total expenses less the expenses associated with administering the funds, you can see that our total net SG&A expense was unchanged at 21.9 million. And keep in mind we did this while assets rose by $7.6 billion. By segment net SG&A for the asset management business actually declined 17% quarter over quarter. On the dealership side, where we are focusing a lot of our effort to help beef up Assante's back office, our net SG&A expenses were up 24%. Clearly this is an area where I'm directing a lot of my attention.

Portfolio management expenses rose by 600,000 quarter-over-quarter, or by 4%. That compares to average assets managed rising by 11%. You can see where we were clearly able to average our business here as the incremental costs for 4.6 billion in additional assets was only 5 basis points.

Fund operating expenses is a part of our business Bill and I are particularly proud of. Last year we spent 30.6 million to operate 42.5 billion in funds. This year as a result of a tremendous effort by CI staff we have actually managed to drop expenses to 27.2 million, while at the same time assets actually rose by 4.6 billion. This benefit goes directly to our unitholders who have seen MERs reduced both in September of 2004 and just recently in January of 2005. If I could only get some momentum to get rid of the TF IQON (ph) funds, I would be a lot happier.

Though the dealership segment of our business is very important strategically, the IQON contribution is fairly small relative to the asset management part of our business. Notwithstanding, we continue to operate it profitably with net dealership earnings of 3.1 million for the quarter, in line with previous quarters.

And lastly, looking at cash flow and dividends, you can see that we had an operating cash flow of 125.4 million for the quarter. Now it appears to be slightly down from the prior year, but last year we had a $19.8 million tax loss benefit from the Synergy acquisition, included in the 126.3 million. Commissions paid during the quarter were up to 43.5 million. Now that is a good thing because it reflects a higher level of sales.

The net result was free cash flow of 81.1 million, well in excess of our monthly dividends totaling 44.1 million, leaving a $37 million surplus in cash for share buybacks. On that note I will turn it back to Bill.

Just a couple of concluding thoughts. For the most part I'm going to say that our business environment here looks very, very good. We're well positioned. We've got really good fund performance and we got some good sales momentum. This will likely be our best April in five years, with net sales probably exceeding $100 million relatively easily. We bought back 6.3 million shares. We have now bought back 52 million shares at an average price of 9.25 over the last eight years. We will renew our dividend policy again with our year-end results in July.

And finally, we have continued to drop our fund operating costs which are now -- which the cost charged to unitholders which are now just under 20 basis points, the lowest in the industry in Canada. And on that note, I would be glad to take any questions from analysts, if they have any.

(OPERATOR INSTRUCTIONS). Doug Young of TD Newcrest.

In terms of stock buybacks, can you remind us where you feel comfortable pushing Sun Life's ownership level to? And at what level do you stop buying back stock? At current levels you obviously have the appetite for that. Can you give us an idea of where that would stop, I guess?

As I said, we bought back about 6.3 million shares. And so their ownership increases by basically a third of a percent for every percent we buy back. And their current ownership is just about 35 percent. One of the things that I look at what I look at the position of Sun Life is the partnership in general. And what we would like to do is find more ways where we can do business with Sun Life. And if we could do -- Clarica is a perfect example. We get a lot of our business from Clarica. So we're looking at things like extending the arrangement we have with Clarica. And if we can improve the business partnership, I think we would be comfortable seeing Sun's position get up into the mid to the high 30s. I think we would really have to reevaluate it and see some significant benefit to give about 39 or 40%.

Can you maybe talk a little bit about extending that relationship? What else could you do with Clarica?

Right now we have a business arrangement with Clarica that goes for three more years. And clearly one of the things is we could extend that. But there are, I think in my view, other places where Sun Life could be helpful in getting business. They are one of the largest, or the largest group providers in Canada, and that might be a place.

But the part of our business that we're really focusing on and where we see Sun Life as an invaluable partner is this Clarica relationship. And I think that if we can grow our mutual fund sales within Clarica, like even if they do not increase the number of agents at Clarica, but if we can increase the production -- their mutual fund production -- that goes a long way towards improving our net sales considerably.

How much did they represent of your gross and net? If you don't have the number, I can follow up.

During RSP season they represented around 22% of our gross sales, if I recall right.

John Reucassel, BMO Nesbitt Burns.

Just a few questions. Just to clarify first, Steve, I just want to make sure that the depreciation and amortization was 19.3 million in the quarter. And I guess 15.2 was an asset management -- asset administration. Where is the rest of the 4.1? Where does that come in?

That comes in on the capital assets.

So that is --.

That's reacquired in the Assante acquisition. You know we already had a lot of capital assets in their books. But if you look at the balance sheet you'll see the difference.

Okay. Just want to -- okay. Thank you. And Bill, for the you, when we look at CI, and you have talked about the position -- your strategic position, what, assuming relatively normal markets of 6 to 7%, what is a sustainable EBITDA growth rate for CI?

I think I would be pleased if we could grow our revenues, our EBITDA, our assets under management by something resembling 10%. And I think that the challenges that -- you know, for years the industry grew at breakneck pace. And it really slowed dramatically in 2000, starting the slowdown in '97. But if you look at a company like CI to you say we've got $50 billion under management, to grow at 10 percent, and if we get 6% market appreciation, we still got to sell $2 billion worth of mutual funds on a net sale basis. And I think that is about as good as you can expect over the normal course of a cycle.

So I would be pleased to see the assets grow at 10%. There might be some opportunities to cut some costs, but I also think there's also going to be some topline retrenchment too, because we are seeing more and more than on some of our funds we've had to cut management fees. And so I look at 10 percent as being a number that sustainable for large companies who are very well-positioned.

Okay. And Bill, you know you talked -- in this quarter it looked like management fees are 191 basis points. Do you have a sense where this bottoms out? Is it 185, or is it --?

My best guess is that management fees are going to be -- you might get to 220 all in. What we are focusing our business planning on is a 2% equity fee plus 20 basis points worth of ER, for a MER of 220. And we believe that is sustainable. We believe that the competitive pressures are pushing other companies to get there. There's no longer -- it is no longer a reasonable sales proposition to say that we're a small company so our MERs are 280 or 290. There is just too much sensitivity round it. And we're doing everything we can to position ourselves to be at the very low end of the MERs for independent fund companies that distribute through stock brokers and mutual fund dealers.

And the last two questions have to do with Assante. It looks like the sales trend is weakened there, but maybe Bill you can comment on that. And then, Bill or Steve, you had commented on the integration process, I guess. Last quarter you told us expenses would be a little higher. It doesn't look like they are a whole lot higher, but maybe give us an update on what you need to spend at Assante, and where we stand in that process?

First from the sales front, sales have slowed down quite a bit over the last year. And I don't think that that is terribly surprising. I think that in order to improve the sales at Assante there is still some work to do. We have had to improve the technology, the customer service, the operations in general. We have had to do a lot of work on their back office platform. I think we've gotten to the point -- you know, the dealership back office platform I am talking about.

I think we've gotten to the point now where we could probably introduce new products. And we're looking at bringing out a new product, a new set of funds with considerably lower management fees then some of the other Assante product that is available today. And we can bring that out probably in June or July. And we couldn't have done that 6 months ago, so I think we are at a better position to recruit new advisers, which we weren't up until now. We had to make what I consider to be significant improvements to the dealership, and to get the manufacturing administration fixed up as well.

So I think we're probably there now, so we could probably do some recruiting if we wanted to at Assante. And we can clearly now bring out some new product. So I do see the opportunity to reaccelerate the growth a little bit. But we don't expect to see the type of sales that Assante generated three or four years ago. I would be very happy if their sales growth had a similar profile to CI's. You know 5% of assets I think would be pretty good.

Drew McReynolds.

Actually my questions were just answered.

Greg Smith of Merrill Lynch.

I think that is probably Brad Smith. I was just wondering maybe Steve or Bill if you could just talk a little bit about your capital structure? I'm trying to figure out this long-term debt increase in the latest quarter. And I guess it looks like there's a lot of cash going out to shareholders in the form of dividends now and share buybacks. I am just wondering what level are you comfortable taking your debt to?

Brad, let me -- I will just clarify one thing when you look at the cash, remember in the last quarter we switched from the quarterly to the monthly dividend. So we actually had a quarterly dividend that we paid in December that had accrued in the prior quarter, and then we started paying the monthly dividend. So when you saw that dividend payment of 78.1 million that is actually more than we normally would have paid because it had an extra dividend in there. The normal rate is 44.1 million. So that is the first.

The second thing is when you looked at the balance sheet and compared to May 31, the debt in part went up because we have increased our investment in marketable securities. So part of the debt increase relates to that.

The third place obviously is the timing of when we buy back shares. We will, on a shorter term basis, impact our debt, and then cash flow builds up to replace it again over time. You add all of it in, where are we comfortable with our debt? We've never reached a final conclusion on that. We have a $500 million line. We're clearly not uncomfortable at a $500 million line. That is less than an annualized EBITDA rate of $630 million. So I think once we start getting around one year's EBITDA we might say that is as high as we would want debt to go and to reassess at the time. And since we're not even at half that -- we are only at half that level today, less than half if we sold all our marketable securities. I guess -- I think that answers your question.

So more room for leverage in the Company then?

Absolutely. We are -- where we see a good return we would be happy leveraging the Company.

Could you just go over that marketable securities link with the debt again for me? I just didn't quite catch that.

If you look at the level of marketable securities on May 31 versus the level of marketable securities today, then the level of marketable securities is up. So clearly that money had to come somewhere, so we just drew down our line of credit.

Right. Okay. So you're borrowing to invest in marketable securities?

Correct.

John Aiken, National Bank Financial.

Just a couple of quick questions. First off, I note that redemption fees sequentially did increase, but it looks like when taking a look at a very rough metric as a percentage of the funds that were redeemed it fell off. Now is this part of the changing mix from front-end to back-end load fees, or is this more doing to the aging of the funds that you were talking about in your presentation?

Yes, the increase in redemption fees was very minimal. I think it went, what up by $500,000 or something like that quarter-over-quarter. And it really has to do with -- you're right, as the assets age, the redemption fees become down on them. But it totally depends on what assets are being redeemed at the time. So unless you have all the details it is very hard to draw some conclusion on it. So I say we don't view anything as dramatically changing on the redemption side.

And swinging back to the dealer operations for a moment, I understand that you're looking at, with the add in of product and recruiting more people on, you would expect revenues to increase going forward. But is the current level of expenses in terms of the SG&A that you're experiencing, is this what you would consider a run rate going forward? I understand that you're probably going to have to spend money going over the next couple of quarters, and I'm not looking to see what the drop-off is next quarter. But are you anticipating a drop-off sometime in the future, or is this a run rate level of expenses that we will see as a base to grow off of?

I would say that our run rate last month -- last quarter -- was pretty extensive. I'm not trying to bring that down immediately. Our first and foremost priority is to create what we'll call a world class back office system, or the best in Canada system. So that would suggest you shouldn't expect to see those expenses come down for at least a couple of quarters. Then afterwards, what I'm guessing, they make come down by 1 million and they might go up by 1 million on a quarterly basis. They're not about to go up by 3 million on a quarter. Let me just clarify that.

But it will depend on the future on the business opportunities we have. If we can spend some more money and attract a lot more advisers or other products in, then we certainly would be willing to spend it. But the variability is pretty small in the context of CI's overall expense platform.

Timothy Lazaris, GMP Securities.

About three or four questions. I will just give them in the order I wrote them down here. First of all, unless you discussed it otherwise, could you tell me what the gain on the sale was in the quarter, the $7.5 million, what that relates to? I know it is securities, but can you be more specific?

We have not said what the gain was from, and so I think we are going to pass on answering that.

It has nothing to do with the BGAM sale, right?

No, no, no. It has to do with a marketable security.

Can you tell me, Bill or Steve, what number of assets that you have under management currently have a performance fee available to them? And I am just trying to get a gauge on whether performance fees are a permanent part of your business, and how many funds or how many assets actually happen?

If you don't count the labor-sponsored, it is probably about $200 million. And if you count the labor-sponsored, it is probably about 375.

Any plans to sort of make that a business? In other words, get into things that would have those performance fees in them?

It is interesting. We did that in a very significant way in 2000. In 2000 CI Fund Management had almost $2 billion in loosely defined hedge funds, I guess. And the performance at some of them was not very good, and the money came out pretty quickly. We look at that business as being one that is difficult to get right anyway. And so we will continue to have funds with performance fees. We will continue to run hedge funds. You probably have about six of them. But I don't see that as a focus of our business. I really don't.

The link notes business, I think that is a recent sort of phenomenon, if you will. Just maybe just for explanation, because I'm not very familiar with it, the note itself, is it backed by your funds? In other words, if you do $100 million note offering is that immediately going into your funds? And is that showing up in your net sales number?

Yes. Some portion of it goes into the funds, because the performance is linked to a CI Fund. And there is a guarantee, and the guarantee is -- it could be five year or eight years out. We have had several of them. The amount that goes into the CI funds ranges anywhere from about half of the note to some of the leverage enhanced notes 100% of them.

Okay. And so is it just a question of the appetite for this product? Would you like to see yourself close $100 million link note monthly? Is it just a question of what the interest rates are? What is the sensitivity to us? It seems like a nice business. I suspect that the margins that you're making on your funds are as good as selling a straight mutual fund.

It is a very good business. And there is an appetite for it right now. The guarantee component of it is attractive today. Just as we go through periods of time when site (ph) funds, which also have guarantee of principal component to it, are very popular.

Our whole strategy I think is meant to get products out that people want at any given time. And last year we had a great deal of success with structured products, the closed-end funds. And this year it was a more difficult market for us. And we found a huge window open with these link notes. And I think that part of the attractiveness of a Company like CI is that we spot these trends and we are able to capitalize them in short order. We have done now about $525 million worth of notes in calendar '05. And we're still doing link note sales today of around 2.5 million a day.

The last question I guess for Steve. The movement or I guess it has been a number of years now that people have been going to front-end load. Can you sort of gauge if you were sort of just to look at your assets and where your sales are coming at? You're currently, I believe, at around a 55 basis point trailer expense as a percentage of your assets. Could that theoretically be 75 basis points three or five years out? How high could it go? I mean theoretically it could go to 100 basis points. What is the speed in which that cost is increasing?

I'm not sure that the cost is really increasing, because generally we are indifferent between money coming in on a deferred sales charge basis and paying 50 basis points, or coming in on a front-end load basis and where we pay 100, right? The cost of financing isn't there. They come in on a front-end basis. So it really is just a -- right now about 50% the business comes in on a deferred sales charge, maybe a little lower. And as more business comes in on a front-end load basis, our financing requirements are going to be that much less. And for the most part we think we're pretty much indifferent between the two. So could it go up to 60 basis points? Yes. I think it is probably not headed towards 65 anytime soon.

Drew McReynolds of RBC Capital Markets.

Just three, I think, quick follow-up questions here. I guess, Steve, can you tell me where the AUA (ph) to AUM (ph) conversion rates stands at Assante currently?

The AUA to AUM conversion rate? I don't have those numbers at my fingertips. I would have to look at them.

Okay. I can certainly follow-up with you.

I want to respond to that. I don't -- we don't talk about conversion rates because we honestly believe that the financial planners at Assante are independent. And we look at any business that we get Assante funds as it has to be earned and we have to come up with a product that these people genuinely want. And so we are not looking at a conversion rate. Presently about half of Assante's assets are in Assante products.

But we don't have a target, and we're not trying to necessarily improve it. What we're trying to do is just get more assets under management. And whether that means just finding products that these people like that they can sell more of, but we realize that this is a very competitive business and the financial planners at Assante sell every other of the major fund companies' products.

Just to finish, from what I've seen the new business coming in the door, about 50% of the new business coming in the door were going to Assante products, and 50% would go into other products. So it is a new business coming as opposed to conversion you're talking about.

Just two, I guess, kind of a little bit more on the strategic side. I guess probably for Bill here. I am just wondering if you have seen any kind of change in the kind of acquisition opportunities out there? Obviously as we continue to go along there are some companies out there that continue to not improve on the net sales front. I just want to get your comments on that. And then lastly, just kind of what long-term impact the elimination of foreign content limits have on your business?

I do think that we're going to go through a period of some consolidation here. If you look at -- I realize that some of the slides that I was trying to run through got jammed. But you'll see that many of the independents are really struggling here. And I don't believe that you can struggle indefinitely. The world has changed. The banks are dominating this business. The banks are exceptional at marketing mutual funds. And they are exceptional taking advantage of their branch networks.

And I believe that in order to compete with the banks you really have to be as big as the banks. You have to have the type of resources that they are willing to put in to asset management, or something similar to that. So I believe that you're going to see some type of consolidation. I find it very tricky to figure out what some of this consolidation will look like. But clearly fund companies, if you look at the top 10 are getting essentially 100% of the business. I think in a non-RSP season, I think the top five might get 100% of the business.

And you look at this concentration, and this is just a continuation of a very long trend where very few companies are getting all of the business. So I do think there's going to be some type of consolidation. I think it gets complicated by things like whether or not banks are allowed to merge or whether or not banks and insurance companies will merge. But I do believe that the overwhelming competitive advantage you have today in the retail asset management business is to just be very big.

Okay.

On the foreign content side, I have absolutely no idea what a Canadian equity fund is going to look like. I think that this is a material event that when it finally achieves royal ascent (ph) I believe that it will change the business at some point. I think the timing of it is impeccable from the government's perspective in that the Canadian market is probably the most interesting in the world, at least to Canadians today. And the Canadian dollar has been so strong for the last 2.5 years that Canadians are really looking more in their backyard anyway.

But it really complicated things. Does a Canadian fund have all Canadian, no Canadian? I see so many changes that could happen. I just don't get what they are. I think things like the nonvoting shares in Canada, which you know, make up such a huge part of the market. I mean whenever you ask a money manager why do they own these nonvoting shares they often come back and say well, it is part of the benchmark. It is such a big part of the Canadian market.

I think that money managers are going to start looking much more now at companies that meet the requirements that are outside of Canada, they get votes. So I think there's going to be pressure to change Canada, and there's going to be pressure for Canadian money managers to find out ideas outside of Canada. But I really have -- I struggle with what the Canadian equity fund is likely to look at. Is it 100% Canadian? Are Canadian funds just going to be sector funds like financial institutions and resources? I don't know. But I think that there is going to be a significant impact, and it is very difficult to judge what it will be. And I think a lot of it will be dictated what the next big trend in the market is.

John Reucassel, BMO Nesbitt Burns.

Bill, I guess I will ask it. What is the latest view on income trusting, and what -- I guess it's hard to know for sure, but what are the kind of things -- is it still a corporate structure you are attracted to? And what other kind of things you think need to happen for you to seriously entertain that again?

When we talked about it last year and we shelved the idea, we said what we needed was some indication from finance that this was going to be an allowable structure, and there wasn't going to be any changes to it. You know the conversion into a business trust is anything but cut and dry. I think in the last budget deep into it it said that it is something that they were going to look and put a discussion paper out at some point in the near future. They said the same thing about banks in '98. So I am not sure what the timing would be.

I say this having thought about it a great deal over the last year and a half. But I believe that companies like CI that have a good growth profile, that have repeatable revenue, that kick off so much free cash, are better off set up as income trusts. And I think that the government would clearly see that too. If we can go from making distributions to our loaners where they're keeping like 55 on the dollar rather than 44, it is 25% better off anyway you cut it. And so I find it a very appealing structure. But we wouldn't even blow the dust off it and take a look at it again until we got a crystal clear signal that this was going to be an acceptable corporate structure for companies like ours.

Brad Smith, Merrill Lynch.

Bill, just quickly, you made an interesting comments in your discussion of the consolidation potential, mentioning that you thought that the banks were very effectively using their branch networks. I was just wondering, do you have a sense for where the marginal sales trend is in the banks, BETWEEN their ID members, member affiliates and their actual bank branches? I mean is implication what you're saying that more and more funds are actually flowing through the branch -- the physical branch itself?

Very much so. The most successful banks have a huge pool of financial planners. Some of them have 1,600, 1,700 financial planners. And those financial planners are combing through the bank's clients. And I have talked to tens of clients that have said that right while they are in the banks they get a pitch to sit down and talk to one of the financial advisers.

For the most part, the financial advisers at the banks appear to be quite competent. And the conversion rate from whatever it is they are in into a bank product appears to be very high. And for a long time the banks were not effective at converting, so to speak, from the independent fund companies to their own. They're very effective now.

I think most of the business they get is from their financial planners in the branch network. And it is a big part of the business. I have been in this business for 20 years, about a year and a half ago, two years ago was the first time that we actually saw more money going into the banks from CI than coming from the banks to CI. And we have been fortunate. We have had a pretty good run of sales over the last couple of years. I mean certainly we have been net sales and our growth sales have been very good. I think most of independents are suffering considerably more from the improved marketing of mutual funds at the banks.

(OPERATOR INSTRUCTIONS). Mr. Holland, there are no further questions at this time, sir.

Well then I would like to thank everybody very much for joining us for our third quarter conference call. And I look forward to addressing you again in July. Bye now.

This concludes today's conference call. Please disconnect your lines, and thank you for your participation.