CI Financial Corp (CIXX) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the CI Financial fiscal 2005 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Wednesday, July 20, 2005 at 4 PM Eastern time.

I will now turn the conference over to Mr. Bill Holland, Chief Executive Officer of CI Financial. Please go ahead, sir.

Thank you very much, Matt, and welcome to our fourth-quarter investor call.

I'd like to first ask you to read the disclosure, as we do make some forward-looking statements and we use some non-GAAP measures.

I'm very pleased with CI Financial's results in fiscal '05, and here are some of the highlights. Our mutual fund assets ended the year at just under $50 billion, up 11%. Our total fee-earning assets were also up 11% to $68 billion. Our gross sales were up 24% to $8.5 billion. Our net sales were up 88% to a little over $1.7 billion. Our revenue per share were $3.69, up 17% year-over-year. Our earnings per share were $0.97, up 18% year-over-year. Our EBITDA of $1.81, up 10%.

During the year, we repurchased 8.6 million shares at an average price of $17.24. We have now bought back $520 million worth of stocks at an average price of $9.50 over the last six years. Our stock price ended the year at 17.30. The total return to shareholders was 10%, that on the heels of 42% the previous year.

The current environment in the mutual fund industry is actually pretty encouraging. The three-year equity fund performance numbers are pretty good and three-year numbers are a good business indicator. Structured products, which have taken a lot of the mutual fund sales over the last couple of years, have all but stalled out. Mutual fund sales rebound, which started about two years ago, is seeing its pace increasing considerably over the last couple of months. The concentration in the business is still very much there; the top five represent 71% of the net sales year-to-date, up from about 64% during the first six months of last year.

The banks are still gaining momentum. They are incredibly strong competitors in the business, and I'd like to say that it is starting to falter a little bit, but it's not.

The income fund sales are still dominating, but we are also now seeing some light at the end of the tunnel; we are seeing good Canadian business here and business in general is seeing the U.S. and global picking up a little bit.

Our position at CI -- first of all, our fund performance is very strong, if you look at the first six months of this calendar year. Our sales -- we lead all of the independents and we are third overall so far in 2005. In the linked notes, we really dominate them; we've got $740 million. All of those flow into CI mutual funds.

Our sales are pretty well spread out between different fund managers, different funds, different categories. At Assante, we are seeing the sales and the number of advisors remain relatively stable, which I would say is quite positive. Assante has recently launched a new high net worth product with much lower fees than the previous products that they had offered, and we have very high expectations for that.

Just looking at the relative sales, you can see we are kind of flanked by banks on both sides, and you are seeing TD and RBC with more sales than CI and Bank of Montreal just behind us. But you'll see that CI, at 1.8 billion in sales year-to-date, is really the leader of the independents. We're showing about the highest gains on a year-over-year basis amongst all of the fund companies. I think also important when you look at this chart is to see that, in some ways, I often describe this as a little bit of a zero sum gain here. You're seeing that the three companies that are in significant net redemptions are really feeling the independents. The top four independents and the bottom three independents in terms of redemptions pretty much net each other out.

Our sales -- you know, just looking and trying to put it into historical perspective, our gross sales in the first six months of the year was $5.8 billion. That's the second-best that we've had since 2000. In fact, I wouldn't be surprised if our gross sales in 2005 did not exceed the incredible sales that we had in 2000. The difference is, obviously, that the redemptions are much higher. We did a great deal of sales in '99 and 2000, and really the peak of our redemption fee profile probably started about a year and a bit ago. I think we've actually already started to plateau, and I would expect that, because of how much business we did in '99/2000, that our redemptions would actually start to fall off a little bit here. But just looking at it in terms of net sales, our net sales are up 50% over '04, and this is easily the second-best year that we've had since our great 2000.

Just looking at the top ten funds by gross sales, there's a couple of things that I think are worth pointing out. First of all, we are not -- we have a pretty good cross-action. We've got income funds, Canadian funds, balance funds, portfolio funds and a global fund in the top ten. Nine out of ten of our top ten selling funds are either first or second quartile, and the only one that isn't is our best-selling, which is signature income -- high-income fund, and that's just in the wrong category; it's just misplaced by Morningstar.

The other thing that I think is worth pointing out here, not only are we getting a reasonably good diversification of our business, but this business -- the top ten are spread between five different portfolio managers.

Morningstar rankings are also a very good indicator of future business, and CI ranks at the very top of the five-star rankings with 15 five-star funds, more than twice as much as the number two. In four-star funds, we also rank number one with 18, and in combined four and five-star funds, CI leads the country by a wide margin with 33 four and five-star funds, while our closest competitor is at 15.

Those are some of the highlights for the last fiscal year. What I'm going to do now is pass the conference call over to Steve MacPhail, who will talk a little more in-depth on the fourth quarter. Then I will come back and wrap it up and take questions. Steve?

Thanks, Bill.

There wasn't anything unusual, anything unusual in the fourth quarter, so I'm really just going to focus on the highlights. Income before tax was up 11% year-over-year to 129.4 million. Net income rose 7% to 80.8 million or $0.28 a share. EBITDA was up 14% to 151.8 million, or $0.53 a share.

Turning to operating highlights, our average managed retail assets were up 10% year-over-year to 48.9 billion. As of today, our managed retail assets are up almost 4% from our fourth-quarter levels to 50.8 billion. This growth has come from market appreciation and from continued strong sales.

Administered and other assets were up year-over-year by 11% to 18.8 billion. Our operating margin on the asset-management business dropped 6%, from 116 basis points to 109 basis points, resulting primarily from our decision to decrease management fees on our Clarica and Assante funds.

Lastly, our effective monthly dividend was up 20% from the prior year to $0.05 per share monthly. We announced earlier today that, effective the August 15th monthly dividend, we are increasing the dividend by 20% to $0.06 per share, monthly.

Taking a closer look at our operating margin, you can see that management fees averaged 189 basis points for the quarter, down 6 basis points from the prior year. As I mentioned, during the year, we reduced management fees on the Clarica and Assante funds, which represents the majority of the change.

Net SG&A, which now includes portfolio management expenses, declined 3 basis points to 24 BIPS (ph) for the quarter as a result of cost efficiencies that we achieved. Trailer fees rose 4 basis points to 56 basis points, reflecting asset-mix changes over the year.

Looking more closely at our net SG&A expense, you can see that net SG&A for the asset-management business was down slightly year-over-year but was offset by increases in the dealership net SG&A. A portion of the increase in the dealership expenses relates to our acquisition of IQON Financial last year. Notwithstanding this increase, dealership expenses will be one of our focal points in the future for this company. I should also point out that the 5% increase in net SG&A expense compared to our assets under management and AUA increasing by 11% on a year-over-year basis.

Looking at cash flow, you can see that our free cash flow, which is the third line from the bottom, was down slightly to 62.1 million for the quarter as a result of increased commissions which came from higher sales, which was a good thing. Net of dividends, CI generated 18.7 million of free cash for share buybacks. The increase in assets this year and continuing sales momentum formed the foundation for the increase in our monthly dividend from $0.05 to $0.6 per share that we announced earlier today.

With that, I will turn it back to you, Bill.

Thank you very much, Steve.

As I wrap up, just a couple of points -- fiscal '06 is off to a very, very good start. Our mutual fund assets are already up by a little over 3%. Our year-over-year sales have continued to pick up every single month. In June, we did retail sales of $150 million; in July, we would estimate 170 or $175 million worth of net sales. Our assets today are just under $51 billion, which is an all-time high, and up more than 10% from our average assets during fiscal '05. Our equity fund performance is still very good. I would say that, as we start this year, it's the best start that we've had to a new year since 1999. We've got a renewed focus now on the costs; we've done several back office conversions and dealership upgrades over the last year and a half or two years, and I think that we now have our back office and our business to a point where we can really start to focus on the cost side, the controllable part of the business.

As we have said time and time again, the business is continuing to kick off increasing free cash, and we will continue to use it for dividend increases, as we did today when we raised the dividend by 20%, and we will continue to buy back shares.

Those are the -- that's all the formal comments that we have to make, but we would be glad to take questions from analysts if they have any.

John Reucassel of BMO Nesbitt Burns.

Thanks, just a few questions here. First, Bill, could you tell us or give us an indication of how many shares of A.M. Best Cap you own today?

We have not made public that information. The only thing I can say is that we would have had to make an announcement if we owned 3% of their outstanding common shares, so it's clearly something less than 3%.

Okay. I guess just two follow-ups to that -- have you or are there plans to meet with the new CEO from A.M. Best Cap? I guess what is kind of the next step in this process?

Well, I'm a very friendly person. Clearly, I'd be glad to sit down and meet with the CFO of A.M. Best Cap if he chose to. I have no plans to meet with him, but I would be glad to do so.

What's the next step, Bill?

We don't have a next step right now. I think that we are just observing. There are very strict rules that apply to takeovers in the UK, and we are just trying to make sure that we abide by all of the rules that the takeover panel has appraised us of. As it stands right now, we don't have any plans to do anything right now.

Just switching gears for a second here, you know, there has been talk about income trusting and all of those issues. But I guess Bill or Steve, could you give us your best guess at what your distributable cash flow was in 2005?

John, I didn't do that. John, I haven't done that precise calculation, but I guess you can work backwards from the last quarter. If you just give me a second, I will calculate that for you, so why don't you go to the next question for Bill and I will come back to that one.

Okay, I guess the dealership, Bill, the increase in the expenses at the dealership I guess were 9 million last quarter or Q3 and now we are 13 million. Could you or Steve talk about what's going on there?

Clearly, the costs at the dealership are going up. We capitalized some stuff that we are amortizing now, that we -- over the last couple of years we have, anyway. I think that we -- I don't see the dealership costs going up from here, and I think that we are probably looking at a run-rate that is less than what we've had. We've had some big expenditures; we went from several back -- I think we've done five conversions of dealership back offices. What we're trying to get to is one single platform. We have one more conversion to go, so our objective here is to start bringing the cost structure of the dealership down. I think what you will see over the next couple of quarters is that the cost of the dealership is not as expensive as it looked last quarter and that there will be -- that it is a number that's going to decline. We don't have a real great handle on it yet, but we know that we can bring the costs down maybe even considerably over the next year or so.

Thank you.

John, just to answer your question, in the last quarter, an approximation of our distributable cash would have been about 104 million, if you just calculate backwards. So, that would be $0.36 a share, and if you annualize that, that would be $1.44, based on the quarter we just went through.

Okay, thank you very much.

Drew McReynolds of RBC Capital Markets.

Thanks very much. Good afternoon. Just the first question is, on the dividend increase, I guess my mind math -- it looks like the payout ratio is up to about the 70% level. I just wanted to get your thoughts -- if you were to do a large acquisition, whether you would be concerned with this degree of payout ratio and whether you would ever consider decreasing it, or cutting the dividend.

Drew, it's Steve MacPhail. I will answer that for you. You've got to remember, we look at the dividend, we have to look at it on a going-forward basis, whereas you're looking at it on a retroactive basis. So, when I look at where I think the dividend is going to be, it's certainly going to be under 50% of our operating cash flow, under the 70% of free cash flow, and somewhere in the mid to low 60s of net income is where it would be in our first quarter, assuming we had even started (ph) that dividend way back in June 15. Because remember, in our first quarter, there's only one dividend at the $0.06 level that applies, so I'm actually beefing up.

So to answer your question, I don't think it's as high as the levels that you've looked that. You know, we look at forecasts over an entire year. In fact, we look out more than one year, because, to answer your question, we would never want to increase the dividend if there was any prospect that there wasn't room for further increase in the future, if we felt good about the business or be there was any risk that it was going to come down. So we feel that there's a lot of room in regards to what CI does to maintain and if not increase the dividend again at some time in the future when we review it again.

I would love to tell you that we had a great idea that we could use our free cash flow for it; we don't. The acquisitions we would be looking for are likely big ones, and you know, this isn't a very significant and -- I mean, it's not a significant amount of money. We are, in my view, also a very underleveraged company, given the cash flow profile of this company. So I think it's immaterial really in terms of an acquisition, whether or not we've raised our dividend by a cent or two. So, what I've said is that, if we truly don't have a good idea to spend our earnings on and want to it give back to the owners of the Company. As you've seen, we've bought back $520 million worth of shares and have continually raised the dividends. I think that will be our priority until we come up with something that is a better idea. We just don't see it right now.

Okay. Just shifting gears here, just on the net sales front, three quick questions here. First, just on Assante, can you quantify what your expectations are for kind of net sales going into the back half of '05? Should we expect certainly somewhat of a pickup from where we are today, obviously adjusting for seasonality?

I don't think so. I think that my best guess is that Assante's sales for calendar '05, just to pick a period, will probably be about 0. Keep in mind that they have a disproportionate amount of their assets already in internal solutions. So my guess is that, when we start to recruit again at Assante, which we haven't done any recruiting since we took over Assante because there was so much work that had to be done on creating the appropriate back office, that you might see sales pick up. We have a new product that was just launched in early July, which I think is going to be very, very well received.

But I think that you're not going to see a big sales number come out of Assante. I think if we ended the year at plus 50 or 100, I would consider that a win. When we purchased Assante, we realized that there was a risk that they would no longer do such a disproportionate amount of their business in internal managed solutions. That being the case, I mean we can't be surprised and I don't think we are at all discouraged. I do see that, later on this year though, sales will probably start to pick up a little bit as some of the newer products and some of the lower fees -- we've brought down the fees on the Optima product considerably the last couple of weeks. So I think some of the changes that we are making to the products will probably make them more appealing. So I think that, later on in the year, it might pick up, but about the same.

Okay, that's great. Then just two last questions here -- first, on the expense ratio and obviously your proposal to fix the expense ratio, I just want to kind of get a sense from you what you're hearing in terms of feedback from the channels out there.

My second question here is the surge in net sales I guess coming in June and July, even if you strip out the equity linked notes sales, (inaudible) seem to have caught me a little bit off guard here. I'm just wondering if we can get some color on where that's coming from.

Well, the net sales -- I think you saw -- you can see the pace picking up all year. The first time I really noticed it was in December; in the last half of December, sales just started to pick up. I think that what you're seeing for the first time is investors can look back at three-year numbers. Three-year performance numbers are really the most important and the ones that financial planners and stockbrokers often sell off of.

So I think that the improving three-year numbers make a big difference. I think the fact that the Canadian dollar is down a little bit, helping some of the global and U.S. funds, has helped. I think the Canadian market having been so strong also helps. I think that the fact that there's clearly a bifurcation between the top couple of companies and everybody else, where the business is just going -- it's being concentrated into fewer and fewer hands and we happen to one of them -- also helps. I actually think that the sales for the foreseeable future are likely to be very strong, but I think what we're seeing -- and it's too early for me to say that this trend is real -- is that the redemptions are starting to taper off, that most of the business that we got '99, which the investors have not had a great experience, we think have redeemed and the level is very low right now of business that's still our books from '99.

I hope that helped your second question. Your first question was what again?

Just on the fixing of expense ratio, just wondering what direct feedback you've gotten through the channel and -- (multiple speakers)?

Clearly, the financial planners and the stockholders that we've talked to love it, and here we are bringing down the costs without affecting their compensation. That's generally a pretty good combination. You know, we have talked to some of our competitors; I think that, for the most part, what we're trying to do is to -- for years, there was no barrier to entry in this business. I think that if you have the benefits of scale and if you really are a low-cost manufacturer, you've got to turn it into a competitive advantage. I've said time and time again this is a maturing business; it's gotten great long before we had hoped. So in any business like this, pricing -- this used to be a business that was about new products, you know, having the first Latin American fund or emerging markets or technology; it's a business now about packaging and packaging is price, it's brand, it's distribution. That's what it is we are working on. I think the pricing is becoming very important. The press is not going to give up on the fact that mutual funds they believe are too expensive, but we want our investors and our financial planners who offer our product to know that if we are offering a product at 220 basis points plus GST and the other companies are at 250 plus expenses, or so -- maybe 300 basis points, that that 80 basis points is very meaningful. We're going to tell you in advance what it is, and we're going to stamp it in black letters on the front of the prospectus. I think that that will help to bring down costs in the industry, for sure, and it will advantage big companies that have scale and are low-cost providers. That's our thought behind it.

Okay, thank you.

Timothy Lazaris of GMP Securities.

The question is actually for Steve. I don't mean to put you on the spot in terms of an accounting lesson here, Steve, but when I look at the cash-flow statement for the fourth quarter compared to the third quarter, I think, in the third quarter, free cash flow -- and cash-flow being defined as operating cash flow less the commission, sales commissions -- was about $81 million. In this quarter, it was only 37 or $38 million. It looks like there's a pretty material change in the way you're treating stock-based compensation. Could you tell us the rationale for that and what it means in terms of future cash-flow forecasts?

Yes. Tim, I will just do it quickly, and I'm not going to get into a long accounting dissertation on this, but the bottom line is that the way that we were recording the stock-based compensation is just the line that it shows up on, whether it was in the net change in nonworking capital line or in the stock-based compensation line. So, we changed, in this last quarter, the way we are reflecting it; we just moved it up. As a result, what normally would have been a $1.7 million number became a $26 million number. So it literally distorted what we will call the operating cash flow in the last quarter. to looking lower than it actually is. So that's why, when I produced that slide, you see that we show it for you adjusted.

If you want to get a complete reconciliation back for the five quarters, just call Doug Jamieson and he will send it out to you and then you'll see why the number we presented on the slide is the one that really gives you a better idea of what we're showing. It takes that adjustment out of play.

Okay, Steve, but on a go-forward basis, considering the fact that your stock continues to perform well, stock-based compensation is going to have a negative impact on operating cash flow. Is that correct?

Yes.

Okay, and so my question then is, although that --.

It depends, Tim. Again, it will depend, at that point in time, on the stock price at the time. Just don't forget it's triggered by the stock price and it's also -- which is an accrual amount at the end of the quarter, so it only depends what it was the last day. But it also is then affected by whether or not there are any option exercises during the quarter, number two. The third thing, which is in the MD&A, which I'm sure you haven't had a chance to read yet, is we've also started an option hedging program, so we've started to hedge our option expenses, some of it. So, it will also make it not an easy mathematical number for you to calculate.

Okay. Can I just follow up and maybe Bill can give me his views on this? If you look at -- just take the year, for example, so that we're trying to eliminate that one-quarter swing. If you look at the free cash flow in the year, which was about $236 million, I think you spent 150 of it on commissions and close to 200 million in dividends, and then buybacks was another $150 million. You spent close to $500 million on those three items. Is it safe to say that the use of the buyback and increased leverage is something you're quite comfortable with and in terms of the level of the dividend relative to the free cash flow, you are also comfortable with that?

That's correct.

Okay. So the last question I've got for you -- is there any way, not having gone back to accounting school, that you could tell us whether free cash flow is expected to rise, just assuming sort of a growth rate in assets? Because if you look at it year-over-year, it was kind of flat, I think 236 versus 237. Is that sort of a stable level of free cash flow for next year? I know that's a sort of open-ended question, but I had a much higher number, so I'm trying not to embarrass myself.

Tim, it's Steve again. You know, one of the reasons that free cash flow went down was because we spent an extra 25 million on sales commissions. What I would say at this juncture, based on the sales momentum I see today, though it's very hard for me to project out to next May where it's going to be, actually -- in fact, I would hope that our expenditures on sales commissions are higher and hence what you'll see is a temporary reduction in the free cash flow. But, we also know, if we made the sale, then the minute after we've made the sale then we have a subsequent long-term increase in our free cash flow and hence why we don't mind the leverage when the assets are increasing. So I think, Tim, you are going to have to -- in your models, you will have to take that into consideration, what your expectation for sales are.

A point here that really materially different than in the past -- of our mutual fund sales so far this year, only 29% are a traditional deferred sales charge. The number, when you add seg funds that go into mutual funds, it becomes a little higher. But what you're seeing is, five or six years ago, you saw 95% of new long-term sales going to mutual funds. That number is decreasing considerably. That's a significant change; that's a real change. I mean, I think that the deferred sales charge option is really starting to fade out here.

One last question also, because I don't have the MD&A in front of me, but did Skylon and/or Assante contribute positively to earnings or EBITDA in the quarter?

Absolutely.

Can you quantify it?

We don't break that type of detail out because, I mean, the Assante assets, which we do break out in our monthly reports, the assets under management there are close to $9 billion. So, Tim, it's obvious they are contributing to the bottom line through those asset numbers.

I'm sorry, Steve. I mean the dealership, the assets under administration portion of the business.

I got you. Yes, there was a contribution to earnings under that.

And EBITDA, I guess?

And EBITDA, correct.

Just last one question -- when you show your breakdown of all your assets, you have 15 billion in the dealer. Then you talk about 3.7 billion as administered. Could you just refresh my memory as to what those administered assets are?

Yes, we have an arrangement whereby we earn a portion of revenues on institutional assets with Trilogy asset managers. Since we don't manage those assets, we can't refer to them as administered assets; we call them other assets because they earn fees for us. We just don't undertake the job managing them.

Okay. Are they similar in terms of the net-back margin? They don't have the same margin as a mutual fund, obviously?

No, those are their institutional assets, Tim, so they have institutional rates on them. We've got a topline relationship, so we get a percentage of revenue.

But you share the relationship -- do you share the management fee they generate on an institutional fee?

Correct. It's the old BPI business.

Okay, got it.

It's a very profitable business.

Okay, it doesn't really -- I mean, you don't have a lot of expense in that; it's basically just a revenue center for you?

We have no expenses any more; it's absolutely 0.

Thanks very much.

Brad Smith of Merrill Lynch.

Thanks very much. Bill, I was just wondering. Your earlier comments, with respect to the takeover panel, suggested that you had some discussion with them. I was wondering if they had given you any guidance with respect to their willingness to leave sort of a soft bid out in the marketplace. Is there sort of a hard date at which you have to go firm in your understanding?

We've had a permitted bid or an open bid out there since July 12, according to the takeover panel in the UK. They decide whether there's a bid out there. It is not the way that we interpret it here.

The way we look at it is that CI made a bid for all shares of Invest Cap at a significant premium, and we made it directly to the Board of Directors of Invest Cap. Invest Cap's Board of Directors unanimously declined our offer, so in Canada, we kind of assumed that that bid is dead. In the UK, what appears to happen is that, when a bid comes in like that, the takeover panel decides whether or not they have to make it public. The takeover panel decided they did have to make this public. Then they have to decide whether or not it is considered to be an open bid, so there is an open bid out there. It is out there until the takeover panel decides that it isn't.

At some point, Invest Cap can require a put-up or shut-up order, which is really nothing more than the takeover panel giving us X amount of days to make an offer to all shareholders that is public.

Is there a timeframe for when that happens, or do we just wait -- (multiple speakers)?

It has to be at the request of Invest Cap.

Doug Young of T.D. Newcrest.

Just one question, back to the ER and the capping of the ER at 20 to 23 basis points -- (indiscernible) you had just done, in the quarter, your fund admin expense over your average retail AUM was I think 24. I'm just trying to get an idea of your comfort level of getting that down further, I guess to below 20 basis points. Is that something that we should expect moving into the fall? Just from a modeling perspective, I was hoping to get just some color on that.

Well, we certainly know what the benchmark is now, because we've reduced the fees by about 30% over the fees that we charged last year. The fees are actually -- it ranges from 18 basis points to 22, and most of it is at 20 basis points; almost all the funds are at 20 basis points. So, we will do what we can to operate our business at 20 basis points. There is no assurance that we will do that, but clearly that's the benchmark. It's far too early for us to say that we will be able to -- what our cost structure is likely to look like in six months. But you can rest assured that we understand what the benchmark is.

Basically what you're saying though is you are already there at this point in time?

I wouldn't say that we're there. I'm saying that we will do whatever it takes to get there.

Okay, good. Thank you.

John Aiken of National Bank Financial.

Good afternoon. Bill, I do have to thank you; you actually opened my question when I think it was in your response to Drew, but you'd mentioned the fact that CI, on its balance sheet, is very underlevered. I was wondering if you'd be able to provide your philosophy as to what you think would be an optimal or an almost at-risk level of leverage for CI.

Well, I don't think that -- I think, as conditions change, that my answer would change on that, but I would not be uncomfortable having leverage at this company at two times EBITDA if the right acquisition were to come up. In the past, the little leverage we have has mostly been created by buying back our shares. One of the best investments we've ever made is to buy back 520 million shares at an average cost of $9.25. So, I think we will look at it; as time goes on, we will look at it, but it really is based on the opportunity. But we do believe that the Company would be better served, given the cash flow profile, if we had more leverage on the balance sheet. We just don't have -- again, it's like everything else; we've got to come up with a good idea first.

I agree and I absolutely believe that. Looking out to potential implications of your goal to go to 220 basis points on average, do you see, not necessarily from CI but possibly industry-wide, pressure on the fees being paid out to distribution? Because if you look out, you're obviously putting pressure on your competitors to try to get their operating margins down in line with where you are. But one of the juicier targets, from my perspective, is the amount of trailer fees being paid out. Now, I'm not saying that it's an easy, easy sell to convince some, but it is, particularly in the front-end load funds at 100 basis points annualized would presumably be a large target that most manufacturers might want to decrease. Do you see that as a possibility, or do you think that the distribution channels would put up too much resistance?

We have no intention of changing the compensation to the distribution at this point. You know, our first target is GST; we spend more money on GST than we do on portfolio management. You know, when you look at places where fees can be cut, I think that nobody is going to be -- it's -- certainly we don't think it's in our best interest to change the economics of it to the advisors.

What's important out there is, when you look at it, it's not just the 2%-plus expenses; there are fund companies out there that actually charge, for Canadian equity funds, U.S. equity funds and global, 225 and 250. Ironically, those companies that charge a higher end also have higher operating expenses, and so there should be no connection between the two, but those that have a high-end also have a high ER, giving them obviously a much higher MER. I think that the industry has to come to us before we even think about lowering fees. We'd like to see -- the industry would have to come to us. Most fund companies aren't even close to where we are now.

That's great. Thank you very much.

Mr. Holland, there are no further questions at this time. Please continue.

Well, if there are no more questions, then I would like to thank everybody for joining us for our year-end conference call. As I said, we are very enthusiastic about the start to fiscal '06 and I look forward to updating you on it at the end of the first quarter. Thank you very much. Good-bye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.