CI Financial Corp (CIXX) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to CI Financial 2015 Third Quarter Results Webcast. All lines are in the listen-only mode. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Please take note that the cautionary language regarding forward-looking statements and non-IFRS measures on the second page of the presentation.

I would now like to turn the meeting over to Mr. Stephen MacPhail, President and CEO of CI Financial. Mr. MacPhail, you may begin.

Thank you and welcome to our Q3 earnings call. With me today are my colleagues, Derek Green, President, CI Investments; Steven Donald, President of Assante Wealth Management; Neal Kerr, President, CI Institutional and Doug Jamieson, CI's Chief Financial Officer.

All things considered, CI had another great quarter. By the end of October, CI's total assets were up almost 6% year-to-date, compared to the TSX down over 5%. Our long-term record of net sales continues to be industry-leading. We've now been in positive net sales for 89% of all quarters since 1994.

Our earnings continue to show year-over-year growth, up 6% from the prior year to CAD0.51 per share. EBITDA per share was CAD0.85, up 5% year-over-year. Operating earnings and assets under management shows similar growth. Assante and Stonegate Private Counsel assets under advisement totaled CAD33 billion with an impressive concentration in high-net-worth. Lastly, despite market turbulence, CI has recorded over CAD3 billion in net sales year-to-date, just slightly off last year's pace.

Now let me turn it over to Derek Green, President of CI Investments. Derek?

Thanks, Steve. As Steve said, we continue to see strong flows, Q3 2015 gross sales were CAD3.1 billion, our net sales were CAD430 million, year-to-date net -- sorry, gross sales were CAD3.1 billion and our net sales for the year of CAD3.1 billion, down slightly from the prior year. Sales continue to be well diversified across channels and we continue to build our brand and deliver premium advisor educational events.

In addition to our traditional business, we are focusing on mass affluent and high-net-worth clients. These are highly concentrated assets, approximately 3 million households in Canada have approximately CAD3.5 trillion of investable assets. Canadian households with over CAD100,000 hold 89% of the wealth in Canada and we have CAD32 billion in our mass affluent and high-net-worth programs, with growth outpacing industry averages.

The one other thing I would like to mention is, these are generally transparent and fee disclosed programs. So from a regulatory reform perspective, it's much better business. Our managed solutions and private investment management continue to be the platform of choice, accounting for 94% of our net sales year-to- date.

We also continue to see strong performance from our money managers, 72% of CI's long-term AUM is in first quartile or second quartile over 10 years. 90% of CI's managed solutions or fund-to-fund structures are in first quartile or second quartile over 10 years. 100% of our Black Creek Funds are first quartile and second quartile over 10 years. 88% of Signature's AUM is first quartile or second quartile over 10 years. And 72% of Cambridge's AUM is first quartile or second quartile over five years.

And with that, I'd like to pass it over to my colleague, Steve Donald. Steve?

Thanks Derek. We continue to build on our success through the third quarter in our Advisory business, being Assante Wealth Management and Stonegate Private Counsel, both on an absolute basis and on a relative basis. Our assets stand at CAD33 billion and that's up 6% on a year-over-year basis. We've also attracted over a CAD1 billion in net new client assets to the end of September, including CAD300 million in the volatile third quarter. This is an increase of 24% on a year-over-year basis.

We often use industry fund flows as a proxy for the flows managed by various distribution companies. According to Investor Economics, industry long-term mutual fund flows for the three quarters year-to-date were down 10% across the industry to CAD40.4 billion. So again, we're happy with both our absolute and relative results.

I attribute this growing sales trend to our continuing focus on the higher net worth markets. An increasing proportion of our business is coming from the high-net-worth market and demographic trends in the Canadian marketplace are driving this as increase in wealth has created or transitioned and people are looking for simplicity through the delivery of a complete suite of wealth management services.

We're also looking to leverage off a strong dealer platform. Many trends in the marketplace today, regulatory reform, aging demographics, evolving service demands and the required investments in infrastructure and technology will continue to drive consolidation in the distribution business, and we're positioned very well to attract these assets.

Also, I think our relative success in growing our advisors business and our continuing branding efforts are resonating with advisors, as we ramp up our recruiting efforts. As I mentioned, continuing requirements to invest in the business is going to drive further consolidation across distributors. We're investing in four primary areas; staffing and expertise and we believe this is key to dealing with the increasingly complex needs of our clients and is also driving a larger and larger base of referrals. We've expanded our team in this area by 25% to 80 professional staff assisting our advisors to build their businesses.

Secondly advisor recruiting. We've supported our recruiting initiatives with personnel, branding initiatives, and platform enhancements. This has resulted in us transitioning more new advisor assets in the past 12 months than we brought in, in the prior five years. And we certainly anticipate that this will continue to accelerate for Assante.

Third, technology; significant investments have been made to deal with the continually evolving regulatory demands of our business and of course technology also drives efficiency gains into our advisors practices and probably most importantly, enhances the security of our clients' information. And then lastly, branding. I've touched on this a number of times and we are seeing an impact from our investment in this area. New advisors, new clients, at least in part due to an increasing awareness of Assante, who we are and what we stand for.

The last thing I'll touch on, is the recent release of the CSA report on fund fees, flows and performance. As you may recall, this is the report that we believe was intended to Canadianize the results that were laid out in the Brondesbury Report that was issued earlier this year. There were two primary findings, two primary areas of findings. One related to the impact of the performance on fund flows. And the second on whether fees and fund flows have an effect on future performance.

Unfortunately, I think there has been a misinterpretation of Dr. Cummings conclusions. He concludes that funds that performed better attract more flows and at funds sold through a dealer, whether affiliated or not, are not as affected by this trend. And this is being interpreted as a negative conclusion for the fund industry, for advisors and for the use of the trailer. I suggest that the exact opposite conclusion should be drawn.

It's an unfortunate fact that people tend to chase performance. And many studies and I'm thinking particularly of DALBAR studies, continually show that investors suffer from this behavioral bias toward cost performance. If buying funds through a dealer or funds that pay a trailer which would suggest that the investor is receiving advice, mitigates this behavioral bias in favor of patience and discipline, I would suggest that this is a very positive outcome.

A second group of findings around the relationship between fees, flows and performance seems to have two themes; one performance goes down as fees goes up. This seems pretty intuitive to me. Comparing like products, apples-to-apples, if a fund increases expenses, its returns are going to go down; but a second and related theme that funds that have flows more sensitive to past performance tend to have better future performance, I think needs more analysis.

He concludes in his first group of conclusions that funds that don't pay a trailer have flows that are more sensitive to past performance. Therefore, suggesting he's comparing this to funds with the trailer for the purposes of assessing future performance. He is assessing future performance between funds that don't pay a trailer and funds that do. I think this was comparing apples to oranges. It's the total cost of ownership that's going to be important in making the assessment, that is you take an F class fund that sold add an advisory fee applied on a fee-based platform and compare that to the A class version of the same fund.

The bottom line, I think the overall assessment needs further analysis to derive appropriate conclusions. We're told that the CSA is looking at this and will be issuing further guidance next year. So, we certainly look forward to hearing what the CSA has to say about it.

So in summary, let me back up and say that we've had a very strong year at Stonegate, a very strong year at Assante, and we feel that we're very well positioned. Our business is growing in the high-net-worth space. You can see here that over 60% of our assets are in the mass affluent and high-net-worth segments over CAD20 billion and 40% or CAD13 billion is with families investing more than CAD1 million with us. We are establishing a growing awareness of our firm's ability to manage both investments and broader, more complex wealth management needs.

So with that, I'll now hand the call over to Neal, who is going to walk us through our acquisition of First Asset.

Thank you, Steve. We are pleased with our transaction and our new partnership with a very effective organization and management team. Barry Gordon, Paul Dinelle and the First Asset team have been operating successfully for many years now.

As you may be aware, First Asset has a history as an active investment manager. In their ETF business, they offer fully actively managed ETFs and also factor-based or rules based ETF products. At CI, we've got a long history of offering different approaches or styles of money management to our clients. First Asset's investment capabilities expand our list of available investment styles which certain investors find appealing.

Another consideration for us with respect to this transaction is the way that we've come to see ETFs acting really as an additional distribution platform for active money management. And this platform, the ETF platform, is increasingly in demand by IIROC license advisors who are dealing with their clients on a fee-based or discretionary basis. Regulatory changes coming down the pipe and other potential changes in the future could certainly increase advisors' interest in using ETF platforms going forward. It's also worth noting that MFDA firms are working on the operational capability to deal in ETFs in the future as well.

We expect the transaction to be accretive and to close prior to year end subject to necessary regulatory approvals. We plan to maintain the First Asset brand and continue to have First Asset sell and service products on their platform. Besides our financial strength, CI brings active portfolio management, as well as operations, administration and technology resources to First Asset. We're very excited about the long-term commitment, Barry Gordon and his partners made to the business and we will be working hard with the First Asset team on joint initiatives through 2016. So that really summarizes our thoughts. We're very pleased about this transaction, and I'd like to formally welcome Berry and the group to the CI family.

And with that, I'm going to pass things to Doug Jamieson, our CFO.

Thank you Neal. Here on this slide we are comparing the third quarter of this year with the third quarter of last year. As Steve indicated, average assets under management were up 7% from CAD101 billion a year ago, to a CAD108.5 billion. Next, net income was CAD142.8 million and that was up 6% from CAD135.1 million last year and on a per share basis was CAD0.51, up from CAD0.48 last year.

EBITDA per share was up CAD0.04 to CAD0.85, a 5% increase. And dividends paid were up 8% and CI paid out CAD85.3 million last year at a rate of CAD0.30 per share for the quarter and CAD91.9 million in the third quarter of this year at a rate of CAD0.33 per share.

Our long-term debt declined from approximately CAD500 million last year to CAD436 million this year and net debt has increased a CAD100 million from CAD220 million to CAD322 million, calculated as the gross public debt outstanding of CAD300 million plus CAD136 million drawn on the credit facility less a CAD114 million of excess cash and marketable securities. CI's net debt-to-EBITDA ratio increased slightly towards our target ratio at 0.34 to 1 and I will comment further on our target in a few slides.

Now taking a look at the quarter-over-quarter highlights. Average AUM was down 1% to CAD109.8 billion and net income was up 3% on an as reported basis and after adjusting for the legal settlement last quarter, net income and earnings per share were essentially flat. EBITDA declined slightly from CAD239.8 million to CAD237 million and decreased CAD0.01 from CAD0.86 per share. Dividends paid about CAD91.9 million was an increase of 2% from CAD90 million last quarter. CI's EBITDA margin has declined slightly from 48% a year ago to 47.5% today. But it remains at a healthy level in spite of changes to the product mix.

These next two slides provide a little more insight into our management fees. The changing mix of products from Class A into Class S in high-net-worth has pushed our gross management fee line down from 184 basis points in 2009 to 164 basis points this quarter. For the net fee, we take the trailer fees paid and the deferred sales commissions incurred on back-end sales of funds from the gross fees in order to standardize our management fees. To look at, if all of our business was in fee-based or institutional accounts, we would be left with the net management fee that you see here and that has held much more stable over the years.

The asset management margin measures how much we retain out of management fees after paying trailers, SG&A and DSC and on a trailing 12 month basis within the asset management segment and we see we are left with CAD42.60 of every CAD100 of management fees earned, up from about CAD41.50 one year ago. This measure eliminates the financing impact of front-end versus back-end since we have already deducted trailers and DSC and it also eliminates the distortion of equity and fixed income mix changes, retail and institutional mix changes because it is measured as a percentage of management fees and not AUM.

CI's SG&A calculated as a percentage of average assets under management and shown here in basis points has fluctuated around 34 basis points since the third quarter of last year. We saw on the quarterly highlights slide, that CI's average AUM grew by 7% from last year, at the same time. SG&A spend grew by 8%.

We continue to find ways to operate more efficiently, so that our core strengths will continue to grow at a level well below that of the growth of AUM. But discretionary spend will reflect smart spending decisions that we believe will generate long-term increases in profitability.

The SG&A efficiency margin measured on a 12-month basis, looks at an available pool of management fees, less trailer fees in DSC and how much of that pool remains after deducting SG&A spend. In the last 12 months, CI has retained 71.7% of that, up from 71% one year earlier. So we're spending less than 30% of the amount available after paying trailer fees in DSC out of management fees.

Looking at cash flow, we have five quarters here of free cash and we see a quarterly increase of CAD10 million in free cash flow to CAD161 million and an increase of CAD13 million from the third quarter last year. This year-over-year increase is the result of operating cash flow growing by CAD7 million and we spent CAD6 million less on deferred sales commissions this year.

Here in the first part of the table, we calculate free cash flow for last quarter and this quarter, operating cash flow grew to CAD180 million, less sales commissions of CAD19 million, gave us the CAD161 million in free cash flow this quarter compared to CAD151 million last quarter.

And the next session details the amounts returned to shareholders. We repurchased CAD71 million in stock in the second quarter, and another CAD69 million this quarter and with the dividends paid, as discussed earlier, we see a total return of free cash flow of CAD161 million in each quarter. CI has been returning the majority of it's free cash to shareholders typically with a consistent dividend payout and opportunistic buybacks. We are very comfortable with this level of dividend payout that has averaged 60% of free cash flow.

And as we move into the next slide, you see the darkest bar representing dividends paid growing in line with free cash, and we see that a large component of free cash was used to reduced net debt over the past few years. Our plan for 2015 has been to stop paying down net debt and increased the level of buybacks, so that at a minimum all free cash is returned to shareholders.

CI's net debt has declined from CAD700 million, bottomed at around CAD200 million, it has now rebounded to over CAD300 million. EBITDA has grown from CAD700 million to almost CAD1 billion and we've indicated that our target leverage ratio is 50% to 75% of EBITDA to be achieved over time with increased buyback. This growth in net debt will be funded with a mix of public debt and our credit facility. We expect to issue between CAD400 million and CAD500 million in public debt by mid-December to retire the existing CAD300 million debentures and reduce the amount drawn on the credit facility.

I'll now turn it back to Steve.

Thank you, Doug. As you can see from the detailed chart on assets under management, the market volatility in August and September definitely affected our AUM. However, in October, we experienced good asset growth and are now up 6% year-to-date compared to, as I mentioned earlier, a 5.2% decline in the TSX. The positive returns of our funds, I should note, is directly reflected in our investors' experience.

Our outlook for CI continues to be excellent. Our core business is performing very well, with good performance in our funds as outlined by Derek and continuing good net sales. Assante and Stonegate Private Counsel continue to outperform in the Financial Advisory business, especially as Steve Donald pointed out with high-net-worth clients.

We will continue to invest in service, products and money management. Key to our future growth is maintaining a focus on our competitive advantages that we enjoy today. Part of that is our commitment and full focus on our high-net-worth strategy. And lastly, as Neal pointed out, the First Asset acquisition offers a great product in distribution and diversification for CI.

And with that, I'd like to say thank you and open it up to any questions for myself or my colleagues. Thank you very much.

(Operator Instructions) Gary Ho, Desjardins Capital Markets.

I want to get more color into the gross redemptions. It came in slightly higher than what I was looking for. Wondering if you can give us more details. I'd imagine the market volatility played a role here, but I've also seen a bit of slippage in fund performance, wondering if that factored into the high redemptions at all?

Gary, it's Derek Green. I'll take that. I would say, the first two quarters of the year, we were neck-to-neck with 2014, we really started to see an increase of redemptions around May when the market started to misbehave. We also had a significant institutional client reallocate some money away from us to another manufacturer. So performance has been -- for the overall market, I would say has been challenging for the last four months or so.

Then the institutional reallocation that you mentioned, that happened in Q3 and can you quantify that?

Yes, it happened in Q3 and it was a significant number.

And then the other group of questions I have is around the First Asset acquisition. The terms weren't disclosed, but can you help me with some modeling questions here. First, can you help me -- how the deal will be financed, that will be seller take on stock, as well any earn outs or any other incentives to lock up key management team here?

Yes, Gary, it's Doug. The deal will be primarily CI stock, likely some cash. We haven't closed yet. So we haven't put out any of the detail. But certainly Berry and his team will be incented to stay for five years.

And then how should I think about the EBITDA margins here for that line of business and will you separately disclose that?

We haven't decided that to what extent their results will get mixed in with the rest of CI. Right now, it's not a very large contributor to our EBITDA. And we haven't really even modeled to what extent we can find synergies and get their EBITDA margin to our level.

And then just more broadly then, how should we think about any channel conflicts here and/or cannibalization with the acquisition?

Gary, it's Neal Kerr here. So the channel that distributes the First Asset products today is essentially the IIROC channel, which CI is focused on as one of our retail channels already. So we wouldn't view that channel as in conflict with any other channel that we're working in. The First Asset product line up today includes active ETF strategies, where portfolio managers are making buy and sell decisions on a regular basis. We obviously have that capability here. We will be working with the team at First Asset through 2016 to determine what actively managed strategies CI could develop and put on that platform from some of the CI active portfolio managers that we house here.

Okay. And then maybe just lastly if I can. Just maybe broadly, what are your thoughts on why acquire versus build something internally?

That's a great question. We considered both over the years, building from scratch or partnering with a start-up and doing some sort of joint venture, ultimately the opportunity to work with Barry and his team who had an existing successful profitable business for many years and who are quite excited about the opportunity to build this together with CI really it made the most sense to us, it obviously gets us a solution in the market much quicker than we would have been able to build our self and that was really a priority for us.

Okay.

At the end of the day, this is their core competency and this allows our management to stay focused on what we do best, which is -- the common theme here is active management. But this is what Paul and Barry do, and it allows us to focus on what we do.

Geoff Kwan, RBC Capital Markets.

Just first question I had was, if you have any comments on the net sales in Q4, I know Derek you talked about the significant redemption in Q3 is weighing down on the net sales performance there, but just kind of wondering whether the market is rebounding in October as you guys saw a pickup in sales?

I think, our business is one of the -- it's a business that ebbs and flows with the overall markets, October was strong month, the S&P was up 8%, the MSCI was up a similar number, so flows have started to improve again.

Like, would it maybe be -- because I think Q3 was on a net basis would have been impacted. What you are seeing in October may be something similar to what you might have seen, say, in Q2 in terms of broader sales -- net sales activity?

Well, it's a little early to tell. Often Q2 is a very, very strong quarter for us, so I would say, it's a little early to tell on Q4. I think there's still a lot of people sitting on a lot of cash there, still little nervous about what's happening.

With the share price where it's been, I mean the stock is trading below its historical average. Has there been any discussion around being even more active around the NCIB, particularly given where your balance sheet is?

Well, I'd say, buying a couple of million shares this past couple of quarters is fairly active. We've returned all of our free cash to shareholders. I wouldn't be surprised if just we did increase a little bit at these levels, but we're pretty happy with the amounts we are buying.

And the very last question I had is, I know this probably a bit of splitting your hairs type of question, but within the asset management side, the SG&A expense on a quarter-over-quarter basis was up a little bit more than what we've seen in the past, a couple of years in a quarter-over-quarter basis. Just wondering if there might have been anything specifically you might suggest, what explain that little bit more of a tick up in Q3 of this year?

No. I think we just -- we continue to invest for the future. When we see things where we need to strengthen our personnel, invest in new product development, we'll do that.

Paul Holden, CIBC.

I want to ask you question on the discretionary SG&A spend that Doug was referring to. Because it looks like we might be going in a period here where AUM growth is going to be slower than what we're accustomed to over the last five years of a bull market. How does that impact the way you think about discretionary spend going forward?

Well, there are -- it's Doug again. There are certain things that automatically fall if asset level falls, and stay flat if asset levels stay flat. We continue, like I said, to find ways in our core operational areas to find efficiencies, but the message we want to get across is, we're trying to spend intelligently when we see opportunities to spend. I think we have a good reputation for spending wisely, not overspending. So we've shown in the past when market fall that we can react.

Sorry. Paul, it's Derek. The other thing is that we have certain fixed costs and there are certain expenses that we can dial back if we need to dial back and we discuss that on a regular basis.

What kind of -- because the cost inflation came in higher than AUM growth this quarter for example. So, what kind of pull back in the market would we need to see for you to think about cutting some of those discretionary items?

We don't see a 1% change in our assets that have pulled back in the market per se, like, we can and we have, but I wouldn't call this cost inflation. We are investing in our business.

And in terms of the accounting for the Assante assets, it looks like there might have been a bit of a change Q-over-Q or at least when I look at the proportion of Assante assets invested in CI Funds that it jumped from CAD17.7 billion last quarter to CAD19.8 billion this quarter, wondering what accounts for that?

Paul, it's Steve. As we look at our, our reported results now, we distinguish between assets under administration, which are assets of the mutual fund dealer and the securities dealer, Assante Wealth Management and assets under advisement, which includes the assets of Stonegate Private Counsel, our Investment Counsel platform. So, I think that's the change that you saw on a quarter-over-quarter basis, consolidating all of those assets where we have a direct client advisory relationship.

And then a couple of questions on the First Asset acquisition, because it seems like potentially a bigger opportunity here, so would you consider using CI wholesalers to sell the ETF, ETF product, whether that's what was currently management by First Asset or once it's new product managed by CI portfolio managers?

I think for the time being we're going to keep things status quo, the way to think of First Asset, as it's really our third operating company, the CI Investments, you have Assante and now you have First Asset, each sales team, each operating business has its own business development people or sales people and that's the way we'll keep it for the time being.

And then may be a question for Steve Donald related to the First Asset acquisition. And in terms of -- selling ETFs into Assante clients, is that something that is a planned part or something you're thinking about?

We're definitely looking at the opportunities, in terms of the sale of ETF assets through the Assante channel, that is an approved product category today. The typical positioning of Assante Wealth Management is more around broader managed solutions. So over time, I think we would be looking at whether there is any opportunity to introduce ETF type products. And we are a strong proponent of active management, actively managed ETFs into our managed solutions.

Tom MacKinnon, BMO Capital.

One question about the dividend, I think you've been kind of running at -- the first quarter and the third quarters over last several years and AUMs turned over a little bit this quarter. But you end up having -- and you get to really good free cash flow, so what made you sort of jump away from that pattern, not suggest that there is really a pattern?

Tom, its Steve MacPhail here. We would acknowledge that our dividend is in the low-end of our range. But as we finished the quarter it was really only in October, we saw market start to stabilize and recover again. So we certainly feel on a much stronger position today than maybe we say we would have a month ago. As someone raised earlier, we're always looking at the opportunity to buyback our shares and so there didn't seem to be any compelling need on a short-term basis to try to raise the dividend until we had a bit more in certainty, a bit more certainty.

And I think as we've had a change in government, we're not really sure what the outcome is going to be, We do know with some of the proposed tax changes. It really equates to an 8% pay cut for a lot of, what I'll call our higher end employees and we might have to contend with that. And so we often do a wait and see on it. And I think this puts us in a good position after year-end results are out to relook at that dividend situation again. But I will say, we could have raised it this time, but we just want to take a bit of a wait and see approach, not thinking that three months really made that much of a difference.

Okay, great. And then as a follow-up with respect to the First Asset acquisition, I think you mentioned the IIROC license advisors do like ETFs, but do they -- what potential do you see for pushing more CI product into the IIROC channel and how does this acquisition help you there?

It's Neal here, Tom. The ideal with First Asset frankly is, is there a way to put some CI active product on their shelf? And, as Derek alluded to, how that business development process run through their sales team for that platform, Derek has got some specific strategies here for CI Investments and CI Investments business development with respect to IIROC debt, those are strategies that we are running irrespective of whether there is a First Asset transaction or not, I don't know if you want to add any color to that.

No, I think that's accurate.

So, you've got your own strategy and this just sort of augments it and potentially can help it.

The one thing I would say is, often the people that are buying CIs, CI Investments investment products are different than the people that are buying ETFs. So for the most part, they are different, they are different people.

To be a little more granular, today there is an operational efficiency for a discretionary IIROC broker with an ETF products, exchange traded product over a fund served mutual funds. And so, there is one way of looking at it is, there is an operational opportunity here that may change over time with respect to how mutual funds are distributed through discretionary advisors, but that is the case today and the First Asset platform brings that to your lineup.

Graham Ryding, TD Securities.

Your guidance around the target for your net debt to EBITDA, I think you said 0.5 to 0.7 times. Has that been revised lower, I thought I recollect, you used to talk to an optimal level of one times net debt-EBITDA.

Yes, and I think we would, if we did an acquisition for cash and we got up to one-to-one, we would be comfortable. We generate so much free cash, we can pretty much dictate which we go, either by buying back stock or not, but our current target just with buybacks is to head towards 0.5% to 0.75%.

On the Assante, Steve, on the Assante side, any update on your initiative around the robo-advisory platform and how should I think about the se First Asset ETFs, would they be a good fit for that platform or where do you though -- what's your thinking there?

As we continue to develop that more automated and I think robo is an overused term, but we look at how we can introduce automation to complement our advisors in delivering service. And as we look at our existing capabilities, we think that we have a significant amount of the required technology to help with this automation process. We've identified three areas that we have a team focusing on in terms of potential development.

The first is, the front-end on boarding and how we can enhance efficiency over that. The second element really speaks directly to your question, Graham, and that is the ability to plug-in or take out different investment options, which would certainly include the opportunity to put in First Asset mandates. And then the last element is on the back-end and improved analytics and reporting for clients. If that helps.

Yes, that does help. I always appreciate your overview on the regulatory front. I'm just wondering if the regulators do sort of use these recent studies and decide that they want to move towards a fee base and ban commissions. Do you see any difference between how the different distribution channels would be positioned specifically on the mutual fund dealer channel versus the bank branch advice channel. Is there any difference between a potential fee-based environment and how those channels would be able to respond?

Without having taken a very close look at the bank branch environment, my guess would be, yes, there would be a significant difference. And that sort of speaks to my point earlier that the required investment in technology to deal with the changing landscape is going to drive consolidation. So as you think about whatever the number is 100 MFDA firms, there are going to be a lot of firms that are challenged in terms of delivering a fee-based platform. And whereas the bank branches may typically use embedded trail type products today. It would be very easy for a bank to take their fee based capability out of their IIROC business and apply it in the branch network.

(Operator Instructions) Scott Chan, Canaccord Genuity.

Derek, just on the retail side, outside the managed solutions growth that you've been seeing, in terms of the stand-alone projects, has the investors preferences changed over the last four months with the increased volatility in the market. Have you noticed any differences there?

2015 has been a year where people are looking outside of Canada and we were discussing this earlier in the day, if you look back to 2012 and 2013, it was all Canada balanced income, diversified income. And today, whether it's CI or the broader industry, it's international, it's global, it's US equity, it's global balanced, so tastes have changed and I think when you see the Canadian dollar move from effectively parity three years ago to CAD0.75, Canadians are going to start looking outside of Canada.

The other side, if we look at the mix of the business today, 90% of our net sales is either moving into a managed solution, a fund-to-fund structure or it's going into our mass affluent high-net-worth private investment management. So, about 35% of the net is in this fee disclosed, fee negotiated higher net-worth program. So, the mix is, we're getting more and more high-net-worth business, it's going into managed solutions and it's gone outside of Canada.

And then did I hear right before, Derek, did you say there was a large institutional rebalance in Q3?

Yes, there was.

It was, okay, thanks a lot.

They've just moved the portion of their assets away from us.

Outside of CI?

Yes.

Geoff Kwan, RBC Capital Markets.

The second follow-up question was, when you guys were talking about the dividend and why you may not have increased it this past quarter and talking about what the government and the taxes, was it just in reference to the increase in the tax rate for higher income earners, and just trying to understand what you're trying to infer in the sense that does it mean you might put a little more money aside for compensation to offset a bit of the tax blow?

Geoff, this is Steve MacPhail. I think you're absolutely right, and I'm not saying it's definitive, but I look over the last period of time and in Ontario, tax rate will have gone from, I believe, 44.6% to 54.6%. And so I look at a lot of the members of management that work for me, and they have effectively seen a close to 20% pay cut. That's a pretty significant situation actually, Geoff, I'm guessing you are in the same situation.

And all I'm saying is, that can't help, but put cost pressures on you at some point in time, I don't know the extent of it. And maybe this won't come to fruition and we won't have to worry about. But I think just to be safe and conservative from a corporate perspective, we need to sit back and see kind of what happens and find out how business friendly the current government is or is not. And then make a decision from there and then set our -- and then if everything looks pretty good, then we're in a great position to increase the dividend.

Yes. Another solution might be you guys can relocate out here to BC, where the taxes are lower.

(Operator Instructions) And we do not have any more questions registered. So I'd like to turn the meeting back over to Mr. MacPhail.

I'd just like to say, thank you very much for attending today and for all your questions. We appreciate it very much and we look forward to talking to you again after our year-end results. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.