IGM Financial (TSX:IGM) Q3 2026 Earnings Call

0:00 All right. Well, it's my pleasure to introduce our next speaker. And again, welcome, Damon Murchison, President and CEO of IGM Financial. Now, Damon stepped into the role on July 1st, but he's certainly not new to IGM. He joined the organization in 2014, has held various senior role positions across both core operating companies, spent a number of years at McKinsey Investment, including leading the turnaround of McKenzie's Retail Distribution Business before moving to IG Wealth Management, I think in 2020, where he has and continues to serve as President and CEO. So again, Damon, thank you for joining us. You come into the role with a fairly broad perspective. And I guess as you step into the CEO seat, What are the top priorities you want investors to understand, and what would you like to accomplish in your first year as CEO?

0:56 Thanks, Phil. And good morning, everyone. Thank you for your interest in IGM. First, let me just say that we start this new chapter at IGM in a period of really strength and momentum. You know, our priorities, our strategic priorities remain intact. First, we want to grow our asset management and wealth management businesses. Second, we want to activate our strategic investments. And third, we want to allocate our capital with discipline. But over the first year, my priorities are going to be very clear. We made it very clear to the firm. We want to sharpen our focus. I want to position the firm to move faster. The last one is I want to make sure that we allocate our resources towards our highest priorities, highest opportunities.

1:46 Now, when I say that, we're going to measure this stuff in practical ways, both through advisor and client experience and outcomes, through increased productivity, operational efficiency, and then profitable growth and stronger earnings. Excellent. Well, listen, while it's still early in the transition, are there any areas of the business you're already kind of looking at with a fresh lens, and should investors expect any evolution in IGM's strategy under your leadership?

2:16 Yeah, you should expect an extension of the strategy. And when I say we want to sharpen our focus, we want to position the firm to move faster, and we want to allocate our resources towards our highest opportunities, priority opportunities, I'll reflect back to our restructuring announcement that we announced in June to simplify the organization to ultimately take $70 million of run rate expense out of the business by 2028. We want to recycle. That's $70 million to reinvest in the business, to invest in our people, to invest in our process, and invest in AI. This is us leaning in to both the client and advisor experience, to both outcomes, and really ensuring that we set ourselves up for the future.

3:08 And when I say the future, let me be a little bit more specific. We truly believe, and I know we'll probably talk about this, Phil, that the future of this industry is simplification and personalization. Our industry tends to be complex and tough to navigate, and a lot of things are generic. We want to make sure that we invest across our organization, both at McKinsey and NIG Wealth, to really redefine who we are and how we position ourselves against our clients and what they're looking for going forward. Excellent. Let's focus in a little bit in kind of the themes with some of the growth outlook and competitive positioning. I think it's a clear observation to hear from investors often on IGM is, I mean, operational momentum, I think it's been building across the group. So what factors do you attribute that to?

3:57 Yeah, well, all six of the organizations, I would say, we have all six oars in the water in some respects. When you take a look at AUM&A year over year, all had material growth. You know, expense discipline allowed for operating leverage, which is great to see. But really, to me, it comes back, and we don't talk about this enough, I believe. It comes back to the leadership teams of all six organizations. The leadership teams we have across these six organizations not only have the pedigree, the experience, and the knowledge, very strong knowledge within their respective markets, but they've all proven to be extremely strong, not just at strategy, but strategic execution. And you can look across every single one of these companies, and we're basically doing what we said we were going to do.

4:49 and I can tell you, it's still early days, but the momentum is strong and there's going to be some great days ahead. Okay. Listen, the asset and wealth management industries, they're highly competitive businesses. What differentiates IGM to compete successfully against the big banks?

5:08 Yeah, so this is a question we get asked all the time. I always start off by saying it's not binary. In order for IGM to win, it doesn't mean the banks have to lose because that's just not going to happen in this country. I think we all know that. So it comes down to the value propositions of both McKinsey Investments and IG Wealth. The first thing that I'll say is that they have each other. And we know in this country, when you have church and state working together, it obviously gives you an advantage. So you start with that. But then let's look into the value propositions of the two organizations. If you look at IG Wealth, the value proposition fits into really three buckets. Number one, we have a significant number of advisors located across the country in every single community.

5:55 So where the business and the clients are, that's where the advisors are. Our demographic, we're 10 years younger than the average advisor age in this country. and not only that, we're on our fifth generation of clients. So these are longstanding advisor teams that have been built up over time in their communities that have longstanding relationships. The second part of the value proposition is our planning culture. We truly believe your culture is what people do when nobody's watching and if nobody was watching on IG, our advisors would truly be financial planning. We deeply believe in planning. And when I say planning, let me be very specific.

6:42 We really preach around the six wealth drivers. So if we're going to plan, it's not just on the investment side, which everyone does. It's on the tax planning and optimization. It's on retirement planning and readiness. It's on estate planning, intergenerational wealth transfer. It's in small and medium-sized business advisory and monetization. It's on family education, governance, and dynamics. And it's on legacy planning and philanthropy. These six areas that our advisors are skilled at adding value in allow us to add planning alpha for all of our clients to team up with investment alpha. And the last part of our value proposition is we're omnichannel. We have three different channels and we fit the right client with the right channel.

7:29 And that allows us to free up capacity for each of our channels so that we can grow and drive productivity. Now, all that is great, but you ask, you know, how can we compete with the banks? Well, right now, you know, what I like to say is, because it's true, is our sole job at IG is to put our advisors in the traffic. And we believe with their planning mindset and their skill set that we're going to win more than our share. So what is that traffic? Well, there's three tidal waves taking place in this country right now. Number one, you have intergenerational wealth transfer, well over $2 trillion changing hands from one generation to the next, baby boomer to baby boomer, baby boomer to Gen X, baby boomer to millennial. Number two, you're going to have anywhere no one really knows, 30% to 40% of advisors in this country retire within the next five to seven years.

8:23 All the clients changing hands. And the third is you have 75% of the small and medium-sized businesses in this country are going to be sold within the next 10 years, generating over $2 trillion of wealth that isn't currently in the system right now. That's the traffic. So when I get asked, why is IG Wealth doing so well? How are you growing your high net worth, massive high net worth, ultra high net worth business so fast? It's because we've put our advisors in this traffic and we're getting more than our share. Because we're very unique and we're in every community in the country. So that's IG. McKenzie's a different story. McKenzie's value proposition is that they're multi-boutique, multi-structure, Multi-channel.

9:12 So what do I mean by that? So multi-boutique, Luke Gould and McKenzie have doubled down on the investment side of their business as they have. Investment, obviously returns are extremely important in this country. And they've moved from 15 boutiques down to nine boutiques. They're being focused. They're being focused on the boutiques that they believe have an investment edge. Boutiques that they can sell and they can market across the country and boutiques that, quite frankly, are in the largest investment categories, not only in this country, but globally. And you've seen the results of this focus, not only in their retail business, but in their institutional business. And when you're growing your institutional business, it's a leading indicator for what you can do in retail.

9:58 And that's exactly what has taken place at McKinsey, and they've improved their performance marketably. And it's going to allow Luke and team to really focus on the boutiques that matter. Multistructure goes back to being able to provide funds, SMA, Institutional Pools, OM Product, ETF, both active, strategic beta, quant, passive, and then the private and public. Being able to have that choice allows McKinsey to meet their clients where the clients want to be met, where their preferences are, versus trying to have a double sale.

10:43 and that's why Luke and team are focused on creating the better product, better solutions. So it's performance and it's solutions. And the last one is multi-channel. The organization is obviously focused on retail. That's where McKinsey was born. Let's just call it the old broker dealer network. You have incredible growth on the institutional side, which is great to see. You have growth in their strategic alliance business. Strategic alliance would be IG. Canada Life, PFSL. They're growing that business. And the last one would be OEO. An example of that would be Wealthsimple. And being channel agnostic and solution agnostics allow you to provide your solutions to your clients in terms of what they want to buy and where they want to buy it.

11:36 So better performance and allowing you to be agnostic. That's allowed McKinsey to truly, truly create some strong momentum. And what you see in that business is an organization, I believe, you know, at the end of Q2, they had their strongest gross sales in their history, year to date, and their August results would reflect that as well. And, you know, you might look at the net number and say, well, you know, where is the net? That business, the most important metric is gross sales capture rate. Gross sales capture rate, if that is growing, particularly if that's growing at an accelerated rate, your redemption rate will be directly tied to your performance. And as the performance gets better, and the performance has got better, your red rate will fall, those lines will cross.

12:24 So McKenzie has a tremendous opportunity, and their strategy of doubling down on performance, on better product, on better sales and service is the right one. All right. So we take a step back for a second. We just think about biggest growth opportunities for IGM overall. How would you position that?

12:40 Well, at IG, it continues to be solve complex issues for its Canadians. Canadians have more complex issues than ever before, and I'm particularly talking about massive, fluent, high net worth, ultra-high net worth. The number of people that I meet with on a daily basis that say to me, Damon, I do not know how to explain my wealth to my kids. I never inherited this type of wealth. How do I do that? How do I begin about that? That's just one example of solving a complex problem for a client that our advisors are very, very skilled in. So it's solving complex problems for massive, high net worth, ultra high net worth, and continuing to do that, but in a more simplified and personalized manner.

13:29 And then for McKinsey, it's continue on in their journey. Multiboutique, how do we strengthen those boutiques? How do we make sure that that investment edge is strengthened? Leveraging technology data and AI, make sure that we continue to build better product and meet the clients where they want to meet, be met, and then make sure that we continue to be agnostic by channel. Their distribution strength and might at McKinsey is considerable. I believe they're the second largest sales organization in the country. They have the ability to reach out and talk to more advisors and more Canadians than almost any asset manager in this country. There's lots of industry transformation going across financial services overall. So what do you see as the most influential changes across wealth and asset management over the next, we'll call it, five to ten years?

14:17 And what do you think they mean for IGM?

14:19 Yeah, I think that there's three megatrends that I see. The first is, and I've said this previously, Our industry is one where we're complex and most of the things that we do are generic. I think the future of this industry with AI and technology is personalization and simplification. You look at it in everything we do, Uber, Amazon, Netflix. Why do we deal with these companies? They're easy to deal with and it's personalized to me. You look at Wealthsimple as a prime example. They are the best example of a financial services organization that is simple to deal with and makes it about you. and it's one of the reasons why they're so successful. So I believe that's going to be something that needs to be dealt with and I believe that at IGM that is one of our clear focuses going forward.

15:14 Number two, we have aging population of advisors. The average age of the advisor right now, 59, 60, who knows what it is, but there's going to be a significant number of advisors in this country that retire within the next five to seven years. That is going to create an advice gap. We need organizations like Wealthsimple. We're going to need new organizations to come into the Canadian ecosystem to fill up this advice gap. And the third is all the money and clients that are going to be changing hands because of the three things that I talked about, which are intergenerational wealth transfer, the advisors retiring, and small and medium-sized business monetization. So there's going to be a significant amount of investment capital changing hands.

16:04 So how is IGM going to benefit from it? I talked earlier about IG. Well, first of all, IG and McKinsey, a clear focus of ours, is going to be on simplification and personalization. So we're going to benefit from that. We believe that we're going to position our organization to be more competitive in that era. And we're going to focus on, yeah, there's differences between McKinsey and IG, but having worked at both organizations, I know there's more commonalities. So there are a lot of things that we're going to be doing at the enterprise level that both organizations will benefit from. From the advice gap perspective, McKinsey will benefit because they're channel agnostic. So well simple. As new organizations come into play, OEO, they can play there.

16:50 For IG, as I said, the average age of our advisor is 10 years younger than everyone else. And we're everywhere. So we will benefit from this advice gap. Because in smaller communities, you'll notice the number of advisors will disappear. Advisors will locate themselves in urban areas. So this only stands to benefit IG in our view. And the last, with all the money moving and switching hands from a McKenzie standpoint, they hedge their bets because they're channel agnostic and they meet their clients where they want to be met in terms of what solutions to buy. And at IG, once again, our whole sole strategy is to insert our advisors in that traffic and solve complex issues for Canadians. Thank you for joining us. and commitments to deploy AI. So maybe talk a little bit about one, kind of IGM's approach to balance these new investments while managing the overall cost base, which I think you kind of touched on.

17:54 And then two, let's get a little bit kind of deeper and maybe talk about some of the examples of how IGM is deploying AI and also supporting its workforce to take advantage of those tools.

18:04 Yeah, so what we announced in June was significant for us because it is taking a significant amount of expenses out of the business by 2028, $70 million. And we want to recycle that. We did not change our expense guidance because we intend to invest in the business. We want to invest in our people. We want to invest in process, and we want to invest in AI and technology. and we want to do so in a very methodical manner. When you take a look at ultimately what we want to get accomplished, it's going to be in stages. This is true for almost every financial services company. You're going to focus on deploying AI against busy work, manual work.

18:55 Get that out of the way and make sure you redeploy your human capital towards more important priorities. That's the basic stuff. Then what we're going to focus on are all the things to improve our productivity and then improve investment performance. So productivity for IG is a prime example. Our advisors and our advisor team spend a lot of time preparing for client meetings because we're a planning shop. It takes a lot of time to plan for those. So all the work that we can do for our clients leveraging AI to build the pre-meeting packages that they want to build By hitting enter, setting them up for those meetings, everything that we can do in those meetings to make the most effective, transcribing notes, looking at Nesbitt action, all the things that you want to talk about from a planning perspective, and then everything that we can do to leverage AI to make sure that we have follow-through in the follow-ups of those meetings.

19:58 and then all the tasks that need to be sent to their teams that can be executed automatically. That is going to save our teams a significant amount of time. And if you can take a successful financial planner and save that team two, let's just call it two hours a day, they can repurpose that time to be in front of more clients. have more meaningful conversations with their clients. Ultimately, that is going to create value in a number of ways. Number one, that creates value in terms of client engagement. That creates value in terms of share of wallet, cross-sell opportunities to other financial planning. And because you have higher client engagement, you get more referrals from that client.

20:44 That's new client acquisition. And then from the advisor perspective, you improve the advisor engagement. That improves your advisor retention. And that helps with advisor recruitment. These are all value creation areas. So this is a clear area of focus for IG. And that's the large stuff. And it's just even the small stuff. So we have a term called NIGO in wealth management shops. Not in good order. Our advisors meet with the client. They want to transfer in money. You're transferring money from most dealers, particularly the banks. The banks would have seven, eight different dealers. So you're looking at a statement, you have to define the exact dealer to get that money over. And a lot of times, you know, the sales, the advisor or their assistant writes down the wrong dealer.

21:35 And that comes back as a not in good order. The amount of time that teams have to spend fixing not in good order work, they have to spend time, head office has to spend time. You automatically eliminate that through AI. Resustainment automatically, right, dealer? You cut that by 99%. These are all things that improve the advisor and client experience and create value automatically. On the McKenzie side, it starts with performance and the investment boutiques, and that's what Luke will tell you. His strongest boutiques have been leveraging AI and machine learning for a long time. It's one of the reasons why they're most successful. He wants to replicate that across all of his nine boutiques and ensure that they have everything they need from an AI perspective to navigate research, data, lead gen, everything they can to have that investment edge.

22:27 And then there are things that are going to be across the enterprise. Client services is a prime example where we can do a better job servicing our clients by making sure that they can help themselves They can find their answers quicker. We can reduce our cost to serve and we can improve the overall client and advisor experience. So there's a lot of opportunities and that's just a few of them that we have at the organization. Let's shift gears a little bit and maybe talk about value creation through some of the strategic investments. So can you talk about the role of strategic investments and what that plays at IGM and also how you measure their success from here?

23:08 Yeah, our investments are strategic. They're long-term because they're strategic, and they're not just financial, although it always begins with financial, and it begins with earnings. And you take a look at Northleaf and China Asset Management, and they are creative through earnings. They're doing exactly what they're supposed to be doing. When you take a look at Rockefeller, and, well, Simple is a prime example. We had record Q2 adjusted EPS with not a penny of earnings from Rockefeller and Wealthsimple. Yet those two organizations are amongst the fastest growing wealth organizations in their respective markets. They're growing at a parabolic rate. And they're on a journey.

23:55 New client acquisition or advisor acquisition at Rockefeller for client acquisition, driving revenue, EBITDA, That will lead to earnings. It's a process. But there's a significant amount of embedded value in those organizations. But these organizations are strategic because of the connectivity with McKinsey and IG. So let's just talk about that strategic connectivity and how we activate these strategic relationships. And I'll just give you two dimensions. And this is real life. Thought leadership and partnership. So thought leadership is a prime example. So what's top of mind right now? Top of mind right now is AI.

24:43 So the fact that IG Wealth, we can go to Rockefeller and say, hey, talk to us about that collaboration you have with Anthropic. What are you working on from an AI perspective for your advisors? And then they say, hey, what are you doing with Salesforce and Amazon for your advisors? And sharing of ideas, sharing of best practices. The fact that we can go down and send a contingent to China and sit down with China Asset Management, some of the largest organizations in China, and learn about what they're doing with AI and what they see as the future. These are real life examples. IG Wealth and Rockefeller, their global family office, They have so many similarities.

25:35 But we're coming from opposite ends. So at IG, we're a bunch of financial planners. We have a history of planning, a thirst for planning. And what we've built are all the partnerships around the six wealth drivers. So the family office type of services. We've built them over the last few years. And our advisors have been begging for them. And they're using them. And they're being successful. Rockefeller, oldest and largest global family office in the world. They've had these services for such a long time. They're recruiting new advisors in who are wire house advisors, discretionary investors who aren't used to leveraging these services. So how do we get these advisors to leverage these services when they've never used them before? IG, what do you guys do to get your advisors engaged?

26:26 And then we ask them, what services do you have? And how can we Canadianize that? There is value in all of this. And then when I talk about personalization and simplification, the fact that we can have Wealthsimple in and talk about how they live that every single day. It's everything they do is simplification and personalization. Where does it start? How does it work? We're learning from industry leaders. These are all real life examples of how we leverage thought leadership in our ecosystem. And then let's talk about partnership, because it's real life. Northleaf manages money for IG Wealth, McKinsey, and Rockefeller.

27:11 Mid-market, private asset management, helping us improve our client investment experience. Wealthsimple. McKenzie's a major asset manager to Wealthsimple. I know Luke and team are working hard with Wealthsimple to figure out ways to extend that over time. You look at Rockefeller. Not only do they manage money for IG Wealth and our clients, but we share clients, cross-border advisory services. We've sent a lot of our clients to Rockefeller. They're sending a lot of their clients to us. There's a huge opportunity here, given what's taking place in North America, Canadians down in the US, working in the US, and vice versa.

27:57 And the last one is China asset management. And it might not seem obvious, But McKenzie's institutional success, a lot of it has been in Asia. Some of the largest public pension plans and sovereign wealth funds in Asia. Those doors don't open without China Asset Management and helping them open those doors. So there's a significant amount of value that is created by our strategic investments. And yeah, it starts with financial and the future is brighter tomorrow than it is today, certainly, but it looks good. But the thought leadership and partnership is phenomenal and it's real life and we're just gonna improve on it over time. Excellent. Listen, over the past year, I think IGM has accelerated the level of return of capital to shareholders.

28:47 So what are your priorities for the year ahead?

28:50 Yeah, our priorities remain intact as it relates to allocating capital. We want to focus on growing our core businesses. We want to continue to maintain strength and flexibility by investing in our core businesses, but also returning capital to shareholders through buyback and the growing of our dividends over time. We want to grow our dividends as we grow our earnings. It's very clear that that is a focus of ours. And we want to focus on the six businesses we have in our ecosystem. Do you see M&A playing a role in IGM's growth over the midterm?

29:23 Over the midterm, you never want to say no, but like I said, we like the six businesses that we have. Could I see an opportunity for us to find small tuck-ins to help accelerate our core? Asset management and wealth management businesses, sure, we will always pick up the phone. But that's not our core focus here. Our core focus is on McKinsey and IG and the four strategic investments. Well, excellent. Listen, there's been lots of momentum in the business, lots of positive change, and the stock's had a really solid run. So what do you think investors are still kind of overlooking in the IGM story and what should continue to excite them about the stock?

30:01 Thank you for joining us. In our business, by being prudent and not increasing our overall expense base so that we can double down and lean into AI and to our people and to process is going to give us, we believe, a competitive advantage going forward. And there's a lot of unrecognized value in our strategic investments. If you take a look at these four organizations, these four leadership teams, they're amongst the best organizations in their respective markets.

30:50 and they make IG and McKenzie better and vice versa. So we're very excited about the future at IGM. All right. Well, Damon, it's been an excellent conversation, very insightful. So again, thank you personally for taking the time. And again, thank you from the IGM organization for your continued support. Thank you, Phil. Appreciate it. Thank you.