IGM Financial (Symbol-IGM)

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scomac
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Re: IGM Financial (Symbol-IGM)

Post by scomac »

Shakespeare wrote:OK, I just checked the list (I rarely bother). IGM is, in fact, on it, not "IMG".
I'm glad RBC finally got religion! It has been a very good day for me. :thumbsup:
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Re: IGM Financial (Symbol-IGM)

Post by deaddog »

Shakespeare wrote:OK, I just checked the list (I rarely bother). IGM is, in fact, on it, not "IMG".
Soory about that.I tend to be a little dyslexic.

I end up trading a lot of stocks that I don't mean to. One of the reasons I'm a technical trader. Buy a stock I didn't research and then make a decision whether to keep it or not. :D :D
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Re: IGM Financial (Symbol-IGM)

Post by Shakespeare »

Investors Group to reduce management fees on majority of its mutual funds - Yahoo! Finance Canada
Investors Group said Friday it will reduce its management fees by up to 0.4 per cent per year — equivalent to about $4 per $1,000 of assets, although not all reductions will be that large.
Glad I took a hint from AGF's crashing price and sold IGM (at about $45).
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Re: IGM Financial (Symbol-IGM)

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Shakespeare wrote:Investors Group to reduce management fees on majority of its mutual funds - Yahoo! Finance Canada
Investors Group said Friday it will reduce its management fees by up to 0.4 per cent per year — equivalent to about $4 per $1,000 of assets, although not all reductions will be that large.
Glad I took a hint from AGF's crashing price and sold IGM (at about $45).

IMHO IGM is starting to look like a buy, broke its 52 week low today.
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Re: IGM Financial (Symbol-IGM)

Post by DanH »

Shakespeare wrote:Investors Group to reduce management fees on majority of its mutual funds - Yahoo! Finance Canada
Investors Group said Friday it will reduce its management fees by up to 0.4 per cent per year — equivalent to about $4 per $1,000 of assets, although not all reductions will be that large.
Glad I took a hint from AGF's crashing price and sold IGM (at about $45).
I'm doing nothing but speculating with the following comments but IGM is worth watching - at least to see the precise prospectus changes. IG stated that it expects the financial hit from lower fees to be made up with higher sales. It also said that it's "changing" compensation of its "consultants" (i.e. salespeople). My guess - and it's just a guess - is that salespeople will effectively be paid more to sell its funds. (IG advisors already make a bit less than peers for the same sale. Paying them less still will just make their advisors flee to other firms, almost guaranteeing a sales decline. Hence, my guess that the compensation changes will effectively incent more sales.)
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Re: IGM Financial (Symbol-IGM)

Post by Shakespeare »

"Where are the customer's yachts?" :wink:
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Re: IGM Financial (Symbol-IGM)

Post by IdOp »

I'd like to know the $-weighted average MER reduction.

One thing this buys them is some press coverage.
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Re: IGM Financial (Symbol-IGM)

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I'm not sure that high-fee stand-alone fundco management can withstand what may be a prolonged period of low returns.
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Re: IGM Financial (Symbol-IGM)

Post by DanH »

Shakespeare wrote:I'm not sure that high-fee stand-alone fundco management can withstand what may be a prolonged period of low returns.
This is a key point - and one that I've touched on when speaking with the industry. High fees might serve shareholders well for a while or if returns are robust. But over time, we know that fees act as a headwind that is most obviously over longer periods of time. And when returns had been disappointing for investors - even before 2008 - and future returns may be more modest, having fees that are 'too high' doesn't seem like a smart long-term strategy for anybody involved. Disappointed clients will eventually leave. And setting yourself up to disappoint clients isn't a sustainable strategy.

Related: Investors Group to lower fees (G&M)
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Re: IGM Financial (Symbol-IGM)

Post by Shakespeare »

Yes, but if memory serves me correctly, that amount of lowering will still leave them with high fees....
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Re: IGM Financial (Symbol-IGM)

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But over time, we know that fees act as a headwind that is most obviously over longer periods of time
It's a good thing that this is a little known fact among their clients ? Or do the clients actually know they are paying more and stay anyway?

Seems to me if I was to ask 10 random people (not in the industry) they wouldn't know what a Mer was or what difference it made to return.
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Re: IGM Financial (Symbol-IGM)

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I don't think their clients know the MER but, over time, if their money doesn't go up, they will walk anyway.
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Re: IGM Financial (Symbol-IGM)

Post by DanH »

Brian, that's a tough one to answer because - of course - ten people is meaningless if you really want to conduct an experiment. But I get your point and you're probably right that people aren't as aware as they should be. But that will change as regulators will eventually require personal performance reporting - a requirement that has been put off more than once in the past but is inevitable. Then there is the issue of non investment services. Many advisors - including some very bright IG advisors - provide good financial planning advice/services. That is worth something. So it becomes difficult to separate the investment advice (which generates all the fees) from other financial planning advice (which isn't charged for separately). I can't imagine that people don't know they pay fees. But many don't know how much they're paying and exactly what kind of performance they're getting. As those items become more transparent, the weaker advisors/firms will suffer.
Shakespeare wrote:Yes, but if memory serves me correctly, that amount of lowering will still leave them with high fees....
We don't know anything yet. All they've said is 5-40 basis points in reduced fees (+ HST) no indication of how much for each until July I suppose. But you're right that fees will be, at best, around average for load funds and - at worst - still on the high side. As one article said, they want to be closer to the middle and away from the (higher) edge. But at least if they can get close to their peers, they'll have erased one disadvantage vs. their peers.

Where you and I may differ is on where to insert the pin to define a "high" MER. Good advice is valuable and can pay for itself in multiples. The industry's overall challenge is the lack of consistently good advice - but not sure that's unique to any industry of this size. ETFs, lower returns, and greater regulation are putting pressure on fees. That will continue (though the ETF is resembling the broader fund industry more each year) and will squeeze all load fund co.s equally. But those with captive distribution like IGM will have an advantage because the assets are stickier and the sales force is dedicated.

IGM has high turnover of "consultants", consistently weak returns and the highest fees. And still their sales and asset retention stats are much better than you'd expect. But that's weakening so they have to do something. That Globe article I linked above basically confirms that IG advisors will be happy with the compensation tweaking, which will give them more incentive to sell. And while IG margins could be squeezed a bit I would bet that they will make that up in volume sales from this point. But can sales growth be sustained longer term if clients continue to be disappointed? My guess is 'no' but the long term is a long time away. In the interim, I suspect shareholders will get some better news in the next couple of years re: the impact of these changes. But take that with a grain of salt (or a salt mine ;) ) because I don't follow the company and don't know their financial history intimately well.
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Re: IGM Financial (Symbol-IGM)

Post by Bylo Selhi »

Shakespeare wrote:I don't think their clients know the MER but, over time, if their money doesn't go up, they will walk anyway.
OTOH if Iggy's competitors can only do 25-50bp better (on account of their lower MERs) then I doubt many people will switch on that count. So the same ignorance of the egregious effects of high MERs will work to their Iggy salesperson's advantage (again.)
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Re: IGM Financial (Symbol-IGM)

Post by Shakespeare »

Down below $40 now............
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Re: IGM Financial (Symbol-IGM)

Post by BRIAN5000 »

Shakespeare wrote:Down below $40 now............
Seems to be stock specific and I would really like to see this Greece thing take another 10-15% before I buy. It's hard waiting.
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Re: IGM Financial (Symbol-IGM)

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Fee cut will hurt IGM margins, say analysts - The Globe and Mail
“The performance of many [Investor Group] funds has struggled recently,” he wrote on Tuesday. “We believe this announcement could put additional pressure on industry participants to also reduce fees. We have updated our financial forecast to account for the lower expected management fee margin, a modest pickup in sales and also a modest reduction in consultant compensation.”

Downside: Mr. Boland, who maintains a “hold” rating, cut his one-year target by $2 a share to $43.50.
(Dollar target included FYI; analyst dollar targets and a toonie will get you a cup of coffee.)
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Re: IGM Financial (Symbol-IGM)

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Shakespeare wrote:Down below $40 now............
What a difference 18 months makes; now asset managers are the darling of the market with their leverage to market returns. IGM is participating strongly with the rotation out of bonds and into stocks, but that leads me to ask: Why am I going to go with a high cost asset manager when the trend has been so clearly to low cost ETF models for those with substantial assets? In light of the fact that there hasn't been much in the way of flow through to shareholders in the posts credit crisis period, I decided to close my position yesterday at $54.22. Yes, it's a pure play in wealth management, but it is quite pricey compared to a bank (even after their big run-ups).

To replace the income, I initiated a position in IGM.PR.B at $25.84. This is a 5.9% straight perpetual preferred share that is callable 12/31/2014 at $26. If interest rates stay down, I expect this issue to be called at some point in the next 5 years with a YTW of~5.17%. In the mean time it provides for a substantial income boost over what the commons currently or will likely pay in that time frame.
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Re: IGM Financial (Symbol-IGM)

Post by parvus »

scomac wrote: Why am I going to go with a high cost asset manager when the trend has been so clearly to low cost ETF models for those with substantial assets?
Because ETF assets are ~$62 billion in Canada and growing at ~$8 billion and mutual fund assets ~$940 billion and growing at about ~ 40 billion a year? Who has the greater and increasing profit margin?
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Re: IGM Financial (Symbol-IGM)

Post by Bylo Selhi »

Assets alone are misleading because of organic growth of markets in the past year. Now 8/62 is 13% growth in ETF AUM while 40/940 is 4% growth in mutual funds AUM. That suggests a trend of net inflows into ETFs and net outflows from mutual funds. So investors are voting with their feetMERs.

At an average MER of 2.5%, those $940B in AUM generate $23B in gross fee revenue. That pays for a lot of labour (advisors) and marketing muscle to convince investors to stay with high-MER actively-managed funds and still leaves plenty for profit.

(At an average MER of 25bp for ETFs, those $62B AUM generate only $155million in gross fee revenue or a mere ~0.7% of the fee revenue from high-MER actively-managed funds.)
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Re: IGM Financial (Symbol-IGM)

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Bylo Selhi wrote:Assets alone are misleading because of organic growth of markets in the past year. Now 8/62 is 13% growth in ETF AUM while 40/940 is 4% growth in mutual funds AUM. That suggests a trend of net inflows into ETFs and net outflows from mutual funds. So investors are voting with their feetMERs.
This is the crux of my investment thesis. Profit margins don't necessarily factor into it as I'm not replacing one with the other. I'm simply recognizing the trend and investing accordingly.
At an average MER of 2.5%, those $940B in AUM generate $23B in gross fee revenue. That pays for a lot of labour (advisors) and marketing muscle to convince investors to stay with high-MER actively-managed funds and still leaves plenty for profit.
I'm not sure we can assume that. The overhead differences between the two models will be staggering. You don't just have to cover costs for advisors and advertising, but fund managers must be compensated as well. There are a lot of bricks and mortar to be paid for in the IGM model as I believe that ultimately everyone in the service chain works for the parent company. From my perspective, it is very similar to retail banking, operationally from a cost basis. Hence my comparison to banks and their relative cheapness as these entities have a large swath of the mutual fund AUM. IGM's piece of the pie will be shrinking and I don't see any change in that trend.
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Re: IGM Financial (Symbol-IGM)

Post by parvus »

I'm not demurring. ETFs in Canada do have a higher CAGR than mutual funds. But it will take a long time for them to overtake traditional mutual fund companies. In the U.S, where ETFs have had a lot of traction for a long time, mutual fund assets are ~$14 trillion and ~$1.5 trillion for ETFs. (There is some double-counting, in a certain sense, because index funds would be included as mutual funds.)

One can see the flows and calculate CAGRs.

My point is two-fold. I would suspect that ETFs will represent somewhere between 10% and 15% of mutual fund assets in the medium term. And a lot of that growth will depend on advisors rather than DIYers. Second, ETF growth is somewhat vitiated by the proliferation of specialty and niche ETFs, rather than broad market ones. Advisors can't add value with broad market ETFs.

But the key issue, as always, is cost. To the degree that IG adds value, it is not through fund selection but financial planning and tax advice, and they are probably the best in the industry. It is unfortunate that that advice cannot be unbundled from product sales.

For HNW investors who want to get out of the rat race of retail mutual funds, advisors will levy a management fee of 1%, and the tax and estate advice will cost extra, and perhaps there will be a piece for a portfolio management company as well.

In sum, I don't think IGM is under threat from ETFs. Not if it offers a total (even if expensive) package. I think mutual fund only reps are under threat from ETFs, and they should get a securities licence.

But that doesn't address the cost of advice.
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Re: IGM Financial (Symbol-IGM)

Post by AltaRed »

parvus wrote:In sum, I don't think IGM is under threat from ETFs. Not if it offers a total (even if expensive) package. I think mutual fund only reps are under threat from ETFs, and they should get a securities licence.

But that doesn't address the cost of advice.
I beg to differ. The banks are beefing up their advisory arms within their branches. The newest branches have a whole wing/wall of neat, glassed in offices for their financial advisors mutual fund sales force. For the average Canadian with maybe $100-250k in investable assets, and not inclined to be a DIYer, the banks and IG offices will do well.They even offer advice from the menu/script.
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Re: IGM Financial (Symbol-IGM)

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AltaRed wrote: For the average Canadian with maybe $100-250k in investable assets, and not inclined to be a DIYer, the banks and IG offices will do well.They even offer advice from the menu/script.
This is the real threat to IGM IMO. The banks have a captive audience as everyone requires a bank relationship of some sort to carry out your daily financial activity. IGM have been bleeding AUM for quite some time. Some of it -- the minority -- will go DIY, but the rest will end up with some other service provider and in this scenario the banks have the upper hand due to the pre-existing relationship. For those new to the investing game, it is more often than not that your bank will be your first experience with investing beyond GICs. They are getting much, much better at competing with the specialist firms in terms of offerings, suite of services and competitive pricing.
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Re: IGM Financial (Symbol-IGM)

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One thing that we shouldn't lose sight of in this discussion is that ultimately it is as much a discussion about IGM the company as it is about the mutual fund industry versus the ETF industry. Perhaps I'm to blame for this due to the ambiguity of my original post discussing my trades. Regardless of the fate of the industry and how well each of the participants will fair going forward, the more pressing issue for me was the Price assigned to IGM the stock in today's market.

At current prices the owners return to IGM is around 5.6% (ie. earnings yield). Over the past 4 years profit growth has been nil. They've been able to manufacture a semblance of earnings growth via share buybacks, but that doesn't change the trend of profitability. What makes this situation worrisome is that even in a market uptrend, profit isn't growing. IOW, assets are being redeemed about as quickly as the increase in market value is raising fees. What is it worth for a no-growth business in the current environment? Is it worth 18 times earnings? As it stands, the risk premium for IGM is about 45 basis points for the common over and above the preferreds on a best case scenario barring a major turn around in profit growth. That doesn't strike me as being a particularly compelling bet for the incremental risk.
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