IGM Financial's (IGIFF) CEO Jeff Carney on Q4 2018 Results - Earnings Call Transcript

IGM Financial Inc. (OTCPK:IGIFF) Q4 2018 Earnings Conference Call February 8, 2019 3:00 PM ET

Company Participants

Keith Potter – Treasurer and Head of Investor Relations

Jeff Carney – President and Chief Executive Officer

Barry McInerney – President and Chief Executive Officer-Mackenzie Investments

Luke Gould – Executive Vice President and Chief Financial Officer

Conference Call Participants

Geoff Kwan – RBC Capital Markets

Gary Ho – Desjardins Capital Markets

Paul Holden – CIBC

Graham Ryding – TD Securities

Scott Chan – Canaccord Genuity

Operator

Good afternoon, and welcome to the IGM Financial Fourth Quarter 2018 Earnings Results Call for Friday, February 8, 2019. Your host for today will be Mr. Keith Potter. Please go ahead, Mr. Potter.

Keith Potter

Thank you, Patrick. Good afternoon. I’m Keith Potter, Treasurer and Head of Investor Relations, and welcome, everyone, to IGM Financial’s 2018 fourth quarter earnings call. Joining me on the call today are Jeff Carney, President, CEO of IGM Wealth Management and President and CEO of IGM Financial; Barry McInerney, President and CEO of Mackenzie Investments; and Luke Gould, Executive Vice President and CFO of IGM Financial.

Before we get started, I’d like to draw your attention to the cautions concerning forward-looking statements on Slide 3 of the presentation. Slide 4 summarizes non-IFRS financial measures that used in the material, on Slide 5, we provide a list of documents that are available to the public on our website related to fourth quarter results for IGM Financial.

And with that, I’ll turn it over the Jeff Carney, who will review IGM’s full year results starting on Slide 7.

Jeff Carney

Thank you. Turning to Slide 7 on 2018 highlights, IGM achieved record high adjusted earnings per share. 2018 also marked second consecutive year where our two main operating companies gain market share. We’re proud of our abilities to deliver investment fund net sales of $1.4 billion in a year that saw overall long-term industry net redemptions of $7.4 billion. We managed our expense growth for the year to 5% relative to 2017 excluding restructuring provisions.

This is in line with the guidance provided on the Q3 and was driven in large part by fourth quarter expenses related to IG Wealth Management’s brand launch and a ramp up of our back office transformation activities. We are reaffirming our 2019 guidance of 4% non-commission expense growth and 3% in 2020. As I mentioned before, while there is discretionary spending that could be managed in a sustained market downturn, much of our spending is on business transformation that provides longer-term savings and we are focused on servicing our clients in this environment as well as building new relationships.

Turning to Slide 8 on the quarter, we ended the fourth quarter with total ending AUM of $149.1 billion. While the industry experienced a tough fourth quarter, we note that we are now sitting at $154.3 billion in AUM as of January 31, 2019. We continue to gain market share in Q4, adjusted earnings per share for Q4 of $0.75 is down 5% from last year as markets turn negative in the quarter. In January 2019, we made an additional investment of US$50 million into Personal Capital. IGM is the largest shareholder in this company with over a 20% ownership. We’re very excited about the growth opportunity here. As of January 31, 2019 Personal Capital has $8.5 billion in AUM, $650 billion in aggregated assets and over 2 million users. We intend to enhance our disclosures on Personal Capital for our Q1 2019 results and we’ll share more insights on upcoming calls.

Slide 9 displays the performance of various indices and currencies, which provide the backdrop for the industry we have been operating in. 2018 and the fourth quarter in particular, broad market volatility and negative investment returns across major equity markets including the S&P/TSX composite, which declined at 11.6% during the year. This volatile market caused the global trade tensions caused by global trade tensions, political uncertainty and concerns around the stage of the market cycle tested investor and advisor confidence. The beginning of 2019 has fared much better with major marketing thesis rebounding strongly during January. The TSX rose 8.5% offsetting over half the losses experienced last year. However, it remains well below its mid-peak 2018 numbers.

Slide 10 provides context for the industry fourth quarter and annual net sales propelled by market volatility. The mutual fund industry ended the quarter with long-term fund net redemptions of $15.6 billion, down $19.5 billion from Q4 2017. As you can see in the chart on the right, the long-term mutual fund net sales rate also turn negative on the last 12 months trailing basis. Industry ETF net creations remained positive during 2018 and the fourth quarter though results in these product categories were also down year-over-year.

Turning to Slide 11, on our results for the fourth quarter. Investment fund net redemptions were $225 million down from net sales of $749 million in Q4 2017, which reflects the challenging environment. Adjusted net earnings of $180 million was slightly below $191 million in Q4 of last year. Q4 adjusted earnings per share was $0.75.

On Slide 12, we show the segmented results for your reference and now I’ll go into the IG Wealth Management section. Turning to IG Wealth Management on Slide 14, and starting with 2018 highlights, we continue to transform IG Wealth Management in 2018, including enhancements to products, segmented pricing and compensation, and the new brand launch.

We also made strong progress towards our technology transformation including launching a new client portal and completing our program roadmap for 2019. We’re encouraged with the progress and have full agenda for 2019, including accelerating technology transformation and conversion to Series U unbundled pricing for all clients.

2018 net sales at $485 million during the year were strong given the industry context and gross sales were the second best annual results in our history.

Turning to the fourth quarter highlights and the results. In November, we announced some targeted pricing changes that I’ll speak more to in just a moment. IG Wealth Management continued to capture market share as we focused on our high net worth solutions, which represents 48% of our gross sales. That’s up from 45% in Q4 2017. We continue to experience solid asset retention with long-term trailing 12 months redemption rates that remains well below industry peers.

Turning to Slide 15 on operating results, IG Wealth Management experienced net redemptions of $125 million for the quarter or 0.6% of average AUM, which is almost 7.5 times better than the advice channel, long-term net redemption rate of 4.7%. On trailing 12 month basis, you can see that the positive 0.5% net sales rate for IG Wealth Management is also well above the advice channel. We have just reported January net redemptions of $39.7 million. We’re entering the RRSP season with investor confidence being tested, which has created headwinds. That said, we plan to be in positive net sales for the RRSP season.

Turning to Slide 16, high net worth solutions represent $41.5 billion of our AUM and 48% of total sales. We also continue to make great progress and delivering better beta and our focus on managed solutions, which now represents 50% of our AUM and 76% of our gross sales. Our unbundled fee structures where the client pays the advice fee directly now have 25.3 billion in AUM and accounts for 76% of our high-net worth sales.

Slide 17, highlights our consultant productivity metrics for full-year 2018. We have discussed on prior calls how we are transforming our distribution network. Our overall objective is to focus on our most productive consultant practices and increase team size and team proficiency. We also overhauled our recruiting practices to emphasize the quality of the recruits as the top priority.

On the left side of the page, you’ll see an intentional result at these strategic changes. The first is to have stronger consultant practices, which in 2018 was slightly below 2000 and having fewer but higher quality new consultants. Evidence for these improvements is reflected on the right side of the slide where you’ll see that the productivity of our recruits were up 33% during 2018 and this builds on the 90% increase achieved in 2017. Gross sales per consultant practice increased modestly overall productivity increased 13% during the year.

Slide 18 highlights the November 15, announcement of pricing enhancements at IG Wealth Management. The announcements included advisory fee reductions to households with over $1 million in assets with IG Wealth Management. We are further enhancing fee transparency by opening unbundled fee options to all clients during Q3 2019 and expect to have substantially transitioned most assets to unbundled solutions by mid-2020. The changes are expected to result in the reduction in IG’s annualized weighted average fee rate of three basis points starting in Q2 2019, beyond the recent trend. Luke will speak to this in his remarks.

Our competitive positioning is now strong across client segments for the cost of advice and comparable product in the AMR as we are now better than 50th percentile in both metric.

Going forward, we see less pricing pressure on advisory fees, which should serve us well as we move to fully unbundled pricing this year. These pricing changes combined with our compelling product and service offering positions us well in the competitive mass affluent and high net worth space.

Slide 19 highlights our client rate of return historical redemption experience. IT wealth management’s long-term trailing 12-months redemption rate of 9.2% remains well below the industry average of 19.9%.

I’ll now turn it over to Barry to discuss Mackenzie’s results.

Barry McInerney

Thank you Jeff. And good afternoon everyone. If you could please turn to turn to Slide 21. I’ll start with a few 2018 highlights from Mackenzie. Our transformation is now complete following five years of hard work. We achieved a new all-time mutual fund gross sales level of $10 billion and the best retail net sales in 20 years. Third party advisers now ranked Mackenzie in the top three for both mutual funds and ETFs. As we continue to execute on our strategy, Mackenzie as well as rated being number one and delivering operation – operating leverage. And we’re now focused on executing our strategy and pivoting in a competitive environment.

For the fourth quarter, the market volatility proved challenging for the investment fund industry. In that context, we continue to gain market share. Investment fund net redemptions were $91 million. Mackenzie’s retail investment fund net sales were $198 million including strong contributions from both mutual funds and ETFs. This is in the context of long-term mutual fund net redemptions of over $8 billion for the advice channel.

Mackenzie’s investment performance is measured by MorningStar improves in the quarter with a number of notable star rating upgrades. And during the fourth quarter, multiple Mackenzie investment management teams were also recognized by Lipper and Investment Executives for their strong investment performance.

Side 22 highlights Mackenzie’s operating results for the fourth quarter of 2018. Q4 mutual fund gross sales of $2.3 billion, an all-time record high, were up 4.2% year-over-year. Investment fund net redemptions of $91 million compares to net sales of $477 million last year. Mackenzie continues to capture market share versus peers. Our long-term mutual fund net sales rate of 0.4% exceeded both the advice channel and the overall industry, and if you included both ETF and long-term mutual funds together, Mackenzie delivered an organic net sales rate of 3.5%. Fast-forward into January, Mackenzie’s investment fund net sales were positive at $30 million. So far the RRSP is up to a slower start than usual as advisory spend timing of clients reviewing their existing position.

Slide 23 provides details on our Q4 sales results. This quarter we have displayed retail flows by category in the table to help you understand Mackenzie’s broad-based strength in this very important space. Mackenzie captured 7.4% advise channel long-term gross sales during the quarter, which represent a significant increase relative to the 2017 levels of 5.5%. And our gross sales capture rate improved in four of the five asset class categories. Mackenzie also recorded its ninth consecutive quarter of retail investment fund net sales, which totaled $198 million in Q4 in a quarter where nearly all peers experienced mutual fund net redemptions.

On Slide 24, Mackenzie’s ETF AUM was relatively unchanged quarter-over-quarter as positive from retail and Mackenzie mutual funds were offset by market returns and some rebalancing from IGM IPC. Mackenzie’s full year 2018 ETF Net Creations were the third highest in the industry in Canada among the 33 industry participants.

On Slide 25, Mackenzie’s long-term investment performance remains solid. Over 50% of mutual fund assets are in the first or second quartile of our one-year, five-year and 10-year periods. 47% of Mackenzie’s AUM is at four or five star rated funds, the fourth highest in the industry, and up from 38% the previous quarter. And focusing on F series, which is the most relevant for the IIROC channel, Mackenzie is very well positioned with 17 of our 20 largest funds being rated 4 or 5 Stars by Morningstar and nine of these funds are rated 5 Star.

In Slide 26, you can see that our growth-oriented boutiques as well as the global equity and income and fixed income teams continue to have a significant portion of their AUM in 4 or 5 Star funds. Ivy’s investments stock performed particularly well during the last quarter of the year leading to Morningstar upgrades to 4 Stars for some of Ivy’s largest funds, our performance in downmarkets is a norm for this boutique.

Finally, Mackenzie was recognized for industry-leading performance with a number of achievements at the 2018 Lipper Fund Awards. In addition, Phil Taller, the leader of our Mackenzie growth team won the Investment Executive’s 2018 Mutual Fund Manager of the Year.

I’ll now turn over to Luke to review IGM’s financial results.

Luke Gould

Thanks, Barry. Hi everybody. So move to Page 28, I don’t have much to add, relative to what Jeff said, I just would indicate, turn the left and remind that we did see an increase of 3.5% in our assets in January, which were covered about half of the 6.6% decline. And I’d also note, as of yesterday we’re up another 1% in client returns in February. So we’ve now covered about 70% of the Q4 clients.

Move to Page 29, you can see our earnings in millions of dollars and EBIT on the left. And you can see our margins on the right and I highlight two things: first, starting on the left chart. Number one there, I call out the net investment income and share of associates earnings at $47.8 million in the fourth quarter and would highlight, this is down from Q3 and it does move around from quarter-to-quarter but I called it a few items in there.

Now first, we do mark-to-market gains and losses on seed capital through earnings and we had losses of $3 million from equity market declines in the quarter. We also had some lumpiness in our proportionate share of Great-West Lifeco earnings, given that we record analyst estimates reach for each quarter and we true up pretty different in the subsequent one, and this quarter did have $3 million of negative trough from Q3. I will also talk to some lumpiness in the net investment income line in IG’s mortgage business on the coming slide.

Second, you can see noninterest expense of $269 million in Q4 and as mentioned by Jeff, we are in line with our full year guidance and we do have – did have Q4 costs associated with brand relaunch as well as incremental costs associated with our transformation program. And I’d note that the brand relaunch is obviously designed to drive business growth while the transformation program is designed to bring long-term cost savings to its shareholders.

On the right, I’d say first at the top you can see the gross revenue rate was stable for IGM overall. And I would speak a bit more to that number in the IG section, in the Mackenzie section but I call out the commission expense line and you can see we’re 67 basis points in Q3 and it’s up to 71 basis points in Q4. And I reminded that on our last call, we made reference to changes to field management at IG where we reduced the number of regional directors and that we had a benefit in our Q2 results relating to this and we’re going to see some offset in Q4.

And we did see that offset as we did reassign the responsibilities from these regional directors and we have recruitment and training of dedicated compliance and recruiting resources that offset those reductions in Q3 and I will speak more to that in the IG section.

Move to Page 30, you can see the income statements for IGM. The first three points you can see on the right I’ve covered but I would speak to the fourth one and you can see, I think everyone’s noticed, we did have a lower effective tax rate during the period and this was a result of favorable developments on certain tax matters and our tax expense reflects $5 million related to this. Going forward, we expect that 22% would be more appropriate guidance but we did have those favorable developments in this quarter’s results.

Move to Page 31, I’m going to spend a bit of time on this slide because there was such movement in Q3 and Q4 on it. So first, I’d highlight the annualized management admin fee rate on the left of 201.4 basis points. That’s very stable in relation to Q3 and you can see at the very bottom row, we did continue to see migration of the composition of our clientele in favor of high net worth clients and so there was a very slight movement but overall, very stable.

And as highlighted by Jeff, we did, as everybody knows, introduced our segmented pricing for households in excess of $1 million. We announced in November, it becomes effective Q2 and it is going to reduce this amount by about 3 basis points during Q2. And then now a bit of time reconciling the asset-based comp rate and the sales commission rates. So starting at the left, I’d remind, we did reduce our regional director complement from 92 people to 67 in the second quarter and we did see the benefit in terms of cost savings from this in Q3 and you can see the rate going from 49.5 basis points to 48.5 and that was $2 million per quarter.

Also in relation to those changes, in the commission rate line, you can see we went from 1.8% to 1.7% and that was another $2 million in savings. So $4 million in savings in Q3. And again, that was timing as we offset a lot of that through introducing centralized compliance recruiting sources, which ramped up in Q3 and were fully in effect in Q4 and that’s what caused all of those resources or in the asset-based comp line and that’s what caused the rates to rise.

In addition to this, we did have some non-recurring net of costs associated with that same initiative of about $2 million during the quarter and that was in that same asset-based comp line. And I would remind, those changes were made to regional directors and change their responsibilities. We designed to enhance fuel management effectiveness while also providing long-term cost savings and we’re quite optimistic that we’re going to be successful in both those fronts.

I move now to Page 32, which is IGM’s income statement, and I’ve commented on the item one and commented on item two, on the fee rates and on the commissions. I would give one further comment on net investment income and other. You can see we earned a $10.9 million this period, down from $13.3 million last quarter. And I would note and remind, this is largely our board results. And while we employ hedge accounting and we don’t have the same element of volatility that we used to, there are still areas where we do have accounting mismatches in a period where rates change in different directions. We have some fair value adjustments affected the quarter. You’ll see it in the MD&A and I’d point to Q3 as being more indicative of the ongoing run on this business.

Moving to Page 33, I highlighted Mackenzie’s weighted average fee rate on the left at 80.5 basis points. Very stable at Q3 and I’d remind that we did introduce retail price enhancements in the second quarter. I also note, in relation to Barry’s remarks, the retail business is performing very well and this does have a varying underweight average fee rate given at that higher margin business.

And then on Page 34, you can see Mackenzie’s P&L and the only item I’d highlight, again, if you go to the net investment income in the second row from the bottom, you can see $3.1 million in losses and that was all seed and there was nothing unusual there. It was all a decline in line with the equity market decline during the period.

And I’ll now turn it back to Jeff.

Jeff Carney

Great. Before we open the lines for questions, I’d like to wrap up by providing a brief look forward on Slide 35. The market volatility is testing investor and adviser confidence in a way we haven’t seen in a number of years. While January has brought with it strong equity market rally, some of the underlying concerns such as trade tensions and political uncertainty remain top of line today. It’s in these types of environments where clients need the confidence that comes from working with the financial advisor and having well-developed plan. And advisers need the right product solutions and support to meet the needs of investors increasingly complex financial lives.

Across IGM financial, we remain focused on executing against our client-centric strategies and one IGM approach to deliver future earnings growth. This management team has demonstrated its ability to outperform peers and gain market share through a range of financial market conditions. The strategic decision in business investments we have made over the past five years has reignited our operating companies. The work we’re doing on our client-facing technologies and back office has only begun. And 2019 will be a very important year for us as we deliver on our major promises.

As we mentioned, Mackenzie’s transformation is complete. The company is well positioned and focused on executing against its growth strategy. Mackenzie is primed for operating leverage and earnings growth. IG Wealth Management’s transformation continues into 2019, adding to the impactful actions already taken to position the company to capture greater share of Canada’s $4.5 trillion wealth market and deliver a long-term, profitable organic growth. We expect 2019 to be a year of continued improvement for IGM Financial and I look forward to sharing our progress with you.

With that, I’ll now turn the call back to Keith Potter.

Keith Potter

Thank you, Jeff. And Patrick, I can just have you open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Geoff Kwan from RBC Capital Markets. Please go ahead.

Geoff Kwan

My first question is on your expense growth kind of reiterating your guidance there and I understand, Jeff, your comments around a lot of this stuff is kind repositioning, reinvigorating the business. But historically, I thought in the industry when you had market to be down a little bit more volatile often the kind of comp or other aspects the consensus can kind of come down a little bit. So was that reflected in the Q4 or is there something else there that’s to why you’ve just reiterating the 4% for 2019?

Jeff Carney

No. There is no abnormal issues and that 4% is right number. And Geoff, do you have additional questions. Just how variable or what level of your ability is in our non-interest expenses? Is that part of your question?

Geoff Kwan

Yes, like I said, I just kind of thought historically, as the expenses often come down a little bit when you have the markets kind of behave as they’ve been.

Jeff Carney

Yes, we do have a small element for non-interest expenses, some advisories fees but that’s that for the most part it’s not variable with asset levels and that includes our people cost. A lot of the drivers on our people costs in any given period relates to things like market share, investment performance and the like, but as far as having the management team and all of our organizations tied to AUM, that’s not how we pair people.

Geoff Kwan

Okay. Okay. The second question is on the IT side. The non-commission expense, it was kind of $145 million Q1 to Q3 last year and then obviously, had an uptick with the rebranding up to $160 million. How should we think about how that number is going to evolve through 2019? Is it going to be kind of gradually bringing it down is that going to be a step function or what’s the kind of the subset should be.

Jeff Carney

It would be in the context of our hitting our targets that we shared with you before. So we still – that’s our plan is to deliver to the 5% going to 4% going to 3%.

Geoff Kwan

Yes, but sorry, Jeff, but within the quarter, so is it going to be a gradual decline from the $160 million to get you to the 4%? Or is there kind of going to be a seasonality on how that expense plays out?

Jeff Carney

I mean, the seasonality is really around the RSPs and when you elevate your advertising expenses, but outside of that, it’s – we’re executing our programs. And there might be a capitalization expense that come through as we implement on our projects.

Barry McInerney

And Geoff, it’s a very good question on timing and I guide you, we give guidance throughout the year that we were kind of assignment guidance for the first three quarters and we did have a brand relaunch in Q4. So I would look to last year’s seasonality for IGM as being more indicative to what you’ll see from us in 2019.

Geoff Kwan

Okay. And if I could ask just one last question given where the share prices and your balance sheet being pretty healthy, has there been thought around doing more share buybacks.

Jeff Carney

We have to reflected on that, Geoff, our views on our stock, we’re buyers and we’re just trying to manage all the opportunities that we have deployed our capital against that very resisting one, which is do we engage and share buybacks at this time.

Geoff Kwan

Okay, thank you.

Operator

Thank you. The next question is from Gary Ho from Desjardins Capital Markets. Please go ahead.

Gary Ho

Good afternoon. My first question is just on your advertising spend. Can you give us an update and how effective this initiative has gone? Whether that’s kind of new client leads or clients come into the system or whatnot? How do you measure the success of this program?

Jeff Carney

I’ll start with some of the facts that have fully integrated. We launched campaign reached over 85% of our target audience and hopefully, everybody on this call saw some of our commercials along the way. And so – and it was right around the RSPs and obviously, where a lot of transaction take place to the client. So generated very positive sentiments and we – the early third-party tracking shows that our profits resonating and as Mackenzie translating the increased client acquisition. And there is a find advisor searches on investors groups, Internet had significantly offset over 20% from the previous year, and 40% of that lead to – it can be directly attributable to our digital marketing plan.

And we’re realizing significant improvements in cost per acquisition, as a result of that. And we feel very positive about the program. And so we’ll look forward to seeing the increased activity. We’ve already seen it in the short term, but we expect to see more of it. And obviously, this is not an one-time event, this is an ongoing investment that we’re making in our brand overtime to compete against the banks as well. And so we’re excited about the response we got from the advertiser and we’ll continue to update you as we go forward.

Gary Ho

Thanks. And then maybe that’s a good segue into – kind of the outlook that you kind of provide for the RRSPs, positive flows. Can you maybe comment on that what you’re seeing on the front lines given? I guess some nervousness from investors and maybe relative to last year or kind of give us anything with that?

Jeff Carney

We worked hard early on in even before the season started to make sure our consultants and we looked at where RSP opportunities, where we didn’t have them and went in deep on all of those things to identify those opportunities, but mostly it was energizing the field. And our leaders got out there and talk to them about the importance of this type of contribution because of the benefits you get from contributing to RSPs. And so, it’s early, but it’s really picking up now. So it’s a slow start, but we’re starting to see some increases in the last four weeks and it’s accelerating.

Gary Ho

Okay. And then switching gears in my last question. Just on the Personal Capital, what is the strategic importance of that investment to IGM? Are you planning to leverage some of the technology expertise within the company or how should we think about the increase in ownership that there?

Jeff Carney

Yes, I mean, I think you should, the first thing to think about is that we were – we really like this Company. So we – I’m on the board of the company and learning a lot in that. And so we think, it’s a Company that has a really unique model and I don’t know how people have done some homework on it or not. But what they’ve done is offered free aggregation service and there’s big amount of clients who have signed up for that free service and it gives you an integrated statement. And so then the Company can then look at that integrated statements and call – use their advisors to call them and they can pick whatever segment they want to pick, because it’s a variety of different types of financial consumers that are using these tools.

But they go in there and then convert them into an advisor and they convert them into a client. And so it’s a very intelligent way to use advertising to tell story of Personal Capital, then translates into new clients that then translates into economics for the firm. And so it’s really exciting. And then you can target, which type of the client she wants. So in this case – in this Company’s case, their target is in roughly the 250 to million. And so it is – versus the some of the global advisors, where they’re more like 30 to 50,000. So this is a massive fluent, high network model that’s using the free aggregation service as its value proposition to then convert people into clients and there’s doing it over and over again every day.

And we’re helping them to tell that story. And they’ve got incredible technology stacks that they’ve built and the founders of this were the founders of Intuit. So if anyone’s used TurboTax or any of those kinds of things that was the founder, who’s created this company. And it’s not easy to replicate, what they’ve been able to do in their secret sauce. So we think, it’s a company that will continue to monitor and watch. But longer term, we’d like to see how they do and if they do well, we’ll probably continue to invest more.

Gary Ho

And I think, I forgot, it was last year, the year before there were speculations that they might go public. Is there any update on that? Is that the plan? Or…

Jeff Carney

No. Not at this time. I mean, I think it’s – the market volatility has made that a little more interesting. And then, we’re not at now that we have continuing to invest in them. They’ve got enough run rates to keep going. And so we’re in a very good place in our optionality here. And we’re excited about where this could go.

Gary Ho

Okay. That’s it for me. Thank you.

Operator

Thank you. The next question is from Paul Holden from CIBC. Please go ahead.

Paul Holden

All right. Thank you. Good afternoon. So another kind of more specific question on the SG&A. Over the last couple of years is being a little bit of a change in pattern in terms of the D&A expense that gets included in SG&A. So my thinking is that probably should increase in 2019, given the level of investment in 2018. But just want to verify that.

Luke Gould

Good question, Paul. Interestingly, the nature of what we’re spending on, there’s actually less capitalized, well, if that’s your questions where I think amortization, but I would highlight a lot of disclosure we’ve introduced on Infra 2016 and leases. And so that’s something that you will be seeing the January 1st, is we have a lot of facilities across this country and so we have about $100 million in lease obligation that’s coming on balance sheet as both in asset and in liability. And what this means is we’re going to be placing an element of what is now in the cash component of the our non-tradition expense is going to be part of the amortization. And that will be worth about $25 million that reclass, I call it.

Paul Holden

Okay. But won’t impact the growth amount? Or will it because the patterns a little bit different here.

Luke Gould

It’s slightly lower if anything, but it’s more or less net neutral based on reclass. But your other question on what we’re investing in so much of what we’re spending on transformation otherwise, is not stuff that’s capitalized. So you can expect most of our spending is actually period recognized.

Paul Holden

Okay. That’s helpful. In terms of the redemption rate at IGM, and you highlighted that it remains well below the industry and it does. But it has ticked up a little bit recently. And maybe that’s simply a function of market volatility and should be expected. But my question is, how do you look at that redemption rate? I guess, simply money going from on IG fund to another or money from an IG fund to cash with an IG advisor, or is there any kind of additional leakage out of IG and people are taking money back in the deposits? Maybe some thoughts around that.

Luke Gould

And Paul, that question was on the IG redemption rate, right?

Paul Holden

Correct, correct.

Luke Gould

As you know, we just aggregate this in many ways. So I’ll first start with – part of your question is what is this? This is money that’s leaving the IG family funds, so this is money that’s leaving our dealer is the way that you can think, there are dealers. Second, we break it down into a number of dimension. Key for us is it’s account closures versus partial and when you think of something as account closure, that’s a client who’s leaving us and leaving their planning relationship. And the other component is in many ways, to filament of the investment, meaning somebody is taking money out to fulfill the initial objective or otherwise doing something with it, consumption or otherwise.

And what I highlight and what we’re seeing right now is that increased from 8.7% to 9.7% in the last year is a stable account closure rate. And that’s less than half of the rate and an increase in those partial redemptions. And it does correlates, you can see with industry activity and a lot of the sentiments and competence that we’ve seen. So that’s what we know and that’s what I tell you on that one. I don’t know if that’s helpful.

Paul Holden

It is helpful. So then the follow-up question. In terms of that uptick of roughly a point or so year-over-year, are there solutions you can provide to help reduce that rate as – again, whether it’s functional market volatility or otherwise to keep it within IG Wealth?

Luke Gould

The biggest thing to the extent, and we’ve got – on account closure in other ways, we’ve good tracking of where it might going, if it was going to a competitor. But on this rate it is tracking sentiment and the chart 2019 that Jeff walked through, it’s really make that point that worked there day in day out, making sure people are committed to their plan. And so that’s what you see in this environment is there’s a little uptick in a more volatile environment. But we think that’s the hallmark of what we do is making sure we’re working with people and their commits their plans. And we don’t see any noticeable uptick in a period like this.

Paul Holden

Okay. Next question and then to Mackenzie. I want to ask a couple of questions on sales into the IIROC channel specifically. You mentioned the focus on asset series because that’s IIROC advisors want to make. And talk a little bit about penetration rates into IIROC because I understand for the industry, not withstanding the recent quarter, it’s a long-term, a downtrend in terms of the demand for mutual fund product in that channel.

Barry McInerney

Yes, I’ll speak in general terms but it’s a good question. Thank you. As you know we’re a multichannel firm and institutional retail side it’s focus on IIROC and MFDA, and integrated firms as well that has had most. And we’re being – last few years, we’re being even more particular to understand their specific needs. For instance MFDA which has always been good to us Mackenzie over years. We have a good market share there. We launched funded ETFs, so they can get assets to ETF via mutual fund as an example. We’ve launched precision tools last year to help the advisers to have a desktop way of developing portfolios since we focus to help them with before construction and other component parts there of.

IIROC has been a real growth area for us actually for three four years now. Historically, we have well before Jeff and I arrived we were – hardly we were more than a FDA shop at Mackenzie now we are very nicely balanced. And the IIROC channels again more ETFs, we started our ETF business actually three years ago with particular focus on the IIROC channel so that we’re doing well in ETFs overall as you know, that in retail segment is mostly an IIROC play although of course, now we’re broadening our ETF distribution institutionally.

And the liquid alternatives that you’re aware of that story it happens to first out of the gates, all of us thinking that’s going to be a high-growth area again level of sophistication associated with alternatives, which really helps in our portfolio helps investor’s risk adjustment returns is more of an IIROC place. So I don’t know if I can specifically comment on the market share per numbers, but you can safely say that our market share gains that we’ve had now for quite awhile and their accelerating has been across the board, across all the channels.

That’s by design as we again be more specific of needs that are varying now between those channels. And I think we’ve done a good job to date. And finally with an ability to hit the marketplace, with both mutual funds and ETFs, it’s really resonating, I think, we’re one of the few firms that’s growing both very quickly while we’re doing so with the same distribution channels and team at Mackenzie’s, the same manufacturing, the same operations. It’s really provided us with a nice competitive advantage to hit the marketplace. And obviously in the up swing in both ETF obviously, did benefit the mutual fund last year.

And that’s all not close but our expectation is both are going to grow length forward, moving faster is the newer. And again we have been saying this for quite some time now that our approach to marketplace, the solution provider is to get out there and use both of them as component parts and help advisors to build portfolios. So I don’t know if I answered your specific question, but again the market share is by design and have been translating into increased market share across the multiple channels that we’ve been penetrating.

Paul Holden

Yes that answered my question. But I will provide one more follow-up to that. I mean the other thing you hear about IIROC channel is particularly become price-sensitive and that probably plays into the ETF trend you talked about. But it sounds like you had success with other solutions, liquid alternatives is one you pointed to. If you have a good differentiated product or solution for IIROC, is it still possible to sell into that channel sort of what’s called a traditional fee type rate?

Barry McInerney

Yes. I mean, I would say that again our experience with the IIROC has been – and you see the market share gain from the sale has been very broad base by asset classes. Some of those is traditional again, strong performance. You know we’ve made moves on our pricing to simplify or to lower to remain competitive. We’ll always monitor that and move when we have to. We think more pricing reductions will incur in half, but it will be gradual and will relax accordingly.

So we think you can – I see your point is a question, but we think just taking IIROC specifically, yes, more focused on transparency, on fees when you go into a lower return environment than we all expect over the next five to ten years then there is more increased scrutiny on the fees as a percentage of the overall return.

But our success has been broad-based even within IIROC both more traditional type of boutique offerings that have four, five star obviously competitively priced and the new offerings, the ETFs and the alternatives. So I think you do you do a healthy blend still. I think our experience advisers they appreciate building blocks, appreciate the strong performance and they need to have blend of mutual fund ETFs, traditional asset classes and new ideas like the ideal space, which will be a real particular focus for us going forward.

Luke Gould

I look back at the straight, I think it’s an important point you are on, and when you look at Mackenzie’s retail disclosure within this period, which is the new disclosure for us, and you look at the mutual fund sales and be finally as the gross there, I guess it’s key to say my over half of those sales are to the big IIROC firms, and IIROC license advisories is really kind of core of what we serve, and when you look at the product categories where people are choosing Mackenzie, it’s broad, but it’s more in global equity, you already highlight the success revenue made those families whether be U.S. mid-cap, whether be [indiscernible] cetera and these are bread-and-butter. So, as far as its margins and pricing, we’re very competitive, but this is what we’re selling there and that is our core channel.

Paul Holden

Great. That’s helpful. Thank you.

Operator

Thank you. next question is from Graham Ryding from TD Securities. Please go ahead.

Graham Ryding

Hi. So just want to follow back on that IFRS accounting question at the risk of getting a little tax good. Did you say $25 million was moving from the other line in non-commission to the amortization line in the non-commission bucket at IG?

Luke Gould

Yes, that’s right. Look at the 16 on leases. We basically capitalized all of the operating leases and so now what will be recorded is amortization. And what used to be a lease expense.

Graham Ryding

Okay. So EPS neutral, but benefit to EBITDA by $25 million.

Luke Gould

Yes, and then the large piece of that is amortization. There is also a piece that’s obviously interest that’s all a reclass.

Graham Ryding

Okay. Could you – sticking with IG, could you remind us just in terms of your technology transformation project, I guess what you’ve completed to date or what’s to come? And maybe a time line?

Luke Gould

Mike’s been busy so that’s good news. We’ve launched a new industry leading fund accounting service successfully we implemented it. So as you know, we put – write down on a previous venture of building our own. And so that’s up and running and right in front of the industry, so we’ve got a modern fund accounting capability, which will enable products and everything else that we do. We’ve got robotic processing automation going. So we’ve got six box plan for the end of the year and they will do their job and therefore that will reduce human cost and scale us as we go forward.

We’ve got a pilot rollout for advisors for account opening transfers and account management – maintenance and the full rollout will be Q2 2019, and we’ve got our new online portal going and it’s now available to client, so they can get their statements and tax documents on their own and go into the site and fill that address and access all of that. And our new digital advisory desktop powered by Salesforce is targeted to rollout in the second half of 2019 and that will be a huge productivity drivers. So he might been busy, and he has done a great job and executing in his team you know we’ve been to get enough for probably 18 months and they’re really getting to a full productivity.

Graham Ryding

Okay. It sounds like a lots happening in 2019 and is it largely done by the end of this year or is it still a multi-year process?

Luke Gould

I think it will be done in the first two years, two and a half years. And 2019, it’s really executing on the vision and design. So, I think through this year, there will be a lot of clarity commenting on exactly what we’re doing on outsourcing and automation. So it is really a year of lifting and the year of we’ll be communicating with you along the way.

Graham Ryding

Okay, great. And then just my last question, the IG consultants, what’s the expected attrition dynamic? Would you expect the numbers to continue to decline in 2019 or stay there?

Luke Gould

Great question. So we want to run if we have 2,000 teams. And I think I said this early on when I joined that when there’s IRA – RIA model and you’ve asked that you can look out. So, it’s – our goal is to have diverse deals within each team so that there’s people who were in transparent parts, people who have tax eligible, and people that are – each of these 2000 teams to grow very large and in assets and what they’re responsible for. So, it’s just an area of energy in our passion. And there, our capabilities that we bring to them to grow their team and their assets as big as they want to grow. And so there could be a very, very large team at line of assets at some point in our company and we already have very large ones already. But it’s – what I feel that after that to be a part of our story. But we also want to cap in 2000, because if you don’t have a cap and we’ll get back into a story of always just recruiting more and more.

Now, we get to 2,000 teams and every teams got $500 million of assets or something, then we start thinking about that whatever we go from there, but it’s – that’s how you should think about it. And then as I said earlier, the new recruits that are coming in are screening the process we run, because we may not remember, but we centralized recruiting so now that we have professionals that actually are doing all the interviewing and that’s why the productivities going up and showing up in the numbers. So, we feel really excited about where we are. If you ask – you should think about 2,000 teams and more productive, because of the skill sets that are inside those teams.

Graham Ryding

Okay. That’s helpful. And when you say team, look, that would be your numbers, you bring, are you referring to that greater than four years consultant practices.

Jeff Carney

Yes.

Graham Ryding

Okay. So, the new consultants that are less than four years as to your recruitment pipeline, you’re not referring to that?

Jeff Carney

No. But the new recruits that we did bring in are substantially higher in productivities than the historical ones were.

Graham Ryding

Got it, okay. That’s helpful. Thank you.

Operator

[Operator Instructions]. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.

Scott Chan

Thanks. Jeff, just going back to the IG Consultant. Is it stable going forward? I guess the productivity ratio is going to be more important. And you mentioned it went from 9% to 13% and kind of when you envision your full ninth-inning of this IG revamp, kind of what target are your targeting on that productivity ratio?

Jeff Carney

It’s more – we got a goal for the organization and we look at each team on their own. And some are going to be – is there will be a diverse group of that, but all of them are going to have a threshold of a certain amount to stay within that context. So, the way I think about it is if you’re doing your modeling and think that just 2,000 teams and you’re going to grow and you will see the numbers every quarter as we talked about them and we’ll give you more color as we go.

Scott Chan

Okay. And Barry, just on the liquid alts, can you just update us on the traction that you guys were first out of the gate and you mentioned, there could be a very, very big product I agree as well to. And maybe just maybe talk about the potential demand or potential liquid alt funds that could be in the pipeline that you could be suited for the marketplace?

Barry McInerney

Yes, sure. It’s a great question. And we’re very positive on that segment. And some that say it might grow $100 billion size in Canada at some point in the future and you are probably aware of what we launched last April is a multi-strategy liquid alternative. In other words, it’s consisted of a number of sleeves in it.

Our experience, Jeff and I at U.S. with the multi-strategy categories also it allows advisement together to plug it into a profile you are supposed to having to deal with alternate sleeves. So it is an educational sale. We are on cloud, we are approved on multiple-platforms earning now $400 million in our call it multi strategy. The way we designed it though is that each of these sleeves itself their track record started from the date of March and April so what we tend to do is will message and convey in due course to start to offer some sleeves individual offerings when we think it’s appropriate to do so because of the multi-strategy consists of markets that are little macro and market neutral all together in one holistic solution but that design allows us to call it out and launch it individually and we will monitor the demand for that. Right now, we’re just really focused on the multi-strategy.

Obviously, principally in the IIROC channel and it’s been well received. And you know what other competitors have received so that’s a good thing because all going to do is be quicker in the industry and there’s a lot of different ways you can do this. And so collectively, industry will get some speed with it and we’re very confident we will gain our fair share market share and it extremely good nice growth story and the fees are helping and given what they can do to particularly equity is beginning towards of the full run. We know the story interest rate although they stopped little rising, but at some point investor raising, so you’ve got these alternatives uncallable stocks and bonds and it’s a really nice sleeve to put into our overall, portfolio.

Scott Chan

Right, okay. And just lastly, Luke, just on the interest expenses on the P&L, and I haven’t found it yet. Maybe you can help me out. It’s been very variable over the last two quarter. Is there something that causes that variability that are not aware.

Barry McInerney

You are seeing on the interest expense?

Scott Chan

Yes on the interest expense line.

Barry McInerney

We just did restructuring of our debt that we’re really proud of earlier of the year. So we have $365 million that was coming to in March of this year. We redeemed it early and we partially funded it with the issuance of a 30-year deal that we did in July and so that noticeably took out our interest expense that we are restructuring. Right now, we are telling it, it were level stayed after the restructuring we did.

Scott Chan

Okay, got it. Appreciate that. Thanks a lot guys. You are welcome.

Barry McInerney

You are welcome.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Potter.

Keith Potter

Thank you, Patrick, and that will conclude our call and thank you for participating today and enjoy your weekend.

Operator

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