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Morningstar | More Volatile Equity Markets and Rising Costs Leave CI Financial With Higher Hurdles in 2019

We believe CI Financial's long-term track record of above-average investment performance has served it well as the non-bank-affiliated Canadian asset managers have come under greater competitive pressures from the Big 6 Canadian Banks. Third-party distributors control most of the distribution in Canada, and CI Financial's long track record of solid fund performance has historically allowed it to consistently generate positive annual organic growth, even as its peers struggled with net outflows. That said, 2016-18 has served as a reminder of just how difficult the asset management business can be, as some short-term performance issues and several institutional clients moving their assets to in-house portfolio management has led to negative organic growth--the first time in more than a decade that this has happened at CI Financial.We believe CI Financial is likely to eventually return to form with better fund performance, and we like that the company has been pursuing growth through acquisitions, new products (including actively managed and factor-based ETFs), and an expansion of its own advisory network. The additional growth provided by these efforts, and the ever-increasing importance of investment performance as a differentiator, lead us to believe that CI Financial's annual organic growth should stay at above average levels over time.That said, we think the road ahead has plenty of hurdles. One of CI Financial's major weaknesses, in our view, is its heavier reliance on third-party distributors. While the firm is building up Assante, only 20% of its AUM is sourced from this segment. The company is also heavily reliant on distributors that are building up their own manufacturing capabilities. On top of that, we expect the acceptance and growth of index funds and ETFs, and the increased use of fee-based account structures, to put additional pressure on the higher-than-average fee structure that exists in Canada. While we believe CI Financial is better positioned among the purer-play Canadian asset managers we cover, we don't expect it to be immune to these pressures.