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

Even though IGM Financial has historically generated solid operating margins and maintains a leading share in the Canadian mutual fund market, we've been less than impressed by its ability to generate organic growth since the 2008-09 global financial crisis. Investors Group and Mackenzie Financial have consistently struggled to generate positive flows, with the latter seeing negative 2% average annual organic growth rate since 2007 (and the former being only mildly positive on an annual basis during the same time frame). To us, this is a sign of a weaker competitive position than the firm has had historically. Poor investment performance, higher fees, and a reliance on a closed advisor network leave the firm negatively exposed to industry trends.While Mackenzie has fared a bit better than Investors Group on the fund performance front, both have been average to below-average performers for some time. Investors Group, with its impressive advisor network of 4,000-plus consultants, has done a much better job of holding on to assets than Mackenzie, though, illustrated by superior redemption rates, despite a far worse performance record. This illustrates the strength of Investors Group's distribution network, a key asset for IGM Financial.Even so, improving investment performance remains a work in progress. Combining the in-house investment management groups from each of IGM's subsidiary into a single shop, to be housed under the Mackenzie brand, will enhance the scale of the combined operations (which will be helpful in an environment where fees are being compressed) but it remains to be seen whether it will improve capabilities and performance. While the firm has attempted to boost flows and performance via other means, including taking price cuts at Mackenzie and Investors Group, getting rid of underperforming managers, consolidating product lines, and discontinuing deferred sales commissions, these efforts have had mixed results.