Skip to main content

It seemed a little ruthless. Jeff Carney had barely settled in at Investors Group before bringing down the axe. In a single shot in the fall of 2016, mere months after taking over as CEO of the mutual fund giant, he gave the order to fire 400 advisers from the firm’s network. He assured investors and analysts it was a “one-time event.” But Carney kept trimming, and in fall 2017, Investors Group shed close to another 400 people. All told, its network had shrunk to just over 4,000, down from almost 5,400.

Amin Adatia was one of the advisers caught up in the second round of cuts. He'd been an IT consultant for decades when he decided to train as an Investors Group financial adviser in Ottawa in 2015. He spent nearly two years getting licensed and then started to build a client base, with the modest hope of making $50,000 a year. Just as he found his footing, he was gone. "The investment adviser market was changing, and Investors Group had to find ways to save costs," Adatia says. "I guess it was easier and faster to cut bodies than to change the products and services."

Carney was, in fact, determined to do both. The wealth management industry had been under siege since the Great Recession. Exchange-traded funds (ETFs)— passive investments that track major indexes for a fraction of the cost of mutual funds – have gained traction; regulators have cracked down on the industry’s most egregious fees; and robo-advisers have waded into the market, cutting humans out of the financial-planning equation. Yet, until Carney came along, Canada’s largest independent money manager seemed largely oblivious to the shifting landscape. “Investors Group had to go through a massive transformation,” Carney says. “We were dying.”

Story continues below advertisement

For nearly seven decades, the firm had aimed squarely at the mass market, with thousands of advisers selling mutual funds to Canadians of all stripes. Investors Group was also widely known within the industry for its high fees, and it hadn't shown much urgency to slash them. If anything, it seemed to double down on its old strategy, even amid the industry turmoil. Murray Taylor, who was CEO from 2004 until Carney arrived, actually ramped up recruiting near the end of his reign, and the firm would brag about how many new advisers it hired each quarter.

The new CEO saw the industry much differently. "My predecessor was playing a numbers game," Carney says. When he arrived, nearly half the company's consultant network, as it's called internally, had four years of investment experience or less. With basic investing information now so easy to find online, Carney didn't see the value in bulking up just for the sake of it. So he culled.

That was just the beginning. In his short tenure, the new CEO has enforced a minimum certification standard for advisers, revamped the firm’s leadership and slashed its notoriously high fees. This fall, Investors Group is rolling out the next leg of its transformation: a focus on acquiring high-net-worth clients. In September, the company even got a new name—IG Wealth Management—and it’s planning a national campaign to reposition itself as more of a private office for the wealthy than a kitchen-sink retirement planning firm for the masses.

It's a risky bet. As slick as the new strategy may sound, Investors Group is shifting away from the very customers it was built for, to go head to head with powerful banks and other asset managers that have played the high-net-worth game for years. The change also spells trouble for average Canadians. Because if Investors Group doesn't want them, who will?

Since launching its first Canadian mutual fund out of Winnipeg in 1950, Investors Group hasn’t wandered far from its Prairie roots. The firm has tended to avoid competition with Bay Street’s big brokerages by spreading itself across the country, and advisers were known to meet with clients over their kitchen tables, swinging by every month to pick up new contributions – even slogging through the February snow when necessary to grab RRSP cheques.

It used to work remarkably well. Mutual funds were pretty much the only game in town for investors who didn’t want to try their luck picking stocks, and they became astonishingly popular in Canada. During the 1980s and ’90s, firms like Investors Group, AGF Management, Mackenzie and Trimark Financial practically minted money by charging high, and sometimes hidden, fees—up to 9% just to buy into a fund. In this battle, Investors Group had a unique advantage: It manufactured its own funds, which could then be sold through its adviser network. (Most firms don’t have both arms.)

During the 1990s, a golden decade for the industry, IG was a juggernaut, with the most mutual fund assets of any Canadian company. Then, in 2001, it acquired Mackenzie Investments for $4.2 billion, catapulting it into the stratosphere, with $76 billion in assets. (The No. 2 mutual fund company then was Royal Bank of Canada’s investment arm, with less than half the assets.) Investors Group and Mackenzie continued to operate as separate companies, but their profits fell to the same bottom line – that of IGM Financial, a publicly traded entity controlled by the Desmarais family’s Power Financial. For the first few years after the acquisition, IGM was incredibly profitable, sending its stock soaring in the run-up to the 2008 financial crisis.

Story continues below advertisement

When the markets crashed, IGM’s shares tumbled along with almost everyone else’s, and many investors became disillusioned with fund managers who’d reeled them in by touting their investing prowess. In the aftermath, investors also grew bitter about fees. Returns were harder to generate, particularly on bond funds. And low-cost ETF providers such as Vanguard and BlackRock started growing, giving them the scale needed to lower fees, because they could spread costs over more assets. Globally, Vanguard now manages $5.1 trillion (U.S.), and its fund that tracks the S&P 500 costs investors just 0.04% per year.

Then the banks started pounding at the door. They were already scooping up independent money managers (Scotiabank, for instance, acquired DundeeWealth in 2011), and after benefiting from a lending boom spurred by low rates following the crisis, the banks officially set their sights on the upcoming “decade of wealth” around 2015, arguing baby boomers would be retiring in droves and would need help with their investments. In wealth management, mutual funds were the real prize, because they account for 36% of the country’s $4.5 trillion in financial wealth—more than even bank deposits.

Beyond market forces, regulators also started to crack down on fees. Canada's provincial securities watchdogs launched a national review of mutual fund fees in December 2012, taking particular aim at trailer fees (embedded commissions the fund companies pay to financial advisers and firms that sell their products). Meanwhile, the national markets regulator, the Investment Industry Regulatory Organization of Canada, and other bodies started laying the groundwork for new rules around cost disclosure that came to be known as CRM2. It mandated that investors would receive clear and simple tallies of how much they pay to their advisers each year.

Some countries went even further. In 2012, regulators in the United Kingdom and Australia banned embedded commissions of all kinds for money managers, which meant brokers could only charge a clearly articulated fee, often between 1% and 1.5% of an investor's assets under management. If someone had $1 million in investable assets, they paid their broker $10,000 to $15,000 a year, with no hidden fees.

And yet, despite all this change, Mackenzie and Investors Group remained flat-footed. "At Mackenzie, we were losing share and losing relevance," says Jeff Orr, Power Financial's CEO, adding that the fund company had lost its innovative roots. Orr knew they needed to disrupt the company from the inside, and Carney was the guy to do it. "Jeff was a change agent," Orr says. "He's got a sense of urgency about him."

Who holds the wealth in Canada

Canadian

households

by assets

$0-100K

Total financial

wealth in Canada

$100K-$250K

80%

25%

$250K-$500K

8%

4%

$500K+

75%

8%

Who holds the wealth in Canada

Canadian

households

by assets

$0-100K

Total financial

wealth in Canada

$100K-$250K

80%

25%

$250K-$500K

8%

4%

$500K+

75%

8%

Who holds the wealth in Canada

Canadian

households

by assets

$0-100K

$100K-$250K

$250K-$500K

$500K+

8%

4%

8%

80%

Total financial

wealth in Canada

25%

75%

$4.5 Trillion

Born in Red Deer, Alberta, and later raised in Regina, Carney had Prairie roots but big aspirations. By age 29, he was working for Toronto-Dominion Bank and was soon put in charge of building a brand new wealth arm, TD Evergreen. A few years later, he was running the branch network for TD’s retail bank under former CEO Charlie Baillie, but after TD bought Canada Trust, Carney jumped to Fidelity Investments in Toronto. In 2002 he moved to the U.S., where he eventually ran the fund giant’s U.S. retail business, based out of Boston.

Story continues below advertisement

Carney's U.S. journey lasted a decade, and it included stints at Bank of America and Putnam Investments. Crucially, the latter position put him in the Desmarais orbit. When Power Corp. bought Putnam in 2007, Bob Reynolds, Carney's former boss at Fidelity, was hired to run the shop, and he brought Carney over.

After four years at Putnam, Carney was offered an executive role at Charles Schwab, the be-all and end-all in wealth management. He jumped, but his family stayed on the east coast, and Carney found himself commuting to San Francisco from Boston each week. He quickly realized it wasn’t sustainable. Homeward bound from California, he heard his phone rang. “Jeff Orr called me in the car and said, ‘Why don’t you drive to Toronto, and come and run Mackenzie?”’

What looked like it could be a trial run for the bigger prize—running Investors Group—quickly started to seem more like a suicide mission. “When I got to Mackenzie,” Carney says, “I found a company I didn’t recognize.” When he took over in May 2013, it had fallen to 12th place in a crucial adviser perception ranking—a death knell of sorts, because Mackenzie relies on other firms' advisers to sell its funds—and it was reeling from watching money walk out the door. Net redemptions hit $2.5 billion in 2011 and $4.2 billion in 2012.

For three years, Carney played the tough general, firing most of the management team and replacing many fund managers. “We let a lot of people go, and it was a small team,” he says. “They weren’t happy.” But by 2016, Mackenzie’s turnaround was taking hold, and its overall placement on the adviser-perception ranking had jumped to 5th. Impressed, Orr – who in addition to running Power Financial is also chair of IGM—asked Carney to take on Investors Group in 2016. (Barry McInerney, who had co-run Bank of Montreal’s wealth management arm, became Mackenzie’s CEO.)

Investors Group was particularly important for the Desmarais empire because it’s one of its two profit machines (the other is Great-West Lifeco). Carney came in guns blazing. Around the same time he started culling the adviser ranks, he also turned off the taps on deferred sales charges, or DSCs, which forced clients to pay as much as 5.5% simply to cash out of their mutual funds. The fees were a relic from the old days, yet somehow, more than 50% of Investors Group’s sales still came from funds with DSCs. Four months into the job, he announced he was scrapping them on new funds.

From there, Carney laid the groundwork for his rebuild. Step one: get the remaining advisers on board with his vision, because they hold the client relationships. It was a bit like herding cats, since brokers tend to think of themselves as independent entrepreneurs. So Carney has travelled to roughly 30 adviser branches across Canada in the past two years to bring them onside. Still, “they send me a lot of emails,” he says, laughing. “And they’re not shy.”

Story continues below advertisement

To boost the quality of advice, Investors Group has also mandated that all of its advisers earn the certified financial planner (CFP) designation. In a world where investment funds have become commodities, basic advice won’t cut it any more—especially not for high-net-worth clients. Wealth management needs to be a luxury service to justify its fees, and CFPs can offer advice on everything from estate planning to taxes to building a retirement portfolio.

Carney also completely remade the leadership team. Hires have included Doug Milne, who runs marketing and used to work for TD Bank; and Rhonda Goldberg, who was director of investment funds at the Ontario Securities Commission. Mike Dibden, now Investors Group’s chief operating officer, worked for Carney at Fidelity before running technology operations at brokerage CIBC Wood Gundy. The firm’s top ranks have also shrunk. “When I joined, I found what I would call a title-heavy organization,” Dibden said at a recent investor day. There are now 72 top leaders, down from 100, giving those who remain more power.

Through it all, Investors Group has moved away from its Winnipeg roots; the power centre is now firmly planted in Toronto. This shift is only growing more pronounced as Mackenzie and Investors Group merge many of their managerial and back-office functions to finally create some synergies. The two firms, for instance, used to have their own chief investment officers; now there's only one, and he works in Toronto. Orr says Winnipeg remains a base for Investors Group, but adds there is "a war for talent," and that "in the world today, you take the talent where you can get it."

Over the next few years, more cost savings and synergies are likely to materialize. Investors Group’s back office had been ignored for far too long, and many functions are still done on paper, preventing the firm from leveraging its scale to save money. Manual processes also make life difficult for advisers, because they increase the likelihood for errors. “The last thing they want to do is talk to their clients about a mistake,” Carney says. Investors Group has set a target of $50 million in savings by 2023, from a combination of automation, outsourcing and shrinking the real estate footprint.

The next step is to go upscale. In 2016, three-quarters of Canada’s $4-trillion-plus in financial wealth resided with households with $500,000 or more in assets, according to Investor Economics. Investors Group already has a decent footprint in this market—44% of its assets come from high net-worth clients, but its new name is designed to lure even more of them.

The trouble is that new branding alone won't force Investors Group to kick old habits. High-net-worth clients want top-notch portfolio advice, but at the moment, about 85% of Investors Group's assets under management are in the firm's high-cost proprietary funds. That means advisers are still often pushing in-house products over, say, low-cost ETFs.

There might be a simple fix for some of this: Mackenzie has a new suite of ETFs, and as the two companies become increasingly intertwined, those products will likely be available to the Investors Group adviser network. But the firm also has to be mindful of what the watchdogs are doing. Earlier this year, RBC's mutual fund arm was fined $1.1 million by the Ontario Securities Commission for paying some of its advisers a better commission to sell the bank's own funds between 2011 and 2016.

For the first time in at least a decade, Investors Group has the industry buzzing. “We have covered IGM Financial for nearly 10 years, and up until April this year have never had an outperformer rating on the stock,” wrote Paul Holden, a CIBC World Markets analyst, in a recent research report. He does now. “IGM is a far better company today in terms of strategy, competitive positioning and financial efficiency,” Holden added. Investors Group’s move to an upscale market is a big reason why. “IG specifically has strategically positioned itself to make its fees more defensible.”

Holden argues the broader industry is also on better footing. After years of intense pressure on fund fees, there seems to be room to breathe. He argues that while fees are likely to keep falling, “think of a gentle slide, not a cliff.” The reasons? ETFs still have a lower market share in Canada than they do in the U.S. (though that could change), and this June, provincial securities regulators finally wrapped up their mutual fund fee review. The only major change was to propose outlawing DSCs for the firms that still have them. Trailer fees live on.

There is also a statistic that tends to get overlooked. For all the hype around robo-advisers and discount brokerages that allow do-it-yourselfers to manage their portfolios online, 85% of mutual funds in Canada are still sold through advisers. That’s money in the bank for Investors Group because of its sizable distribution network, so long as the regulators don’t demand more of an open architecture – that is, allowing outside firms to sell their funds through its adviser network.

The billion-dollar question now is whether Investors Group has more room to run. As the firm fights for market share in the high-net-worth market, it will have to take on the big banks. "They're in for a grand fight," says Canaccord Genuity analyst Scott Chan.

And what about the clients Investors Group could leave behind—who will take care of them?

Ryan Enn Hughes

A few years after Britain switched to fee-based accounts, the top regulator there studied the impacts. The main findings were that transparency had improved and conflicts of interest arising from commissions had dwindled—exactly what they wanted. However, middle-income clients were getting shut out. It came down to simple math: If a client has $100,000 in investable assets, earning $1,500 off them each year often isn’t worth the adviser’s time, so the proportion of British brokerages that demanded their clients have more than £100,000 (roughly $170,000) in their portfolios jumped to 32% in 2015 from 13% in 2013.

In Canada, the banks' solution has been to push low- to middle-income clients out of their brokerage arms, such as BMO Nesbitt Burns and ScotiaMcLeod, to their branch networks, where the advice is less tailored. "It's getting harder for the [brokerage arms], with their high overhead costs, to make money on even a $500,000 client," says Jason Heath, a financial planner at Objective Financial Partners who uses a fee-only model. Since the 2008 crisis, regulators have demanded further checks and balances, and they require hefty investments in new data and compliance systems.

Investors Group's clients don't have the luxury of being shifted to a lower-cost network. But lately, some fresh options have emerged. "There are a lot more lower-cost solutions evolving," says Heath. Robo-advisers have caught on, and small but burgeoning firms such as Steadyhand Investment Funds are creating large pools of low-cost, basic funds that can fulfill most average investors' needs. Arguably, they serve these clients even better than firms like Investors Group ever did, because over decades high fees can devour up to onequarter of the growth of a typical retirement portfolio.

The bank branch channel, which caters to smaller investors, has also come a long way. The lenders now employ roughly 10,000 mutual fund advisers in this channel, and their training has vastly improved. “I hate to say this, but in Canada, we are fairly lucky in the sense that the banks have advice in the branch,” says Tom Bradley, who founded Steadyhand and ran asset manager Phillips Hager & North before it was sold to RBC. He does say that quality can be all over the map, but when it’s good advice, it can be better for smaller clients because they rarely get noticed by their full-service brokers. “They don’t get any attention,” he argues. “They get a call in February at RRSP time. That’s the only time an adviser phones a small client.”

At Investors Group, there’s at least some semblance of a plan to deal with smaller accounts. The company has set up a National Service Centre – a quasi-dumping ground for clients who have $10,000 or less in investable assets. Late last year, these accounts amounted to 28% of Investors Group’s households served, but less than 1% of its assets. The thinking is that these clients can put their money in a few basic funds and be well-served by a centralized centre.

There's also a wild card. In addition to Mackenzie and Investors Group, the Desmarais family happens to control Wealthsimple, Canada's largest and most successful roboadviser, and Carney sits on its board. Could clients with smaller accounts be funnelled to this low-cost computerized service? "I think it's too early to make that call," Carney says when asked. But he doesn't rule it out.

What he does say is that robo-advisers likely won’t be a panacea—not for Investors Group and not for the industry at large. At some point, whether it’s at a certain age or at a certain asset threshold, financial planning tends to require a real conversation— and it’s best done face to face. “I don’t see a model where the human isn’t involved,” Carney says, before making an analogy: Some surgery can now be done by robots, but when the time comes for your own procedure, “Do you want a doctor in there, or do you want a robot?”

Report an error Editorial code of conduct
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.