AIM Funds Manage–ment Inc. of Toronto is in damage-control mode, trying to win back disgruntled advisors, attract wholesalers, boost fund performance and curtail redemptions. It’s also working to strengthen its stable of portfolio managers, which has been beset with resignations.

The task of putting the company back on track has fallen to Peter Intraligi, recently promoted to chief operating officer in charge of Canada by senior managing director Phil Taylor, who is in charge of North American retail business for Invesco Ltd., AIM’s London-based parent.

Intraligi, who worked for AIM on the acquisition of Trimark Financial Corp. in 2000 from its founders, Arthur Labatt and Robert Krembil, says Invesco (formerly Amvescap) made some bad decisions in its restructuring of merged company’s operations.

“We’ve made some mistakes,” he says. “We’re trying to correct those mistakes.”

In particular, Intraligi says, the company may have gone astray when it overhauled its wholesaler structure. Instead of allocating territory to wholesalers on a geographical basis, it assigned wholesalers on the basis of distribution channels, meaning a wholesaler was responsible for investment dealers in the territory, while another was responsible for mutual fund dealers, he says. Whether an advisor received service depended on a formula with 15 variables, including revenue, profit, tenure and firm, not just assets, Intraligi says. Many rural advisors lost coverage.

Advisors didn’t welcome the changes with open arms, Intraligi acknowledges. For example, advi-sors in a small city that previously had a dedicated wholesaler might have had to share a wholesaler with a nearby city, losing exclusive access to that person. Another advisor with a planning firm might be upset because he or she had a new wholesaler dedicated to planners, while the wholesaler with whom the advisor had a relationship was working in the same city but covering investment dealers only.

Some advisors had complained the changes disrupted long-held relationships with wholesalers. Stories circulate of blunders such as wholesalers walking into meetings unprepared, or even delivering the wrong seminar to a group.

“We made some changes to the sales team that were not well received by our clients,” Intraligi admits. “We are addressing changes that shouldn’t have been made.”

He says the new structure will be refined and that the firm will work with advisors to address their concerns about coverage. “You do have to add some objectivity, in terms of defining the territories,” Intraligi says. “Where we have issues, we’re going to address them. No model is perfect.”

The problem-solving will be overseen by Scott McLean, the new senior vice president of retail sales.

“It’s a relationship business,” Intraligi says. “We don’t want to frustrate our clients. We don’t want to frustrate the advisors — and, unfortunately, we did.”

Intraligi says AIM’s attractions for advisors include the firm’s financial planning software and access to its tax and estate planning group, headed by Jamie Golombek. Through the January to April tax season, the team takes 1,200 to 1,400 calls a month from advisors, and about 1,000 calls a month during the off-season.

Also appealing to advisors and investors alike should be AIM’s focus on management expenses. Cost-cutting has resulted in lower management expense ratios.

“We have the lowest MERs in our peer class,” Intraligi says. “Some of the changes have had real tangible benefits. There’s also greater breadth and choice of product.”

For example, AIM’s asset-weighted MER in the international equity and global fund category is the lowest of its peers, at 2.19%; ditto in the Canadian bond fund category, at 1.28%.

However, mutual fund returns have fallen below the gains in the S&P/TSX composite index, in part the result of decisions to underweight resources stocks and a failure to hedge the Canadian dollar. This strategy reflects a typical long-term view that avoids the cyclical resources stocks — the same sector that propelled the TSX to record highs this past year.

Some AIM funds have done well. The $1.2-billion AIM Canadian Balanced Fund had a return of 2.2% in the year ended Dec. 31, 2007, placing it in the second quartile. For the three-year period ended Dec. 31, the fund had an average annual compound return of 10.25%, a first-quartile performance.

AIM International Growth Class had a one-year loss of 2.7% but a three-year average annual return of 12.4%, landing it in the first quartile for the three-year period.

@page_break@But Trimark-branded value-oriented funds have been lagging. The $6.5-bilion Trimark Income Growth Fund, which has a one-year loss of 8.1% and average annual compound return of 2.6% for the three years, is in the fourth quartile.

It’s a similar story with the $5.2-billion Trimark Fund and the $3.4-billion Trimark Select Canadian.

That weak fund performance, coupled with reduced service to advisors, has contributed to a stream of redemptions, says fund industry analyst Dan Hallett, president of Dan Hallett and Associates Inc. of Windsor, Ont. Net redemptions were about $500 million in November and $298 million in December.

“If you’re not getting anyone on the phone to answer your questions, I can see exactly why advisors wouldn’t want to keep their money there,” Hallett says. “[AIM] alienated a lot of advisors.”

AIM has also been grappling with the flight of star managers, including Keith Graham, who quit in 2003 to go to AGF Funds Inc., and Bill Kanko, who bolted in 2004 to found his own firm, Black Creek Investments. More recent losses include Geoff MacDonald, who made tracks in August 2007, shortly after chief investment officer Patrick Farmer announced he would be stepping down in the fall. The most recent blow was the departure of Tye Bousada, lead manager of Trimark Fund, who decamped in January. After he quit, Morningstar Canada placed the three-star rated fund under review.

Intraligi says AIM plans to recruit analysts, not veteran portfolio managers, to fill vacancies on the investment team: “We recruit analysts, develop talent, and eventually develop them into portfolio managers.”

Hallett, however, is concerned about the senior fund managers who remain with the firm, including Richard Jenkins, Judith Adams and Ian Hardacre. “My concern is: can AIM keep the very good people it has left, and can it attract the skilled managers it needs to replace the people it has lost?” Hallett says. “That’s only something that can be answered with time.”

One way to stem the loss of portfolio managers, Hallett suggests, is to give them a say in the selection of a new chief investment officer to replace Farmer, who packed up his office in October. Intraligi says the search for Farmer’s replacement is almost complete.

AIM CEO Taylor has taken his fair chare of criticism for the company’s problems. But Taylor says the firm is firmly focused on the future.

“As an organization, we are focused on our strategic priorities,” he says, “including achieving long-term strong investment performance and putting inves-tors’ interests first. Over the past 26 years, the Trimark discipline of business people buying businesses has rewarded long-term investors throughout many market conditions. I’m confident that this will be the case going forward.”

Robert Almeida, senior vice-president of Burlington, Ont.-based AIC Ltd. and co-manager of AIC Advantage funds, has been keeping a close eye on Invesco’s global operations — Invesco is the top holding in his funds, representing 18% of $1.5 billion in assets under management. He says Invesco has been working at streamlining its business, integrating worldwide operations and expanding its global footprint, and is working on distributing its Canadian-run funds in other markets.

“To the extent there are any issues in any local businesses,” Almeida says, “Invesco is not going to allow things to go unfixed for an extended period of time.”

Meanwhile, Intraligi has embarked on a cross-Canada tour that has him visiting 20 cities between January and March for round-table meetings with advisors.

“It’s is going very well,” he says of the meetings. “We’ve gotten some great feedback.”

Adds Hallett: “They’re starting to call people up and say: ‘We’re sorry for the way you’ve been treated for the past few years.’ It’s going to take time for advisors to trust that this is a permanent change.”

Although AIM appears to be taking the right steps, Hallett says, “It takes time to turn the ship around. You have to come to a stop before you can turn the other way.” IE