Now that bill Hol-land, the newly named executive chairman at Toronto-based CI Financial Corp., has handed over the title of CEO to company president Stephen MacPhail, he is less preoccupied with the day-to-day management of the business. Having said that, Holland is brimming with ideas about CI’s growth strategy and how to stay in the top ranks of the increasingly competitive money-management business in Canada.

“We no longer look at ourselves as a mutual fund company, but as an asset manager,” Holland says. “We manage retail, we manage institutional. And we look for any avenue to manage money. That could be mutual funds, closed-end funds, structured products, insurance products and, potentially, exchange-traded funds. To grow, we must continue to find ways to manage more money and expand into new distribution channels.”

As an asset manager, CI will look at all business options and will not be as concerned with margins on a specific business as it would be with economies of scale and the ultimate bottom line, he adds: “We would consider a low-margin business if there was enough of it.”

Holland, 51, has been with CI since he started as head of sales and marketing 22 years ago. He says the “executive” in his new title implies he still intends to be hands-on. In 2005, he passed the title of president to MacPhail, who had joined the company in 1994 as chief financial officer. Holland says there has been a gradual shift in the number of senior officers reporting to MacPhail, and MacPhail’s recent assumption of the CEO mantle simply “aligns his responsibilities with his title.

“For me, anything less than the executive chairman role would signal I was trying to extricate myself from CI, which is not the case,” says Holland, who once worked as a soft-drink delivery-truck driver and is described by industry observers as highly competitive, ambitious and energetic. “There is no expiry date on my position. The reality is that there is an incredible group of executives within the company, and the people doing the heavy lifting should be getting the recognition. My job doesn’t change, and that is to drive the strategic positioning of the company.”

Holland and MacPhail have offices adjacent to each other. They constantly share ideas and talk up to 20 times a day, MacPhail says. Although their personalities are similar in some respects — and both are keenly focused on financial issues — MacPhail says he “has more patience for dealing with the day-to-day operating issues.” That skill complements Holland’s strength in assessing the big picture and devising ways to capitalize on trends. MacPhail admits he and Holland both are strong-willed, but in 16 years of working together MacPhail doesn’t recall a situation in which he and Holland didn’t ultimately reach the same conclusion on an issue — even though there could have been differences of opinion and some debate along the way.

“I focus on all aspects of the business,” MacPhail says. “While my primary focus until now has been financial, technology and operational issues, I will now be providing more oversight on the marketing and money-management side. Bill doesn’t focus on the day-to-day, but he still knows all the details of what’s going on. In a big company, you must deal with all elements of the business and focus strategically all the time.”

With assets under management of $67 billion as of Aug. 31, CI is one of the giants in Canada’s fund-management industry, overshadowed only by RBC Asset Management Inc. of Toronto, with $101 billion in AUM, and IGM Financial Inc. of Winnipeg, with $99 billion in AUM. Unlike some smaller competitors, CI has been able to maintain strong sales and asset growth as the big banks have garnered huge market share in the mutual fund industry during the past decade or so.

Even within the past year, CI has been able to increase its market share, which had risen slightly to 9.4% as of June 30 from 9.3% a year earlier. Annual net sales have exceeded $1.2 billion every year for the past six years, Holland says, and since CI went public in 1994, it has had positive sales on a monthly basis 89% of the time.

But, Holland says, for the industry overall, sales as a percentage of industry assets had peaked in 1997. The competitive situation hasn’t been helped by two severe bear markets that investors have endured since 2000 — and, he adds, Canadians have become a cautious bunch.

Combined with demographic trends that see baby boomers moving toward retirement, the fear of losses has increased the demand for balanced and fixed-income products — at the expense of equity funds — as well as increasing demand for guaranteed products such as regular segregated funds and the newer breed of seg funds that have guaranteed minimum withdrawal benefits.

These higher-demand products tend to have lower margins than straight equity funds because of lower management fees on fixed-income and the higher costs on the guarantees.

One way for CI to augment its AUM could be by developing a closer relationship with its largest shareholder, Bank of Nova Scotia, which picked up a 37% stake in CI two years ago, when Sun Life Financial Inc. of Toronto sold it during the 2008 credit crisis.

There has been some speculation on the Street that Scotiabank could ultimately move to make a full takeover of CI; but for now, the bank is biding its time as a passive shareholder, enjoying rising dividends on its stake.

Ultimately, Holland would like to see the bank selling more of CI’s retail funds as well as inviting CI to manage some of its structured products. But, he says, “The ball is in the bank’s court.”

CI is already acting as a subadvisor on two new funds offered by Scotiabank — Scotia Global Balanced Fund and Scotia Global Dividend Fund — and Holland hopes for more of this kind of business.
@page_break@“Bank of Nova Scotia has a whole menu of products and is involved with traditional retail as well as institutional business [such as] pension funds,” Holland says. “It has been very accommodating the past couple of months in sitting down and going through areas in which we could do business with them — and I’m optimistic on the time frame. We are fortunate to have our largest shareholder going down the list, looking and seeing where we could do business together.”

Holland adds that he would like to see CI develop a relationship with Scotiabank similar in nature to the one CI already shares with Sun Life. Although Sun Life hasn’t been a major stakeholder in CI since it sold its shares to Scotiabank, CI’s funds continue to be “preferred products” distributed through Sun Life’s network of insurance advisors — and Sun Life acts as the guarantor on CI’s family of seg funds.

Although Sun Life recently announced it is developing a proprietary family of Sun Life-sponsored mutual funds, Holland is confident the new funds will not dislodge CI’s place on Sun Life’s product shelf because of CI’s strong stable of fund managers, who have superior performance and long track records.

Currently, about 13% of CI’s gross sales come through Sun Life, while another 15% comes through the network of financial advisors at Toronto-based Assante Wealth Management (Canada) Ltd. , which CI purchased in 2003 to give it a foothold in the distribution business as a complement to the manufacturing side.

Although Assante is one of the largest independent wealth-management firms — with $20 billion of financial assets under administration, resulting in total fee-earning assets of $88.5 billion for CI — Holland says the distribution side is less profitable than money management. In fact, at this point, that business is about break-even.

However, he adds, having a close relationship with a sales force is an important feature of successful money-management firms. As an example, he points to the distribution power of the big banks and Winnipeg-based Investors Group Inc., all of which have captive sales forces.

“The big companies need the distribution networks to feed the business, even if it requires subsidization at some point,” he says. “Costs are a big part of the game, and the best way to manage costs is through economies of scale.”

Dan Hallett, director of asset management with Oakville, Ont.-based HighView Financial Group, says that although no firm can “force products” down the throat of the distribution channel, there is a certain amount of loyalty that comes from corporate affiliation.

“There is some asset pickup, as well as stickiness of assets,” Hallett says, “if there is a related distribution arm.”

Holland expects continued consolidation in the distribution business and says Assante would look at acquiring other financial planning firms. Holland notes that Assante is already made up of 22 companies that have been blended together — and each of those had previously grown by making acquisitions. He adds that CI also views acquisitions as a viable strategy to fuel growth.

However, Holland sees little benefit in acquiring large competitors currently experiencing heavy redemptions, as it is too difficult to turn around a troubled brand. It’s also possible that CI would make an acquisition to boost the institutional side of its the business, which currently stands at $9 billion in AUM.

“The goal is always to keep growing, and to take opportunities where we find them,” concurs MacPhail. “You can see examples in the industry of some mutual fund companies that are stumbling and losing assets. The key thing is to adapt to change. Our focus is to be at the top of the industry five years down the road, and we are willing to take advantage of any opportunity we see as profitable.”

Says Hallett: “The institutional side is another avenue in which CI could increase scale, and it’s intent on doing that.”

In 2009, CI created a new division, CI Insti-tu-tional Asset Man-age-ment, to combine with the insti-tutional business of wholly owned CI subsidiary KBSH Capital Management Inc. of Toronto. With the new division, CI can market its combined stable of investment managers to institutional clients.

CI also owns 25% of Altrinsic Global Advisors LLC, a New York-based institutional money-management firm that has US$9 billion in AUM.

There are slim opportunities to grow through the introduction of new products, as CI already covers the waterfront with a wide variety of funds investing in various asset classes. CI funds offer access to about 40 fund managers, including in-house and outside subadvisors.

Furthermore, some of CI’s money managers have developed their own strong identities and followers, including Alan Radlo, who manages CI’s Cambridge group of funds from his base in Boston; Eric Bushell, chief investment officer of CI’s Signature Global Advisors team in Toronto; and Gerry Coleman, who manages the CI Harbour group of funds from Oakville.

CI has demonstrated that it has strong backups in place if a fund manager happens to leave the fold — as indicated by its replacement of Kim Shannon by Dan Bubis, president of Tetrem Capital Partners Ltd. of Winnipeg.

Shannon, president of Toronto based Sionna Investment Man-agers Inc. abdicated responsibility for the $8 billion in assets she subadvised for CI in 2006 to form a strategic alliance with Toronto-based Brandes Investment Partners & Co.

About 65% of CI’s AUM is in Canadian products vs global — and this has been helpful during the past 10 years, with the underperformance of U.S. and global assets. Over the past decade, 77% of CI’s AUM has achieved top-quartile performance. IE