Kurt MacAlpine says he won’t be stepping off the gas in his bid to transform CI Financial Corp. More change is needed if the firm is to keep pace with a rapidly evolving business environment, says the CEO of the Toronto-based independent asset and wealth manager.
“To me, the single biggest risk is doing nothing and maintaining the status quo,” MacAlpine says.
Last September, MacAlpine took over the reins of a firm that has been beset in recent years by net redemptions in its retail mutual fund line of business and a perceived lack of clarity in terms of its strategic focus. MacAlpine spent his initial weeks in the top job consulting with stakeholders on ways the firm could move forward.
In November, MacAlpine outlined the firm’s three new strategic priorities: modernizing asset management, expanding wealth management and globalizing the company. He says that all deals and initiatives the firm is undertaking will be “anchored” against at least one of those priorities.
“A lot of the changes and the things we’re pushing forward are related in many ways or are complementary to one another,” MacAlpine says. “We’re not in fifteen different industries, with a lot of different complexities, which I think then would potentially compromise the rate of execution.”
CI Financial has certainly been busy deal-making since last fall.
The firm has taken a majority or strategic interest in four U.S.-based registered investment advisor (RIA) firms with total assets of $8.1 billion. It also bought the Canadian ETF business of New York-based WisdomTree Investments Inc., MacAlpine’s previous firm, and launched three new fixed income fund mandates in Canada, sub-advised by star manager Jeffrey Gundlach, in a partnership between CI Financial and Los Angeles-based DoubleLine Capital LP.
“We recognized we had a need [in fixed income products]. We wanted to find the best manager available, period, and we wanted to move that relationship [with DoubleLine] forward,” MacAlpine says.
CI Financial has also announced changes on the technology front in-house, including introducing a new analytics capability that “allows us to identify, segment and prioritize sales opportunities across our company — prioritize who we should talk to, what we should talk to them about and how we can best engage them.”
The firm is also merging its two digital investing platforms, and has announced a corporate-wide rebranding initiative that, once completed this fall, will see about 20 distinct brands consolidated into just six, all carrying the CI banner. “We’re able to go to market in a very clear, consistent and systematic way,” MacAlpine says.
MacAlpine says an immediate focus for the firm will be building out its new wealth business in the U.S. He estimates that CI Financial could add $10 billion to $15 billion in AUM annually via RIA acquisitions. While the first deals were “more challenging” since CI Financial was a relative unknown in the U.S. marketplace, MacAlpine says, RIA firms are now reaching out directly to ask about partnering. “Our pipeline is absolutely phenomenal,” he says.
According to Marina Shtyrkov, senior analyst with Boston-based research firm Cerulli Associates, the U.S. RIA sector is “a fragmented market that is ripe for M&A.” There are about 17,000 RIAs managing about US$4.8 trillion in assets for high net-worth clients in the U.S. An “impending succession crisis” is a key contributing factor to increased merger activity in the market, she says, with about a third of advisors in the RIA channel planning to retire in the next 10 years.
However, “consolidator” firms new to the sector might face challenges, Shtyrkov says: “Unless they have the experience of doing these acquisitions before, that integration process can take longer and be more difficult than they originally expected.”
MacAlpine says that while each of the RIA deals has taken “a lot of work,” the integration of the businesses has not been particularly difficult, as “the primary relationship exists with the financial advisor and their clients.” CI Financial, as an established wealth manager, steps in to handle the logistics: “We could do two deals, or fifteen deals, and it’s not really adding to the complexity.”
While competition for RIAs has increased, CI Financial has the advantage, MacAlpine says, of being able to offer RIAs access not only to capital, corporate infrastructure, investment management expertise and cost-saving synergies, but also the opportunity to work with CI Financial’s high net-worth clients, the majority of whom spend at least some of the year in the U.S.
“We now have the ability and a network to serve [clients] seamlessly north and south of the border,” MacAlpine says.
CI Financial is also making deals in the asset management space, MacAlpine says, looking to fill gaps in three areas: fixed-income capabilities, alternative products and investment solutions tailored to client preferences today. For example, in April, CI Financial announced a partnership with U.S.-based Adams Street Partners LLC to offer private market investment products, adding to CI Financial’s existing alternative product lineup.
“We see a lot of demand in our proprietary channels and third-party channels for access to private equity, real estate infrastructure and other [alternative assets],” MacAlpine says.
MacAlpine says that the firm’s goal is to complement its existing strengths in its asset management capabilities, rather than pivot away from them. The firm also remains committed to mutual funds, he says.
“One of the things you’ve seen us do a lot lately is that when we launch new funds, we’re launching the mutual fund and the ETF [versions] on the same day,” MacAlpine says, “because we want to make sure that consumers have the choice.”
Net redemptions, however, remain an issue for the firm: CI Financial’s Canadian retail business, excluding products closed to new investors, had $1.0 billion in net redemptions at the end of the second quarter of 2020 (June 30), which nevertheless represents a $900-million improvement over the same period last year.
Dan Hallett, vice-president and principal with Oakville, Ont.-based HighView Financial Group, says factors such as demographic change, fee compression, rising regulatory costs and increasing competition have been challenging Canadian asset managers for years now. It’s no surprise that CI Financial is moving with urgency to upgrade its product lineup, he says.
“You have to put a lot of pieces in place to position yourself to turn a situation like that around,” Hallett says. “It takes time.”
MacAlpine says that CI Financial’s rebranding will allow clients and the market overall to better understand the firm’s strategy and value proposition.
The firm’s dozen or so fund family names will be rebranded CI Asset Management; Assante Wealth Management will become CI Assante Wealth Management; Stonegate Private Counsel and CI Financial’s new U.S. RIA businesses will be known as CI Private Wealth; and robo-advisor WealthBar and direct investing platform Virtual Brokers will be merged and renamed CI Direct Investing.
The rebranding will also allow the firm to maximize the impact of its marketing efforts and reduce costs, MacAlpine says.
“Over the last number of years, the firms that have the most success are the firms with the largest brands, highest perception of stability and the most integrated business models,” MacAlpine says. “People are gravitating toward stability and strength, which we have, but we just weren’t representing and marketing ourselves that way.”