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Redemption woes continue at AIM as CI pulls business

Lack of holdings in the red-hot oil and gas sectors partly responsible, KEITH DAMSELL says


Registered retirement savings plan season is looking increasingly like redemption season for AIM Funds Management Inc. This month, CI Financial Inc. gave the Toronto fund company notice it was yanking about $400-million in funds sub-advised by AIM Fund's Trimark team. The loss of business from CI Financial's Clarica-branded funds will be recorded in AIM Fund's March sales statistics.

The hit follows January net redemptions of $396-million for AIM Funds, the well-regarded subsidiary of Britain's Amvescap PLC. AIM Funds has been losing investment dollars since August last year as a result of a strong Canadian dollar, weak foreign markets and, most critically, limited energy exposure. Many of the value-driven manager's largest funds have little or no holdings in the red-hot oil and gas sectors.

The senior management of CI Financial declined to comment. Officials at AIM Funds were unavailable for comment.

While industry sources indicate the management change is performance-driven, it's worth noting there is no love lost between CI Financial and AIM Funds. Last summer, aggressive CI made an unsolicited bid for parent Amvescap, a $7-billion cash offer that was quickly dismissed by the British company's board of directors and senior management team.

AIM Funds joins a list of firms that have lost CI Financial business as the fund company shifts money management in-house. In June last year, Fidelity Investments Canada Ltd. said goodbye to a $400-million Clarica mandate.

Performa bidders sought

Standard Life Assurance Co. has drawn up a short-list of potential bidders for its mutual fund dealership Performa Financial Group Ltd., industry sources said.

The Montreal company declined to comment, but said no deal is imminent. British parent Standard Life is focusing on core operations in preparation for an expected summer initial public offering.

Performa has been on the block since late last year. Created in 1998, the firm has struggled to build the scale necessary to compete in the consolidating industry, industry sources said. The dealership has about 125 advisers across Canada and an estimated $1.5-billion in assets under administration.

Staving off redemptions

Mackenzie Financial Corp. is the latest fund company to address the ongoing debate over how much financial advisers are paid.

In a Feb. 10 prospectus amendment, Mackenzie served notice that new investors in the company's funds "will automatically pay an increased trailing commission to your dealer, once the redemption charge schedule for those units has expired."

What's it mean? The short answer is that advisers that get a client in to a Mackenzie fund will receive a sweetened annual fee after the seventh year of investment. The theory is that by changing incentives for the adviser, clients will hold funds for a longer period.

Adviser compensation for maturing assets is a key issue, especially for fund companies that had strong growth in the 1990s and are fighting redemptions, a group that includes AIC Ltd., AGF Management Ltd. and Fidelity Investments Canada Ltd. "All of the fund companies have been grappling with this," said Dan Richards, a Toronto fund marketing consultant.

In the 1990s, funds were typically sold "back-end" with an upfront commission. Financial advisers received a 5-per-cent commission based on assets under management (AUM) from the fund company. The planner received an additional annual trailer or management fee that came out of the management expense ratio. In general, planners pocketed half of 1 per cent of AUM for an equity fund and a quarter of 1 per cent of AUM for a fixed-income fund.

Then the market capsized in 2000 and upfront commissions took a body blow. Investors are now keen on more transparent fee-based compensation. The bulk of funds these days are sold "front-end" with no commission but a sweetened trailer for the planner: 1 per cent of AUM for equity funds and half that for fixed income.

In both scenarios, the DSC or "deferred sales charge," the cost to the investor to sell his or her units, declines over time. By the end of year seven, investors can unload their units without a financial hit.

The problem is all those fund sales in the nineties are now coming off the DSC schedule. Fund companies keep the details under lock and key but it is safe to say that every month, there's less incentive for billions of investment dollars to stay put and it has created a mess of competing interests.

Fund companies are tackling the issue in very different ways. After year seven, funds managed by Brandes Investment Partners & Co., for example, are automatically rolled into a front-end schedule with a sweetened trailer. AIC, meanwhile, has a DSC schedule that increases trailer fees to planners over seven years.

© 2007 The Globe and Mail. All rights reserved.

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