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AIC opens purse strings to stanch redemptions

Raises payout for sales, but work may be needed on many fronts, KEITH DAMSELL warns


AIC Ltd. has increased the compensation it pays to financial advisers, the latest attempt by the Burlington, Ont.-based fund company to end many months of redemptions.

Under the plan, advisers will receive an upfront commission of 3 per cent, an increase from 1.5 per cent, for AIC funds sold with a low-load sales charge. And after year three, low-load unitholders will be able to sell without taking a financial haircut.

Increasingly popular low-load funds cut adviser compensation at the time of purchase, and trim exit fees at a more rapid clip.

In addition, AIC will automatically increase compensation on funds sold on a deferred sales charge (DSC) basis, providing incentive for third-party advisers to keep their clients in AIC's funds after year seven.

AIC's measures are far from revolutionary.

Toronto-based Brandes Investment Partners & Co. was the first to tweak its DSC compensation schedule back in 2002, and since then many mid-tier firms have followed suit in an effort to build loyalty and compete.

The big question is, of course, will AIC's new measures be able to make a significant difference? The company continues to shrink, with assets under management hovering at about $9-billion, down from a peak of about $15.4-billion just a few years ago.

AIC's moves mark an auspicious start, said a number of financial advisers and fund executives. But as Fidelity Investments Canada Ltd. and AGF Management Ltd., both of Toronto, can attest, a turnaround takes hard work on many fronts -- including compelling new products, improved fund performance and engagement with the financial advice community.

To AIC's credit, financial advisers are taking notice. For the first time in a long time, on-line industry chat rooms are talking about the company. And there are some signs the worst may be over. Net redemptions have slowed -- about $464-million went out the door in the first three months of this year, compared with more than $1-billion during the same period in 2005.

That said, no one is predicting a turnaround. AIC's new products, including trust offerings and the Pools group of funds, have yet to spark much enthusiasm. On AIC industry road shows, funds managed by the company's top manager James Cole take a back seat to the lacklustre AIC Advantage funds overseen by billionaire founder Michael Lee-Chin.

As one fund executive said: "Times have changed. With AIC, it's the same old story."

Strange as it may seem, the charismatic Mr. Lee-Chin is both the company's greatest asset and its biggest liability. He is standing fast, sticking with his "buy-and-hold" message as the rest of the industry diversifies and chases the latest trend.

Clarington unitholders

may see some savingsThere may be some fee relief for unitholders of Clarington funds after all.

At a recent Toronto meeting with financial advisers, David Scandiffio, new president of ClaringtonFunds Inc., a subsidiary of Toronto-based Clarington Corp., promised management expense ratios will fall later this year.

Industrial Alliance Insurance and Financial Services Inc. of Quebec City acquired control of Clarington Corp. and its fund business in December. Integrating back-office operations to one platform will mean "a few million" dollars in savings that will be passed on to unitholders, Mr. Scandiffio said.

Fee-cutting was a key issue during the takeover battle for Clarington.

Hostile suitor CI Financial Inc. of Toronto provided fund-by-fund details of proposed fee cuts, but Industrial Alliance was less forthcoming, promising only to keep costs competitive.

Edward Jones boss

earns princely pay

Quick -- who was the top earner in the mutual fund and financial advice sector last year?

We'll never know the take-home pay of AIC Ltd.'s Michael Lee-Chin but Gary Reamey may be within spitting distance of the top spot.

Mr. Reamey, the affable head of Canadian operations of Edward Jones & Co. LP, took home a princely $7.2-million (U.S.) in compensation last year. That's up a handsome 60 per cent from about $4.5-million in 2004.

Mr. Reamey's talents command a huge premium above some of the industry's leading executives. Bill Holland, head of CI Financial Inc., reported total fiscal 2005 compensation of $2.8-million (Canadian.) Blake Goldring, president and CEO of Toronto-based AGF Management Ltd., took home about $1.5-million and 230,000 stock options, while Murray J. Taylor, co-president and co-CEO of Winnipeg-based IGM Financial Inc., reported total compensation of $1.2-million last year.

Edward Jones of St. Louis, Mo., is not a public company, but it discloses compensation figures for its top executives in filings with the U.S. Securities and Exchange Commission. Compensation at the private partnership includes a return on capital that the executives invested in the brokerage.

© 2007 The Globe and Mail. All rights reserved.

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