Since it entered the U.S. RIA market last year, Canadian asset manager CI Financial has been on an M&A rampage.
The Toronto-based company has purchased more than 14 independent advisory firms, giving it an approximate $63 billion asset presence in the U.S.
But while the company has proven it can close sizable deals
“That’s what I kind of worry about with CI,” says James Shanahan, a senior equity analyst who covers CI Financial at Edward Jones. “Based upon disclosures they’ve provided, which are limited, it doesn’t appear that this wealth management strategy is very profitable yet.”
On a recent earnings call with analysts, CI Financial provided little information to analysts about the price tag for RIAs it’s purchased.
“It's not something we will be disclosing proactively,” Kurt MacAlpine, CI Financial’s CEO, said in response to a query of the aggregate price of its deals. “I want to make sure that we're positioning ourselves for the best success possible as we have those conversations,” he added later.
According to Shanahan’s estimates, CI Financial deployed about $437.5 million in cash in 2020 on acquisitions, which doesn't include shares the company has issued, nor contingent compensation to the RIAs.
CI Financial pivoted in strategy at the end of 2019, following MacAlpine’s arrival at the company. He
The organization’s pivot follows years of asset outflows from its mutual fund business, beginning in 2016.
“That’s when trouble started,” Shanahan says, adding: “It was almost a total reversal” of its funds’ historic success.
As part of its new strategy, MacAlpine wants to revamp its asset management offering, which has long been the focus of the business. The company released its first cryptocurrency funds earlier this year. Its Ethereum ETF, which launched on April 20, gathered $150 million in assets during its first nine trading days, according to MacAlpine.
But the firm is also digging its heels into the wealth management market, in both Canada and the U.S. Indeed, assets in CI’s wealth management business exceeded those in its asset management arm for the first time during the first quarter.
“We have never been more focused on wealth management,” MacAlpine said on the call.
Since its first RIA acquisition in 2020, CI Financial has scooped up firms including $6 billion wealth management firm
Early company results show that the contribution of CI's wealth management segment to its adjusted EBITDA is expected to be $139.2 million after the Dowling & Yahnke deal closes, up from $28.2 million in 2020.
While several analysts seem
“That’s the challenge,” Shanahan says. “They’re trying to grow in a space where there are two large players that are established and also have deep pockets.”
Will CI be able to achieve enough scale in the U.S. RIA business to significantly drive profit? Not all analysts are entirely convinced yet.
Despite long-term outperformance, many of the leading 20 have suffered short-term losses.
“I think they are deploying so much capital into this business. I don’t think they’ve done an especially good job communicating the long-term opportunity,” Shanahan says.
As for CI, it doesn’t appear as if it will be slowing down anytime soon.
“We see this opportunity that we can build the leading private wealth platform in the U.S.,” MacAlpine says.
Net income at CI Financial was $103 million in the first quarter of 2021, up 3% year-over-year.
