CI Financial still putting eggs in U.S. wealth management basket

August 10, 2023 5:32 PM

At times a point of great pride, at others a source of significant debt, there's never a dull moment when it comes to CI Financial's still-developing stateside wealth management business.

Leaders from the Canadian asset manager spent significant time discussing its U.S. wealth ambitions while recapping a busy second quarter that involved more acquisitions, a change of IPO plans and some behind-the-scenes rebranding efforts.

"Our U.S. wealth management segment reported exceptional results, with year-over-year adjusted EBITDA growth of 42% for the first half of the year. Organic growth continued to be strong, with robust net flows," CI Financial CEO Kurt MacAlpine said in a second-quarter earnings statement released Thursday. "These results reflect the outstanding quality of the business and the progress we have made in integrating our acquired firms and leveraging our size and scale to enhance our capabilities and services.

"We continue to build on that success, acquiring three RIA firms in the past three months, adding approximately $14.2 billion in assets."

Scroll down to see the most important wealth management takeaways from CI Financial's Q2 earnings report. To see previous CI Financial earnings coverage, click here and here.

Note: CI Financial discloses its quarterly returns in Canadian dollars. Unless otherwise mentioned, all figures are in Canadian rather than U.S. dollars.

By the numbers

CI Financial posted total assets of $398.2 billion in Q2, a year-over-year increase of 20%.

Total second-quarter net revenues declined by 21.7% to $776.1 million from $637.8 million in the first quarter. Meanwhile, net income grew to $51 million, up from $30 million in the first quarter.

Excluding non-operating items, CI's adjusted total net revenues increased 2.3% to $654.8 million, driven by growth in the U.S. wealth management segment due to acquisitions, and the Canadian wealth management segment due to higher average assets.

"Our Canadian wealth management business reached a milestone in July with the successful conversion of Aligned Capital client assets to the CI Investment Services' custody platform," MacAlpine said in a statement. "This accomplishment, the culmination of 18 months of work, boosted CI Investment Services' custody assets to $25 billion and represents an important step in the development of an industry-leading, integrated Canadian wealth management platform. Additionally, our Canadian advisory businesses continue to attract strong flows, a testament to the expertise and value provided by our advisor teams."

Addressing debt

Shortly after its arrival in the U.S. RIA market, CI Financial emerged as a top acquirer of RIA practices. The strategy is the brainchild of MacAlpine, who was hired in 2019 to take CI in a new direction after years of pressure on its core business from the growth of lower-cost investment products.

CI has acquired more than two dozen independent firms since entering the market in early 2020.

But the approach was costly, causing the firm to see its debt rating cut to junk in May by one rating agency after bills began to pile up. The firm shelved IPO plans for its U.S. wealth business earlier this year and sought relief by selling a 20% stake of its stateside wealth unit to a group of investors including Bain Capital and Abu Dhabi Investment Authority.

CI Financial also sold its minority stake in Congress Wealth Management of Boston to large private equity firm Audax Private Equity.

"The U.S. investment and the sale of our minority stake in Congress Wealth Management delivered a total of $1.5 billion in cash to CI," MacAlpine said in a statement. "We repaid $1 billion in debt in the quarter, meeting our goal of materially deleveraging the company, and returned another $229 million to shareholders by buying back 17 million shares at an average cost per share of $13.51."

Still growing

Despite the cost that comes with MacAlpine's aggressive acquisition strategy, the firm continued to add more members to the family in the second quarter of 2023.

CI completed the acquisitions of two RIAs with combined assets of approximately $11.9 billion in Q2. The firms were Avalon Advisors of Houston And La Ferla Group of Garden City, New York.

Just as the quarter ended, CI acquired Intercontinental Wealth Advisors, a firm with approximately $2.3 billion in client assets based in San Antonio, Texas. The firm provides comprehensive wealth management services to the ultrarich and has developed expertise in serving those with international financial interests.

CI also reached an agreement to acquire Coriel Capital, a Montreal-based wealth management firm serving ultrahigh net worth Canadians. The firm manages approximately $1.3 billion in client assets.

What's in a name

Looking forward, CI Financial is focused on the trajectory of its rebranded U.S. wealth business. Formerly known as CI Private Wealth, the unit was reborn as Corient earlier this month as part of a larger push to appeal to wealthy clients and rally the firms that it has acquired under a unified platform.

The new name is supposed to evoke "client oriented" and "expresses the firm's commitment to providing its clients with an unparalleled wealth management experience," Corient said in a press release Tuesday. It also comes from Corient Capital Partners, an RIA based in Newport Beach, California, that serves ultrahigh net worth clients and was purchased by CI last year.

MacAlpine said during Q2, leaders got feedback from across the network to whittle down the list of names. To select a winner, CI held a partner vote in which each of the firm's 236 partners had an equal say in naming the business.

"I mentioned the process because I believe it provides a glimpse into how we're taking a fundamentally different approach to wealth management, one I believe is only possible through our private partnership model," MacAlpine said during a Thursday morning earning's call. "The rebranding provides further clarity to clients and to the market of the expertise of our entire business, and the expanded services and capabilities they benefit from for being a part of Corient."