IGM Financial
Annual Report 2019

Plain-text annual report

I G M F I N A N C I A L I N C . A N N U A L R E P O R T 2 0 1 9 IGM FINANCIAL ANNUAL REPORT TSX: IGM 2019 INVESTED IN HELPING CANADIANS LOUIS GOSSNER & SHELLY SEAMAN OWNERS, J&L RESTAURANT PARTNERSHIP IG WEALTH MANAGEMENT AND MACKENZIE INVESTMENTS CLIENTS SINCE 2005 Contents Who we are | Reasons to invest 2019 highlights Guiding principles Corporate structure Report to shareholders Board of Directors and Executive Leadership IGM highlights Wealth Management Asset Management Strategic Investments Talent and culture 3 4 6 7 8 13 14 16 18 20 “Our advisor is very thorough and genuinely cares about us." ZAHIRALI & ROSHAN HEMANI RETIREES IG WEALTH MANAGEMENT CLIENTS SINCE 2006 Readers are referred to the caution regarding Forward-Looking Statements and Non-IFRS Financial Measures and Additional IFRS Measures on page 24 of this Annual Report. 2 3 We are committed to improving the financial well-being of Canadians and helping them achieve their goals at every stage of their lives. Who we are IGM FINANCIAL INC. (TSX: IGM) is a leading wealth and asset management company supporting financial advisors and the clients they serve in Canada, and institutional investors throughout North America, Europe and Asia. Through its operating companies, IGM provides a broad range of financial and investment planning services to help Canadians meet their financial goals. The company creates value for shareholders through three key areas: • Wealth Management • Asset Management • Strategic Investments Reasons to invest • Bold steps taken to transform operating companies resulting in market share gains and operational efficiencies • Experienced leadership team focused on driving innovation, an agile culture and exceptional client outcomes • Exciting growth opportunities through investments in fintech and Chinese markets • Financial strength and scale, strong governance and benefits as a member of the Power Corporation group of companies • Long-term view to shareholder value creation and demonstrated commitment to corporate responsibility T S E V N I O T S N O S A E R | E R A E W O H W | S T N E T N O C 33 2 2019 Highlights Our Clients Our People Our Community OVER 1 MILLION IG Wealth Management clients OVER 3,300 employees across the IGM group of companies MORE THAN 30,000 external advisors doing business with Mackenzie Investments 47% of Mackenzie Investments mutual fund assets reside in funds rated 4 or 5 star by Morningstar 100% of IG Wealth Management Consultant practices hold the CFP or F.Pl. designation or are enrolled in the program #1 RANKED Investment Planning Counsel led 19 other firms in the 2019 Credo Consulting investor survey 96% Gallup participation rate for employees across the IGM group of companies 34% of IGM senior leadership roles (Vice-President level and higher) held by women 1,759 IG Wealth Management Consultants with more than four years experience and a total network of 3,381 Consultants and Associates 6 PARTNER IN ACTION TEAMS employee-led PIA teams enhance awareness, understanding and progress in diversity and inclusion ranked IGM Financial one of the Global 100 Most Sustainable Corporations in the World $6.25 million raised by more than 37,000 walkers during 400+ walks $12.1 million donated to charities across Canada since 1999 IGM Financial recognized for our work tackling climate change through disclosure IGM Financial signed statement of support for the Task Force on Climate- related Financial Disclosures (TCFD) We are proud of our commitments and achievements in working towards a sustainable future 4 5 IGM FINANCIAL INC. ANNUAL REPORT 2019 Shareholder Highlights Strong Asset Growth NET EARNINGS $746.7 MILLION $3.12 PER SHARE available to common shareholders ADJUSTED NET EARNINGS $763.9 MILLION $3.19 PER SHARE available to common shareholders DIVIDENDS DECLARED $537.6 MILLION $2.25 PER SHARE per common share TOTAL SHAREHOLDER RETURN 27.4% share price appreciation and dividends $190 $170 $167 $149 2018 2019 2018 2019 Total Assets Under Management ($ Billions) Total Assets Under Administration ($ Billions) TOTAL ASSETS UNDER MANAGEMENT IG Wealth Management Mackenzie Investments Investment Planning Counsel TOTAL ASSETS UNDER ADMINISTRATION IG Wealth Management Mackenzie Investments 2018 $83,137 $62,728 $5,125 2019 $93,161 $70,205 $5,391 2018 2019 $86,287 $97,277 $62,728 $70,205 Investment Planning Counsel $25,706 $27,728 S T H G I L H G I H R E D L O H E R A H S | S T H G I L H G I H 9 1 0 2 5 4 Our Guiding Principles CLIENTS COME FIRST IN ALL WE DO SCALABLE GROWTH We will leverage the IGM ecosystem to deliver the best outcomes for our clients We will pursue growth while maximizing the use of scalable processes across all of our businesses STRONG BUSINESSES & A STRONG IGM INNOVATION ACCELERATION We will drive speed, creativity and adaptability by maintaining an open, flexible and collaborative organization We will maintain the unique externally-oriented strategies of our individual businesses while at the same time maximizing the value of shared knowledge and resources TALENT STRENGTH FOR ALL OF IGM We will use our scale to attract, retain and develop diverse top talent by offering vibrant career opportunities “My advisor has helped me make investment decisions that have greatly benefited myself and my family.” NATALIE BALEN-CINELLI OWNER, LOLABEAN PHOTOS DAVID CINELLI REAL ESTATE AGENT, ROYAL LEPAGE SIGNATURE INVESTMENT PLANNING COUNSEL CLIENTS SINCE 2015 6 7 IGM FINANCIAL INC. ANNUAL REPORT 2019Corporate Structure Wealth Management Asset Management Strategic Investments China: Fintech: Partner: Power Corporation is an international management and holding company that focuses on financial services in North America, Europe and Asia. Its core holdings are leading insurance, retirement, wealth management and investment businesses, including a portfolio of alternative asset investment platforms. STRENGTH AND SCALE AS PART OF POWER CORPORATION GROUP OF COMPANIES • Scale advantages through shared technology, back office and procurement • Access to distribution, product capabilities and expertise • Strong governance and oversight • Benefits through cooperation • Financial strength E R U T C U R T S E T A R O P R O C | S E L P I C N I R P G N I D I U G R U O 7 6 Report to shareholders Well-positioned to build on the positive momentum IGM Financial strives to be Canada’s best diversified wealth and asset management firm and we are proud of the accomplishments and results we generated for our shareholders in 2019. The year featured ongoing growth and significant milestones for our business as we continued to execute our strategy. We furthered our commitment to our employees, clients, communities and the environment with new programs, partnerships and mandates. This foundation-building positions us well for the future. Jeffrey R. Carney PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL INC. R. Jeffrey Orr CHAIR OF THE BOARD IGM FINANCIAL INC. 8 9 IGM FINANCIAL INC. ANNUAL REPORT 2019Strong Shareholder & Client Results Ongoing Strategic & Operational Transformation The financial markets tested investor confidence in late 2018 and this continued into early 2019. However, investors who remained committed to their financial plans were rewarded as 2019 reflected the highest market returns in more than a decade, with most global equity markets delivering double-digit returns. IGM finished 2019 with record high assets under administration of $190.2 billion and assets under management of $166.8 billion, both up 12% from 2018. Average investment fund assets under management were up 3.3% over 2018. Net earnings were $746.7 million or $3.12 per share and our adjusted net earnings were $763.9 million or $3.19 per share, down 3% from our record high level in 2018. With our strong balance sheet and cash flow, we continued to focus on capital management activities, returning immediate value to shareholders through dividends. Dividends declared in 2019 were $538 million or $2.25 per share, unchanged from the previous year. IGM also returned $100 million in capital to shareholders through share repurchases. Our share price increased significantly, driving a total return to shareholders of 27.4% during the year. We are also excited to report that our clients across the IGM group of companies achieved an average investment return of 13% during 2019, helping them plan for the future and achieve their dreams. This, combined with successful refreshes of brands across IG and Mackenzie, drove higher advisor perception scores and improved brand consideration. We continued our transformation to modernize our digital platforms and technology infrastructure. This enabled our company to enhance operations, achieve efficiencies and further improve the service experience for our clients. It included a number of important partnerships with global leaders in their respective fields. For example, CIBC Mellon Global Services Company was engaged to assume most of our fund services functions. Leveraging their scale, industry-leading technology and capabilities allows us to focus on our core business of working with clients to help them achieve their financial goals and aspirations. We also announced that Google Cloud would manage our data platform. As a result, we became one of the first major Canadian financial services companies to move SAP applications and data to the Google Cloud Platform. This helps us enhance the client experience, leverage operational efficiencies through greater productivity and provides IGM with access to a wide range of capabilities, including advanced analytics, data mining and artificial intelligence. In addition, we introduced Salesforce, a new Customer Relationship Management platform based on industry-leading technology, to IG Consultants. The new platform enables them to seamlessly manage client relationships, improve their efficiency through digitized workflows, and access data-driven reporting to help them better run their practices. Our strategic transformation goes beyond client experience and includes progress in the area of expense management, while still allowing us to invest in the future. We managed expenses during 2019 at levels below our guidance. We remain focused on delivering strong earnings growth through operating leverage as we continue to drive our initiatives to automate and improve operational efficiency. S R E D L O H E R A H S O T T R O P E R 9 8 Commitment to Our People & the World Around Us IGM Financial is committed to making a positive impact on the lives of our people, the clients we serve, and the communities in which we work and live. Employee diversity and inclusion continued to be a key priority as we want to reflect the mosaic of Canada. To promote gender equality, in 2018 we committed publicly to adhering to the United Nations Women’s Empowerment Principles. Our goal is to have at least 35% of our executive roles — vice-president and above — held by women and the progress we made in 2019 has kept us on track. We also partnered with Pride at Work Canada to promote a more inclusive workplace for all employees regardless of gender expression, gender identity or sexual orientation. We were particularly proud of the employee engagement scores we received in 2019. To foster a high-performing and diverse culture, we continue to partner with Gallup, a global leader in workforce engagement research. We increased our scores across the board in 2019. This is a validation of our ongoing efforts to build a positive and inclusive culture where employees feel empowered, valued and secure. Leveraging Gallup best practices also helps foster and drive our ongoing commitment to an engaged workforce, with industry-leading training, development and career advancement. We have a long-standing practice of being responsible investors of our clients’ money —incorporating environmental, social and governance (ESG) factors into investment decisions to better manage risk and generate long-term sustainable returns. For example, building on our UN Principles for Responsible Investment (PRI) commitment, IG Wealth Management now requires all investment advisors to the IG product shelf be signatories to the UN PRI. This ensures responsible investment practices are embedded across all investment mandates. Further, Mackenzie and IG continue to make socially responsible investing a priority by offering clients a variety of solutions including the Mackenzie Global Environmental Equity Fund and the pioneering IG Mackenzie Summa SRI Fund. In 2019 we increased our focus on integrating climate change risk and opportunities into our business by signing the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. We were also the only Canadian firm recognized on CDP’s Climate Change A List for the second year in a row for our efforts in tackling climate change. STRUCTURED FOR SUCCESS Wealth Management IG Wealth Management continued to strengthen our industry-leading financial planning capabilities to unlock clients’ full wealth potential. The talent we’ve attracted to our IG Consultant team and enhanced new recruit productivity have allowed us to increase our focus on holistic wealth management, providing quality financial advice and delivering great service. During 2019, our client assets under administration grew to $97.3 billion, an increase of more than $10 billion from 2018, while our mutual fund gross sales remained at near record high levels of $8.7 billion. We also made significant progress with our ongoing focus on the high net-worth (HNW) segment across our IG Private Wealth Management business. In 2019, 52% of sales came from HNW solutions, up from 28% in 2016. We are proud of this success. Our National Service Centre, launched in 2018, also hit a new milestone with more than 200,000 clients and $1.7 billion in assets under management. The National Service Centre allows us to offer a targeted, consistent and improved real-time experience for clients with smaller accounts, while our credentialed planners focus on those clients who have more complicated and sophisticated needs. 10 11 IGM FINANCIAL INC. ANNUAL REPORT 2019IG clients also benefitted from new product offerings and managed solutions, supported by partnerships with high-quality sub-advisors, including Blackrock, T. Rowe Price, Pimco and Mackenzie Investments. Importantly, 9 out of 14 of IG’s wealth management portfolios rated 4 or 5 stars according to Morningstar Canada (a leader in global investment research). Also driving our 2019 success in the wealth management space was the performance of Investment Planning Counsel (IPC). The firm introduced an integrated marketing campaign to recruit entrepreneurial advisors. It also relaunched its Total Client Experience (TCE) business system. TCE simplifies, modernizes and digitizes processes to make it even easier for advisors to deliver professional, consistent service every time they interact with clients. Asset Management Mackenzie Investments’ ongoing commitment to providing retail and institutional investors with choice, innovation and performance was recognized in 2019, with four Mackenzie mutual funds and ETFs winning 2019 Lipper Awards, which honours funds that lead in delivering strong, risk-adjusted performance, and 12 funds recognized for industry- leading performance at the 2019 Fundata FundGrade A+ Awards. During the year, we achieved our highest gross retail sales in 20 years, fuelled by positive flows in both our mutual fund and ETF businesses. Our multi- channel, solutions-oriented strategy continues to drive choice and innovation for the organization and contributed to helping us reach more than $140 billion in assets under management in 2019. We also continue to be encouraged by the progress we are making in our institutional business and look forward to carrying this momentum into 2020. Barry McInerney PRESIDENT AND CHIEF EXECUTIVE OFFICER MACKENZIE INVESTMENTS S R E D L O H E R A H S O T T R O P E R 11 10 with opportunities to leverage synergies, benefiting both Canadian and Chinese investors. China AMC had $192 billion in assets under management in 2019, an increase of 17.3% from 2018. LOOKING FORWARD IGM is uniquely positioned to continue to grow our business, drive shareholder returns and help our clients build their dreams and achieve their financial goals. The progress and advances we have made in innovating and streamlining our business have put us on a path to accelerated growth in the decade ahead. We’re building on strong foundations through our brands and our holistic approach to financial planning and investing. Our diverse range of products, solutions, distribution channels and geographies put us in a position for strong growth in the wealth and asset management industry — for our clients and shareholders. We take great pride in our team and what they achieve every day. Their commitment and teamwork propel us forward. IGM has the people, culture and strategies that will enable us to keep innovating and growing on behalf of our clients, our shareholders and our communities. On behalf of the Board of Directors. Jeffrey R. Carney PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL INC. R. Jeffrey Orr CHAIR OF THE BOARD IGM FINANCIAL INC. Forty-seven per cent of our assets reside in mutual funds rated 4 or 5 stars according to Morningstar Canada. Our ETF business, which launched just three and a half years ago, has become the sixth largest in Canada, with almost $5 billion in assets under management across 30 products. We also continued to be a leading voice within the Canadian asset management industry. Cormex Research, a third-party media content and analysis firm, consistently ranked us among the leading independent and bank-owned firms in earned media share of voice throughout 2019. As such, we are defining and shaping the discussions around key trends and issues in our sector. Strategic Investments The strategic investments we have made position us well for future growth. They also benefit us by allowing our core businesses to participate in opportunities in Canada, the US and in the significant growth taking place in China and within the dynamic and rapidly emerging fintech sector. One of last year’s highlights was the additional USD $50 million investment we made in Personal Capital, a US online financial advisory and personal wealth management company. Personal Capital continues to see significant potential with USD $12 billion in assets under management, a 57.2% increase year-over-year and tracked account value of USD $841 billion, a 32% increase from 2018. We also made an additional $51.9 million investment in Wealthsimple Inc., Canada’s largest online investment management service, as well as a $14.8 million investment in Portage3 Ventures, a fintech venture capital fund. Our ongoing investment and growing relationship with China Asset Management Co., Ltd. (China AMC), a premier asset management firm in China, allowed us to continue to benefit from the dynamic market growth taking place there and provided Mackenzie 12 13 IGM FINANCIAL INC. ANNUAL REPORT 2019Board of Directors and Executive Leadership BOARD OF DIRECTORS EXECUTIVE LEADERSHIP Marc A. Bibeau (1,3,4) PRESIDENT AND CHIEF EXECUTIVE OFFICER BEAUWARD REAL ESTATE INC. Jeffrey R. Carney (4) PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL INC. IG WEALTH MANAGEMENT Marcel R. Coutu (3,4) CORPORATE DIRECTOR André Desmarais, O.C., O.Q. (2,3,4) DEPUTY CHAIRMAN POWER CORPORATION OF CANADA Paul Desmarais, Jr., O.C., O.Q. (2,3,4) CHAIRMAN POWER CORPORATION OF CANADA Gary Doer (2,4) SENIOR BUSINESS ADVISOR DENTONS CANADA LLP Susan Doniz (1,4) GROUP CHIEF INFORMATION OFFICER QANTAS AIRWAYS LIMITED Claude Généreux (3,4) EXECUTIVE VICE-PRESIDENT POWER CORPORATION OF CANADA Sharon L. Hodgson (1,4,5) DEAN IVEY BUSINESS SCHOOL Sharon MacLeod (1,3,4,5) CORPORATE DIRECTOR Susan J. McArthur (2,3,4) CORPORATE DIRECTOR John S. McCallum (1,2,4,5) PROFESSOR OF FINANCE UNIVERSITY OF MANITOBA R. Jeffrey Orr (2,3,4) CHAIR OF THE BOARD IGM FINANCIAL INC. PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER CORPORATION OF CANADA Gregory D. Tretiak, FCPA, FCA (4) EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER POWER CORPORATION OF CANADA Beth Wilson (4,5) CHIEF EXECUTIVE OFFICER DENTONS CANADA LLP Jeffrey R. Carney PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL IG WEALTH MANAGEMENT Barry McInerney PRESIDENT AND CHIEF EXECUTIVE OFFICER MACKENZIE INVESTMENTS Chris Reynolds PRESIDENT AND CHIEF EXECUTIVE OFFICER INVESTMENT PLANNING COUNSEL Todd Asman EXECUTIVE VICE-PRESIDENT, PRODUCTS & FINANCIAL PLANNING IG WEALTH MANAGEMENT Cynthia Currie EXECUTIVE VICE-PRESIDENT, CHIEF HUMAN RESOURCES OFFICER IGM FINANCIAL Michael Dibden CHIEF OPERATING OFFICER IGM FINANCIAL Tony Elavia EXECUTIVE VICE-PRESIDENT, CHIEF INVESTMENT OFFICER MACKENZIE INVESTMENTS Rhonda Goldberg EXECUTIVE VICE-PRESIDENT, GENERAL COUNSEL IGM FINANCIAL Luke Gould EXECUTIVE VICE-PRESIDENT, CHIEF FINANCIAL OFFICER IGM FINANCIAL Mark Kinzel EXECUTIVE VICE-PRESIDENT, FINANCIAL SERVICES IG WEALTH MANAGEMENT Douglas Milne EXECUTIVE VICE-PRESIDENT, CHIEF MARKETING AND STRATEGY OFFICER IGM FINANCIAL Damon Murchison EXECUTIVE VICE-PRESIDENT, HEAD OF RETAIL MACKENZIE INVESTMENTS Blaine Shewchuk EXECUTIVE VICE-PRESIDENT, CHIEF STRATEGY & CORPORATE DEVELOPMENT OFFICER IGM FINANCIAL (1) AUDIT COMMITTEE | Chair: John S. McCallum (2) GOVERNANCE AND NOMINATING COMMITTEE | Chair: R. Jeffrey Orr (3) HUMAN RESOURCES COMMITTEE | Chair: Claude Généreux (4) INVESTMENT COMMITTEE | Chair: Gregory D. Tretiak (5) RELATED PARTY AND CONDUCT REVIEW COMMITTEE | Chair: John S. McCallum P I H S R E D A E L E V I T U C E X E D N A S R O T C E R I D F O D R A O B 13 12 IGM Highlights Wealth Management IGM Financial is well-positioned to meet the needs of Canadians through its two operating companies focused on wealth management. IG Wealth Management and Investment Planning Counsel put the client at the centre of everything we do. Transparent & Simplified Client Experience IG Wealth Management continued to deliver on its client-focused commitment by making fees easier to understand while introducing product and pricing changes to accelerate asset growth for clients. The IG Advisory Account (IGAA) is a new fee-based account offering clients the ability to simplify and consolidate selected investments into a single account, while providing them with competitively-priced, unbundled pricing options. IGAA was available to all clients in January 2020. ANIL AND MANJULA SHARMA GENERAL MANAGER, NEW WORLD FRICTION INVESTMENT PLANNING COUNSEL CLIENTS SINCE 2000 IG WEALTH MANAGEMENT Enhancing Canadians’ Financial Well-Being In 2019, IG Wealth Management introduced several tools to help bring the IG Living Plan to life, including the IG Living Plan Snapshot and Assessment. These proprietary online resources bring together the company’s expertise and experience in financial planning, digital technology and data science. The tools provide an assessment of clients and consumers financial well-being along with actionable next steps. Clients also have access to the Retirement Paycheque which displays the monthly income a client could expect to receive in retirement based on their current plan. Inspiring Financial Confidence Building on our legacy of giving back, the IG Empower Your Tomorrow program provides Canadians with the resources and confidence they need to own their financial future. The company has identified and is working with four at-risk groups that stand to benefit the most from financial guidance; Indigenous peoples, newcomers, seniors and youth. In the fall of 2019, we updated and re-launched our Money & Youth financial literacy textbook and website, which reached more than 43,000 high school students across Canada. In addition, the second annual national IG Wealth Management Walk for Alzheimer’s program raised more than $6.25 million dollars, a 22% increase year-over-year. By working with community partners and organizations – along with IG Consultants, employees and clients – IG Wealth Management is building confidence where it matters. 9 1 0 2 T R O P E R L A U N N A . C N I L A I C N A N I F M G I 14 HIG H LIG HTS $97.3 BILLION TOTAL ASSETS UNDER ADMINISTRATION $8.7 BILLION MUTUAL FUND GROSS SALES $4.6 BILLION GROSS SALES IN HNW SOLUTIONS H IG HL IGH TS $27.7 BILLION ASSETS UNDER ADMINISTRATION IG WEALTH MANAGEMENT WINNIPEG CLIENT ADVISORY COUNCIL CLIENT ADVISORY COUNCILS SHARE THEIR INSIGHTS AND IDEAS WITH SENIOR LEADERSHIP TO ENHANCE THE OVERALL CLIENT EXPERIENCE AT IG WEALTH MANAGEMENT INVESTMENT PLANNING COUNSEL Redefining the Client Experience Investment Planning Counsel (IPC) enjoyed a strong 2019 with several initiatives contributing to the firm’s success. The introduction of an integrated marketing and recruitment campaign to target and recruit prospective advisors better positioned IPC as the dealership of choice. With the success of its 2018 Corporate Branch Pilot Program, the company expanded the program in 2019 to nine corporate offices across Canada. The initiative offers advisors the ability to plan their succession by either transitioning their business to a team that would care for their clients in the IPC way or by joining the corporate branch as a corporate advisor. Also in 2019, IPC’s award-winning Total Client Experience (TCE) program was simplified, modernized and digitized, making it easier for IPC advisors to deliver a consistent yet remarkable experience to every client. T N E M E G A N A M H T L A E W | S T H G I L H G I H M G I 15 IGM Highlights Asset Management H IGHL IGHTS $140.1* BILLION TOTAL ASSETS UNDER MANAGEMENT $1.6 BILLION ETF NET CREATIONS IN 2018: 5TH HIGHEST IN INDUSTRY $9.9 BILLION MUTUAL FUND GROSS SALES * includes $69.9 billion in advisory fee mandates to IG Wealth Management mutual funds which are excluded from Mackenzie Investments' operating segment PAUL MOWBRAY CERTIFIED FINANCIAL PLANNER, INVESTMENT PLANNING COUNSEL DOING BUSINESS WITH MACKENZIE INVESTMENTS SINCE 1988 IGM Financial is committed to providing innovative and high-quality investment solutions. Mackenzie Investments continues to deliver strong investment performance by drawing on more than 50 years of experience, insights and expertise in the asset management business. Providing Investors with Innovation and Options Ongoing product innovation at Mackenzie Investments contributed to the company’s growth in 2019 and further complemented its diversified product offering. With the launch of three new alternative strategy products in February, Mackenzie currently offers retail investors five liquid alternative funds. Further, the firm introduced the Mackenzie International Dividend Fund and the Mackenzie Global Growth Balanced Fund, a new multi-asset solution. Mackenzie's ETF business continued its impressive growth with the introduction of several new offerings, including the Mackenzie Emerging Markets Local Currency Bond Index ETF, launched in October and the first of its kind in Canada. In addition, Mackenzie continues to work with our partner China Asset Management Corporation (CAMC) to develop and launch products and services in both China and Canada. 16 17 IGM FINANCIAL INC. ANNUAL REPORT 2019Better Together In 2019, Mackenzie Investments evolved its brand proposition – Better Together – to more accurately reflect the company’s commitment to the industry and to supporting advisors and their clients. Competitive fees and strong performance are key, but client trust is essential. When investors, advisors and Mackenzie Investments work together, the combined effort makes everyone better and creates stronger results for clients. Celebrating 20 Years of Giving Back Mackenzie Investments has a long history of caring about the communities where we live and work. The firm continues to encourage its employees to be generous through financial contributions and volunteering. Celebrating our 20th anniversary in 2019, the Mackenzie Investments Charitable Foundation is run entirely by employee volunteers and supports charities across Canada, with a focus on organizations that support women, children and youth. The Foundation has donated more than $12 million in grants to charitable organizations that positively impact the lives of those in need. ‘’Mackenzie is a trusted brand for Canadians and has been for my clients over the last 25 years." WENDY CHUI SENIOR VICE-PRESIDENT AND INVESTMENT ADVISOR TD WEALTH, PRIVATE INVESTMENT ADVICE DOING BUSINESS WITH MACKENZIE INVESTMENTS SINCE 1994 T N E M E G A N A M T E S S A | S T H G I L H G I H M G I 17 16 IGM Highlights Strategic Investments IGM Financial’s Strategic Investments diversify our earnings' sources, expand our capabilities, and fuel growth opportunities in key markets and segments. IGM Financial is one of the largest foreign investors that participates in the Chinese domestic asset management industry. Our investment in China Asset Management Corporation (CAMC) gives us access to the second largest economy in the world and one of the fastest growing wealth markets. A portfolio of leading fintech firms provides innovative capabilities to our core businesses while also providing IGM Financial access to markets with significant potential for growth. Our long-term, strategic partnership with our sister company Great-West Lifeco provides IGM Financial with meaningful earnings and cash flow contributions. CHINA Founded in 1998 as one of the first fund management companies in China, China Asset Management Corporation (CAMC) has developed and maintained a position among the market leaders in China’s asset management industry. $192.4 CAD BI LLI ON ASSETS UNDER MANAGEMENT AS AT DECEMBER 31, 2019 17% AUM GROWTH YEAR OVER YEAR 13.9% OWNERSHIP INTEREST PARTNER Great-West Lifeco, which is controlled by Power Financial Corporation, is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. $1.2 BI LLI ON 4% MARKET VALUE EQUITY INTEREST 18 19 IGM FINANCIAL INC. ANNUAL REPORT 2019FINTECH Wealthsimple is Canada’s largest online investment management service. This strategic investment offers best-in-class digital access, innovation, client service and delivery. Personal Capital is a leading US digital wealth manager that has experienced significant growth since its inception. $6.3 BILLION ASSETS UNDER ADMINISTRATION AS AT DECEMBER 31, 2019 $841USD BIL L ION TRACKED ACCOUNT VALUE AS AT DECEMBER 31, 2019 OVER 250,000 CUSTOMERS 57% AUM GROWTH YEAR OVER YEAR 24.8% EQUITY INTEREST Portag3, a venture capital fund focused on the financial technology sector, has holdings in more than two dozen early- stage financial technology companies, including Wealthsimple. It is one of only a few platforms dedicated solely to investing in financial technology, and its success points the way for the digital future of asset and wealth management. 28 UNIQUE INVESTMENTS S T N E M T S E V N I C I G E T A R T S | S T H G I L H G I H M G I 19 18 Talent and Culture IGM Financial is a caring company, with a culture that is rooted in doing what’s best for its employees and clients every day. In 2019 we continued on our journey of becoming one of the best places to work and an employer of choice for new talent. We know that our ability to provide industry-leading client experiences is linked directly to having a workforce that feels engaged, inspired, valued and respected. Our people want to play an active role in the communities where we work and live. This includes participating in our annual employee-run United Way Campaign and the Mackenzie Investments Charitable Foundation, which raise millions for Canadian charities annually. Our employees also participate in a number of national sponsorship programs, such as the IG Wealth Management Walk for Alzheimer's. In 2019, thousands of IG employees and family members participated in more than 400 walks across Canada. It’s for these reasons that we have chosen to focus on six key strategic areas to drive a best-in-class experience for employees across the IGM group of companies: 1. STRATEGIC WORKFORCE PLANNING To strengthen the alignment between our talent and future business opportunities 2. OPTIMAL ORGANIZATION DESIGN To better reflect how work is done and ensure we have the skills and experience in place to service clients' evolving needs 3. EMBED OUR LEARNING AND CULTURE To ensure our colleagues are growing and achieving their aspirations 4. CREATING A DIFFERENTIATED TALENT VALUE PROPOSITION To create better client and talent outcomes 5. ADOPTING A HOLISTIC APPROACH TOWARDS TOTAL REWARDS To provide talent with a compelling overall compensation package 6. HUMAN CAPITAL MANAGEMENT INVESTMENTS To equip our leaders to make more informed decisions and enhance the employee experience ABENA OSEI-KWABENA SENIOR CLIENT RELATIONS REPRESENTATIVE MACKENZIE INVESTMENTS 20 21 IGM FINANCIAL INC. ANNUAL REPORT 2019Significant progress was made across these pillars in 2019. For example, our team created an integrated career framework process across IGM’s group of companies that harmonized roles and established consistent talent programs and policies. We made employee wellness a priority by ensuring all talent had access to Wellness Days and also signalled our ongoing commitment to community engagement by increasing the number of Volunteer Days available to IGM’s workforce. We are looking forward to continuing this momentum into 2020. Our people are our strength and a key competitive differentiator. Our commitment to them is to create an environment in which they have the opportunity to thrive. IG employees join together to participate in local IG Wealth Management Walk for Alzheimer’s Mackenzie Investments employees celebrate 52 years of history and the launch of a new brand identity E R U T L U C D N A T N E L A T M G I 21 20 22 PB IGM FINANCIAL INC. ANNUAL REPORT 2019FINANCIAL SECTION MANAGEMENT’S DISCUSSION AND ANALYSIS IGM Financial Inc. Summary of Consolidated Operating Results IG Wealth Management Review of the Business Review of Segment Operating Results Mackenzie Investments Review of the Business Review of Segment Operating Results Corporate and Other Review of Segment Operating Results IGM Financial Inc. Consolidated Financial Position Consolidated Liquidity and Capital Resources Risk Management Outlook Critical Accounting Estimates and Policies Disclosure Controls and Procedures Internal Control Over Financial Reporting Other Information FINANCIAL REVIEW Consolidated Financial Statements Management’s Responsibility for Financial Reporting Independent Auditor’s Report Consolidated Financial Statements Notes to Consolidated Financial Statements Supplementary Information Quarterly Review Ten Year Review 25 36 43 47 54 57 59 62 67 79 81 84 84 85 87 88 90 95 130 132 23 IGM FINANCIAL INC. ANNUAL REPORT 2019MANAGEMENT’S DISCUSSION AND ANALYSIS The Management’s Discussion and Analysis (MD&A) presents management’s view of the results of operations and the financial condition of IGM Financial Inc. (IGM Financial or the Company) as at and for the years ended December 31, 2019 and 2018 and should be read in conjunction with the audited Consolidated Financial Statements. Commentary in the MD&A as at and for the year ended December 31, 2019 is as of February 14, 2020. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES The Consolidated Financial Statements of IGM Financial, which are the basis of the information presented in the Company's MD&A, have been prepared in accordance with International Financial Reporting Standards (IFRS) and are presented in Canadian dollars (Note 2 of the Consolidated Financial Statements). PRINCIPAL HOLDERS OF VOTING SHARES As at December 31, 2019, Power Financial Corporation (PFC) and Great-West Lifeco Inc. (Lifeco), a subsidiary of PFC, held directly or indirectly 62.1% and 3.9%, respectively, of the outstanding common shares of IGM Financial. FORWARD-LOOKING STATEMENTS Certain statements in this report, other than statements of historical fact, are forward- looking statements based on certain assumptions and reflect IGM Financial’s current expectations. Forward-looking statements are provided to assist the reader in understanding the Company’s financial position and results of operations as at and for the periods ended on certain dates and to present information about management’s current expectations and plans relating to the future. Readers are cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of the Company, as well as the outlook for North American and international economies, for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as “expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”, “projects”, “forecasts” or negative versions thereof and other similar expressions, or future or conditional verbs such as “may”, “will”, “should”, “would” and “could”. This information is based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking statements, including the perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. While the Company considers these assumptions to be reasonable based on information currently available to management, they may prove to be incorrect. By its nature, this information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of material factors, many of which are beyond the Company’s and its subsidiaries’ control, affect the operations, performance and results of the Company, and its subsidiaries, and their businesses, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not limited to: the impact or unanticipated impact of general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, management of market liquidity and funding risks, changes in accounting policies and methods used to report financial condition (including uncertainties associated with critical accounting assumptions and estimates), the effect of applying future accounting changes, operational and reputational risks, business competition, technological change, changes in government regulations and legislation, changes in tax laws, unexpected judicial or regulatory proceedings, catastrophic events, the Company's ability to complete strategic transactions, integrate acquisitions and implement other growth strategies, and the Company’s and its subsidiaries’ success in anticipating and managing the foregoing factors. The reader is cautioned that the foregoing list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. The reader is also cautioned to consider these and other factors, uncertainties and potential events carefully and not place undue reliance on forward-looking statements. Other than as specifically required by applicable Canadian law, the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise. Additional information about the risks and uncertainties of the Company’s business and material factors or assumptions on which information contained in forward-looking statements is based is provided in its disclosure materials, including this Management’s Discussion and Analysis and its most recent Annual Information Form, filed with the securities regulatory authorities in Canada, available at www.sedar.com. NON-IFRS FINANCIAL MEASURES AND ADDITIONAL IFRS MEASURES Net earnings available to common shareholders, which is an additional measure in accordance with IFRS, may be subdivided into two components consisting of: • Adjusted net earnings available to common shareholders; and • Other items, which include the after-tax impact of any item that management considers to be of a non-recurring nature or that could make the period-over-period comparison of results from operations less meaningful. “Adjusted net earnings available to common shareholders”, “adjusted diluted earnings per share” (EPS) and “adjusted return on average common equity” (ROE) are non-IFRS financial measures which are used to provide management and investors with additional measures to assess earnings performance. These non-IFRS financial measures do not have standard meanings prescribed by IFRS and may not be directly comparable to similar measures used by other companies. “Earnings before interest and taxes” (EBIT), “earnings before interest, taxes, depreciation and amortization before sales commissions” (EBITDA before sales commissions), and “earnings before interest, taxes, depreciation and amortization after sales commissions” (EBITDA after sales commissions) are also non-IFRS financial measures. EBIT, EBITDA before sales commissions and EBITDA after sales commissions are alternative measures of performance utilized by management, investors and investment analysts to evaluate and analyze the Company’s results. The two EBITDA measures have been introduced following the adoption of IFRS 15. EBITDA before sales commissions excludes all mutual fund sales commissions and is comparable to prior periods. EBITDA after sales commissions includes all sales commissions and highlights aggregate cash flows. Other items of a non-recurring nature, or that could make the period-over-period comparison of results from operations less meaningful, are further excluded to arrive at EBITDA before sales commissions and EBITDA after sales commissions. These non-IFRS financial measures do not have standard meanings prescribed by IFRS and may not be directly comparable to similar measures used by other companies. “Earnings before income taxes” and “net earnings available to common shareholders” are additional IFRS measures which are used to provide management and investors with additional measures to assess earnings performance. These measures are considered additional IFRS measures as they are in addition to the minimum line items required by IFRS and are relevant to an understanding of the entity’s financial performance. Refer to the appropriate reconciliations of non-IFRS financial measures to reported results in accordance with IFRS in Tables 1 to 4. 24 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISIGM FINANCIAL INC. SUMMARY OF CONSOLIDATED OPERATING RESULTS IGM Financial Inc. (TSX:IGM) is a leading wealth and asset management company. The Company’s principal businesses are Investors Group Inc. and Mackenzie Financial Corporation, each operating distinctly, primarily within the advice segment of the financial services market. IGM Financial’s assets under administration were $190.2 billion as at December 31, 2019, up 11.8% from $170.1 billion at December 31, 2018. Total assets under management were $166.8 billion at December 31, 2019, the highest level in the history of the Company, compared with $149.1 billion at December 31, 2018, as detailed in Tables 6 and 7. Average total assets under management for the year ended December 31, 2019 were $161.0 billion compared to $156.9 billion in 2018. Average total assets under management for the fourth quarter of 2019 were $164.5 billion compared to $153.0 billion in 2018. Adjusted Net Earnings and Adjusted Net Earnings per Share For the financial year ($ millions, except per share amounts) 796 3.21 736 728 792 764 3.05 3.02 3.19 3.29 2015 2016 2017 2018 2019 Adjusted Net Earnings Adjusted Diluted EPS Adjusted net earnings and adjusted net earnings per share excluded the following after-tax amounts: Investment fund assets under management, also at a record 2015 - a charge related to restructuring and other charges. high, were $161.8 billion at December 31, 2019 compared with $143.3 billion at December 31, 2018. Average investment fund assets under management for the year ended December 31, 2019 were $155.5 billion compared to $150.5 billion in 2018. Average investment fund assets under management for the fourth quarter of 2019 were $159.5 billion compared to $147.0 billion in 2018. Net earnings available to common shareholders for the year ended December 31, 2019 were $746.7 million or $3.12 per share compared to net earnings available to common shareholders of 2016 - a reduction in income tax estimates related to certain tax filings. 2017 - charges related to restructuring and other, a favourable revaluation of the Company's pension plan obligation, charges representing the Company's proportionate share in Great-West Lifeco Inc.'s one-time charges and restructuring provision. 2018 - charges related to restructuring and other and the premium paid on the early redemption of debentures. 2019 - the Company’s proportionate share in Great-West Lifeco Inc.’s one-time charges. $767.3 million or $3.18 per share in 2018, a decrease of 1.9% in Other items for the year ended December 31, 2019 consisted of: earnings per share. Adjusted net earnings available to common shareholders, excluding other items outlined below, for the year ended December 31, 2019 were $763.9 million or $3.19 per share compared to adjusted net earnings available to common shareholders of $791.8 million or $3.29 per share in 2018, a decrease of 3.0% in adjusted earnings per share. Net earnings available to common shareholders for the three months ended December 31, 2019 were $191.6 million or 80 cents per share compared to net earnings available to common shareholders of $179.9 million or 75 cents per share for the • A one-time charge of $9.2 million, recorded in the fourth quarter, which represented the Company’s proportionate share in Great-West Lifeco Inc.’s after-tax adjustments related to the revaluation of a deferred tax asset, restructuring costs and the net gain on the Scottish Friendly transaction. • A one-time charge of $8.0 million, recorded in the second quarter, which represented the Company’s proportionate share in Great-West Lifeco Inc.’s after-tax loss on the sale of its United States individual life insurance and annuity business. comparative period in 2018. Adjusted net earnings available to Other items for the year ended December 31, 2018 consisted of: common shareholders, excluding other items outlined below, for the three months ended December 31, 2019 were $200.8 million or 84 cents per share compared to adjusted net earnings available to common shareholders of $179.9 million or 75 cents per share in 2018. • Restructuring and other charges of $16.7 million after-tax ($22.7 million pre-tax) resulting from the re-engineering of North American equity offerings and associated personnel changes, as well as other initiatives to improve the Company’s offerings and operational effectiveness. • A premium of $7.8 million after-tax ($10.7 million pre-tax) paid on the early redemption of the $375 million 7.35% debentures on August 10, 2018. 25 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 1: RECONCILIATION OF NON-IFRS FINANCIAL MEASURES ($ millions) Adjusted net earnings available to common shareholders – Non-IFRS measure Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures, net of tax Restructuring and other, net of tax THREE MONTHS ENDED TWELVE MONTHS ENDED 2019 DEC. 31 2019 SEP. 30 2018 DEC. 31 2019 DEC. 31 2018 DEC. 31 $ 200.8 (9.2) $ 202.5 – $ 179.9 – $ 763.9 (17.2) $ 791.8 – – – – – – – – – (7.8) (16.7) Net earnings available to common shareholders – IFRS $ 191.6 $ 202.5 $ 179.9 $ 746.7 $ 767.3 Adjusted net earnings per share(1) available to common shareholders – Non-IFRS measure Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures, net of tax Restructuring and other, net of tax Net earnings per share(1) available to common shareholders – IFRS EBITDA before sales commissions – Non-IFRS measure Sales-based commissions paid EBITDA after sales commissions – Non-IFRS measure Sales-based commissions paid subject to amortization Amortization of capitalized sales commissions Amortization of capital, intangible and other assets(2) Interest expense(3) Adjusted Earnings before income taxes – Non-IFRS measure Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures Restructuring and other Earnings before income taxes Income taxes Perpetual preferred share dividends $ 0.84 (0.04) $ 0.85 – $ 0.75 – $ 3.19 (0.07) $ 3.29 – $ $ – – 0.80 336.5 (45.2) 291.3 23.5 (6.5) (19.9) (27.8) 260.6 (9.2) – – 251.4 (59.8) – $ $ – – 0.85 337.1 (38.2) 298.9 16.3 (5.9) (19.9) (27.7) 261.7 – – – 261.7 (59.2) – $ $ – – – – (0.04) (0.07) 0.75 $ 3.12 $ 3.18 296.8 (41.2) 255.6 13.2 (4.3) (14.4) (24.1) 226.0 – – – 226.0 (43.9) (2.2) $ 1,294.0 (165.1) 1,128.9 67.2 (22.4) (79.5) (108.4) 985.8 (17.2) – – 968.6 (219.7) (2.2) $ 1,333.0 (188.5) 1,144.5 55.7 (14.4) (56.1) (110.2) 1,019.5 – (10.7) (22.7) 986.1 (210.0) (8.8) Net earnings available to common shareholders – IFRS $ 191.6 $ 202.5 $ 179.9 $ 746.7 $ 767.3 (1) Diluted earnings per share. (2) Amortization expense includes amortization on capital assets and intangible assets and in 2019 also includes amortization on right-of-use assets as a result of the Company's adoption of IFRS 16, Leases (fourth quarter - $6.0 million; third quarter - $6.0 million; 2019 - $23.5 million). (3) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases as a result of the Company's adoption of IFRS 16, Leases (fourth quarter - $1.0 million; third quarter - $1.0 million; 2019 - $4.1 million). Shareholders’ equity was $4.5 billion at December 31, 2019, 2019 DEVELOPMENTS compared to $4.6 billion at December 31, 2018. Return on average common equity based on adjusted net earnings for the year ended December 31, 2019 was 17.2%, compared with 18.2% for the comparative period in 2018. The quarterly dividend per common share was 56.25 cents in 2019, unchanged from the end of 2018. TRANSFORMATION ACTIVITIES IGM Financial has previously announced a five-year transformation to modernize its digital platforms and technology infrastructure to enable the company to enhance operations, achieve efficiencies and further improve the service experience for its clients. As part of this transformation effort, we announced two initiatives during the year: 26 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS • IGM Financial has selected CIBC Mellon to assume most of Non-commission expense in 2019 was $3.8 million lower its fund services functions. This will add fund administration and interest expense was $4.1 million higher as a result of the servicing solutions to the custody and related services that adoption of IFRS 16. If IFRS 16 had been applied retrospectively, CIBC Mellon already performed for the Company. non-commission expense in 2018 would have been $0.5 million • We have chosen Google Cloud to manage our data platform. We lower and interest expense $4.1 million higher. are among the first major Canadian financial services companies to move SAP applications and data to the Google Cloud Platform. The migration of the firm’s data to a cloud-based environment will enhance operational efficiencies through greater productivity and business agility, and enhanced service levels. CAPITAL MANAGEMENT ACTIVITIES IFRS 16 impacted EBITDA as the expenses are now categorized as amortization and interest expenses, which are excluded from EBITDA. Previously, the cash payments were expensed and included within EBITDA. In 2019, EBITDA before sales commissions increased by $27.3 million to $1,294.0 million as a result of IFRS 16. If IFRS 16 had IGM Financial initiated a number of capital and liquidity been applied retroactively, EBITDA before sales commission in transactions in 2019, including: 2018, would have increased by $22.9 million to $1,355.9 million. • The issuance of $250.0 million 4.206% debentures maturing on March 21, 2050. REPORTABLE SEGMENTS • Part of the proceeds from the issuance of the $250.0 million IGM Financial's reportable segments are: debentures was used to fund the redemption of the $150.0 million issued and outstanding 5.90% Non-Cumulative First Preferred Shares, Series B on April 30, 2019. • The Company purchased 2,762,788 shares at a cost of $100 million. In April 2019, the Company participated on a proportionate basis in the Great-West Lifeco (Lifeco) substantial issuer bid by selling 2,400,255 of its shares for proceeds of $80.4 million. The Company’s 4% interest in Lifeco remains substantially unchanged. PERSONAL CAPITAL In January 2019, the Company made an additional investment in Personal Capital Corporation (Personal Capital) of $66.8 million resulting in the reclassification of $217.0 million on the Consolidated Balance Sheet from Corporate investments to Investments in associates. As a result, the Company now uses • IG Wealth Management (IG Wealth Management or IG) • Mackenzie Investments (Mackenzie Investments or Mackenzie) • Corporate and Other These segments, as shown in Tables 2, 3 and 4 reflect the Company’s internal financial reporting and performance measurement. Certain items reflected in Tables 2, 3, and 4 are not allocated to segments: • Interest expense – represents interest expense on long-term debt and, in 2019 also includes interest expense on leases as a result of the adoption of IFRS 16, Leases. The change in interest expense in the period also resulted from the impact of the following transactions: – The redemption of $150 million 6.58% debentures on the equity method of accounting for its 24.8% equity interest in March 7, 2018; Personal Capital. – The issuance of $200 million 4.174% debentures on July 11, 2018; ADOPTION OF IFRS 16 LEASES – The early redemption of $375 million 7.35% debentures on On January 1, 2019, the Company adopted IFRS 16, Leases, August 10, 2018, and; which resulted in recognition of a right-of-use asset related to the Company’s property leases and a corresponding lease obligation. Previously, the Company expensed total lease payments in non-commission expense. Under IFRS 16, lease related expenses are recognized as amortization in non- commission expense and interest in interest expense (Note 2 to the Consolidated Financial Statements). The adoption of IFRS 16 resulted in a change to timing of – The issuance of $250 million 4.206% debentures on March 20, 2019. • 2019 Proportionate share of associate's one-time charges – consisted of: – $9.2 million representing the Company’s proportionate share in Great-West Lifeco Inc.’s after-tax adjustments, recorded in the fourth quarter, related to the revaluation of a deferred tax asset, restructuring costs and the net gain on non-commission expenses but had no effect on cash flows of the Scottish Friendly transaction. the Company. 27 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 2: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q4 2019 VS. Q4 2018 THREE MONTHS ENDED ($ millions) 2019 2018 2019 2018 2019 2018 2019 2018 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL Revenues Fee income Net investment income and other Expenses Commission Non-Commission(1) $ 501.0 16.8 $ 477.0 $ 11.0 517.8 488.0 159.6 151.9 311.5 156.3 159.6 315.9 207.3 0.6 207.9 73.9 92.6 69.7 86.9 44.8 21.5 66.3 46.4 22.5 68.9 166.5 156.6 $ $ 195.1 (3.1) $ 70.5 36.5 71.6 $ 39.9 192.0 107.0 111.5 $ 778.8 53.9 832.7 743.7 47.8 791.5 Earnings before interest and taxes $ 206.3 $ 172.1 $ 41.4 $ 35.4 $ 40.7 $ 42.6 Interest expense(2) Proportionate share of associate's one time charges Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends Net earnings available to common shareholders Adjusted net earnings available to common shareholders(3) 278.3 266.0 544.3 288.4 (27.8) (9.2) 251.4 59.8 191.6 – 272.4 269.0 541.4 250.1 (24.1) – 226.0 43.9 182.1 2.2 179.9 179.9 $ 191.6 $ 200.8 $ $ (1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases of $1.0 million as a result of the Company's adoption of IFRS 16, Leases. (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company's use of non-IFRS financial measures. 2019 adjusted net earnings excluded the proportionate share of associate's one-time charges of $9.2 million, which was recorded in Proportionate share of associates' earnings in the Consolidated Statements of Earnings. – $8.0 million representing the Company’s proportionate • Income taxes – changes in the effective tax rates are shown in share in Great-West Lifeco Inc.’s after-tax loss, recorded Table 5. in the second quarter, on the sale of its United States individual life insurance and annuity business. Tax planning may result in the Company recording lower levels of income taxes. Management monitors the status of its • 2018 Premium paid on early redemption of debentures – income tax filings and regularly assesses the overall adequacy represents the premium paid on the early redemption of the of its provision for income taxes and, as a result, income $375 million 7.35% debentures on August 10, 2018. taxes recorded in prior years may be adjusted in the current • 2018 Restructuring and other – $22.7 million ($16.7 million after-tax) recorded in the third quarter resulted from the re-engineering of North American equity offerings and associated personnel changes, as well as other initiatives to improve the Company’s offerings and operational effectiveness. year. The effect of changes in management's best estimates reported in adjusted net earnings is reflected in Other items, which also includes, but is not limited to, the effect of lower effective income tax rates on foreign operations. • Perpetual preferred share dividends – represents the dividends declared on the Company’s 5.90% non-cumulative first preferred shares. The decrease in the preferred share dividends reflects the redemption of the $150.0 million in preferred shares on April 30, 2019. 28 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 3: CONSOLIDATED OPERATING RESULTS BY SEGMENT – YTD 2019 VS. YTD 2018 TWELVE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL Revenues Fee income Net investment income and other Expenses Commission Non-Commission(1) $ 1,958.8 56.2 $ 1,940.0 $ 46.7 2,015.0 1,986.7 628.8 615.9 623.4 597.3 1,244.7 1,220.7 807.6 4.2 811.8 292.9 350.4 643.3 $ 806.5 (1.9) $ 284.0 139.0 $ 290.7 $ 3,050.4 199.4 167.1 $ 3,037.2 211.9 804.6 423.0 457.8 3,249.8 3,249.1 291.1 335.1 626.2 179.5 88.1 267.6 184.2 88.3 1,101.2 1,054.4 1,098.7 1,020.7 272.5 2,155.6 2,119.4 Earnings before interest and taxes $ 770.3 $ 766.0 $ 168.5 $ 178.4 $ 155.4 $ 185.3 1,094.2 1,129.7 Interest expense(2) Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures Restructuring and other Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends Net earnings available to common shareholders Adjusted net earnings available to common shareholders(3) (108.4) (17.2) – – 968.6 219.7 748.9 2.2 $ 746.7 $ 763.9 $ $ (110.2) – (10.7) (22.7) 986.1 210.0 776.1 8.8 767.3 791.8 (1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases of $4.1 million as a result of the Company's adoption of IFRS 16, Leases. (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company's use of non-IFRS financial measures. Adjusted net earnings exclude other items as follows: – 2019 – Proportionate share of associate's one-time charges of $17.2 million, which was recorded in Proportionate share of associates' earnings in the Consolidated Statements of Earnings. – 2018 – Premium paid on early redemption of debentures of $10.7 million ($7.8 million after-tax), which was recorded in Interest expense in the Consolidated Statements of Earnings. – Restructuring and other charges of $22.7 million ($16.7 million after tax), which was recorded in Commission and Non-commission expenses in the Consolidated Statements of Earnings. 29 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 4: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q4 2019 VS. Q3 2019 THREE MONTHS ENDED ($ millions) 2019 DEC. 31 2019 SEP. 30 2019 DEC. 31 2019 SEP. 30 2019 DEC. 31 2019 SEP. 30 2019 DEC. 31 IG WEALTH MANAGEMENT MACKENZIE INVESTMENTS CORPORATE & OTHER TOTAL 2019 SEP. 30 Revenues Fee income Net investment income and other Expenses Commission Non-Commission(1) $ 501.0 16.8 $ 492.9 $ 15.8 517.8 508.7 159.6 151.9 311.5 154.7 148.2 302.9 207.3 0.6 207.9 73.9 92.6 73.0 84.2 44.8 21.5 66.3 44.7 21.9 66.6 166.5 157.2 $ $ 205.0 (1.4) $ 70.5 36.5 71.7 $ 32.1 203.6 107.0 103.8 $ 778.8 53.9 832.7 769.6 46.5 816.1 Earnings before interest and taxes $ 206.3 $ 205.8 $ 41.4 $ 46.4 $ 40.7 $ 37.2 Interest expense(2) Proportionate share of associate's one-time charges Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends Net earnings available to common shareholders Adjusted net earnings available to common shareholders(3) 278.3 266.0 544.3 288.4 (27.8) (9.2) 251.4 59.8 191.6 – 272.4 254.3 526.7 289.4 (27.7) – 261.7 59.2 202.5 – 202.5 202.5 $ 191.6 $ 200.8 $ $ (1) The Company’s investment management functions reside at Mackenzie Investments and the cost of investment management activities is allocated proportionately between the segments. (2) Interest expense includes interest on long-term debt and interest on leases as a result of the Company's adoption of IFRS 16, Leases (fourth quarter - $1.0 million; third quarter - $1.0 million) (3) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A for an explanation of the Company's use of non-IFRS financial measures. Fourth quarter adjusted net earnings excluded the proportionate share of associate's one-time charges of $9.2 million, which was recorded in Proportionate share of associates' earnings in the Consolidated Statements of Earnings. TABLE 5: EFFECTIVE INCOME TAX RATE Income taxes at Canadian federal and provincial statutory rates Effect of: Proportionate share of associates’ earnings Tax loss consolidation(1) Other items Effective income tax rate – adjusted net earnings Proportionate share of associate’s one-time charges THREE MONTHS ENDED TWELVE MONTHS ENDED 2019 DEC. 31 2019 SEP. 30 2018 DEC. 31 2019 DEC. 31 2018 DEC. 31 26.76 % 26.75 % 26.83 % 26.77 % 26.81 % (3.43) (1.36) 0.83 22.80 0.99 (2.89) (1.32) 0.09 22.63 – (3.79) (1.56) (2.07) 19.41 – (3.31) (1.41) 0.15 22.20 0.48 (3.79) (1.40) (0.33) 21.29 – Effective income tax rate – net earnings 23.79 % 22.63 % 19.41 % 22.68 % 21.29 % (1) See Note 26 - Related Party Transactions of the Consolidated Financial Statements included in the 2019 IGM Financial Inc. Annual Report (Annual Financial Statements). 30 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS SUMMARY OF CHANGES IN TOTAL ASSETS UNDER MANAGEMENT AND ADMINISTRATION December 31, 2018, an increase of 11.9%. Changes in assets under management and administration are detailed in Tables 6 and 7. Assets under administration were $190.2 billion at December 31, 2019 compared to $170.1 billion at December 31, 2018, an increase of 11.8%. Total assets under management were $166.8 billion at December 31, 2019 compared to $149.1 billion at Changes in assets under management for IG Wealth Management and Mackenzie Investments are discussed further in each of their respective Review of the Business sections in the MD&A. TABLE 6: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – Q4 2019 VS. Q4 2018(1) IG WEALTH MANAGEMENT MACKENZIE INVESTMENT INVESTMENTS PLANNING COUNSEL INTERCOMPANY ELIMINATIONS(2) CONSOLIDATED THREE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 Investment funds Mutual funds(3)(4) Gross sales Net sales ETFs Net creations $ 2,251 (247) $ 2,118 $ 2,587 18 (125) $ 2,328 $ (146) $ 147 (114) 229 $ (65) $ – – – $ 4,985 (343) – $ 4,675 (336) Inter-product eliminations(2) Total investment fund net sales Sub-advisory, institutional and other accounts Net sales – – – – 646 (399) 137 (82) – – – – – (45) – 56 646 (444) 137 (26) (247) (125) 265 (91) (114) (65) (45) 56 (141) (225) – – (86) (224) – – 14 75 (72) (149) Combined net sales $ (247) $ (125) $ 179 $ (315) $ (114) $ (65) $ (31) $ 131 $ (213) $ (374) Change in total assets under management Net sales Investment returns $ (247) $ 2,629 (125) $ (5,730) 179 1,755 $ (315) $ (4,304) (114) $ 140 Net change in assets Beginning assets 2,382 90,779 (5,855) 88,992 1,934 68,271 (4,619) 67,347 26 5,365 (65) $ (342) (407) 5,532 (31) $ (39) 131 $ 102 (213) $ 4,485 (374) (10,274) (70) (1,879) 233 (2,157) 4,272 162,536 (10,648) 159,714 Ending assets $ 93,161 $ 83,137 $ 70,205 $ 62,728 $ 5,391 $ 5,125 $ (1,949) $ (1,924) $ 166,808 $ 149,066 Total assets under management consists of: Investment funds Mutual funds(3) ETFs Inter-product eliminations(2) $ 93,161 – – $ 83,137 $ 60,838 4,749 (1,596) – – $ 53,407 $ 5,391 – – 2,949 (848) $ 5,125 $ – – Total investment funds Sub-advisory, institutional 93,161 83,137 63,991 55,508 5,391 5,125 $ – – (780) (780) – $ 159,390 4,749 – (2,376) (488) $ 141,669 2,949 (1,336) (488) 161,763 143,282 and other accounts – – 6,214 7,220 – – (1,169) (1,436) 5,045 5,784 Ending assets $ 93,161 $ 83,137 $ 70,205 $ 62,728 $ 5,391 $ 5,125 $ (1,949) $ (1,924) $ 166,808 $ 149,066 Assets under administration(1) $ 97,277 $ 86,287 $ 70,205 $ 62,728 $ 27,728 $ 25,706 $ (4,972) $ (4,633) $ 190,238 $ 170,088 (1) Assets under management consists of assets in the Company's funds and pools. Assets under administration consists of assets in Client accounts administered by the Company. (2) Consolidated results eliminate double counting where business is reflected within multiple segments: – Included with Mackenzie's results were advisory mandates to other segments with assets of $1.9 billion at December 31, 2019 (2018 - $1.9 billion) and net redemptions of $31 million for the fourth quarter of 2019 (2018 - net sales of $131 million). – Included in ETFs are mutual fund investments in ETFs totalling $1.6 billion at December 31, 2019 (2018 - $848 million) and net sales of $399 million in the three months ending December 31, 2019 (2018 - $82 million). (3) IG Wealth Management and Investment Planning Counsel AUM and net sales include separately managed accounts. (4) During the fourth quarter of 2019, institutional clients which include Mackenzie mutual funds within their investment offerings made fund allocation changes which resulted in sales of $129 million, redemptions of $165 million and net redemptions of $36 million. 31 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 7: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – 2019 VS. 2018(1) IG WEALTH MANAGEMENT MACKENZIE INVESTMENT INVESTMENTS PLANNING COUNSEL INTERCOMPANY ELIMINATIONS(2) CONSOLIDATED TWELVE MONTHS ENDED 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ($ millions) DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 Investment funds Mutual funds(3)(4) Gross sales Net sales ETFs Net creations Inter-product eliminations(2) Total investment $ 8,723 $ 9,075 $ 9,886 $ 9,951 $ 694 $ 960 $ (1,089) 485 512 113 (272) (18) – – – – 1,559 1,799 (655) (530) – – – – – – – $ – $ 19,303 $ 19,986 – – (849) 580 1,559 1,799 (197) (407) (852) (937) fund net sales (1,089) 485 1,416 1,382 (272) (18) (197) (407) (142) 1,442 Sub-advisory, institutional and other accounts(5) Net sales – – (1,894) (487) – – 403 (117) (1,491) (604) Combined net sales $ (1,089) $ 485 $ (478) $ 895 $ (272) $ (18) $ 206 $ (524) $ (1,633) $ 838 Change in total assets under management Net sales $ (1,089) $ 485 $ (478) $ 895 $ (272) $ (18) $ 206 $ (524) $ (1,633) $ 838 Investment returns 11,113 (5,356) 7,955 (2,676) 538 (234) (231) (19) 19,375 (8,285) Net change in assets 10,024 (4,871) 7,477 (1,781) Beginning assets 83,137 88,008 62,728 64,509 266 5,125 (252) 5,377 (25) (543) 17,742 (7,447) (1,924) (1,381) 149,066 156,513 Ending assets $ 93,161 $ 83,137 $ 70,205 $ 62,728 $ 5,391 $ 5,125 $ (1,949) $ (1,924) $ 166,808 $ 149,066 Assets under administration(1) $ 97,277 $ 86,287 $ 70,205 $ 62,728 $ 27,728 $ 25,706 $ (4,972) $ (4,633) $ 190,238 $ 170,088 (1) Assets under management consists of assets in the Company's funds and pools. Assets under administration consists of assets in Client accounts administered by the Company. (2) Consolidated results eliminate double counting where business is reflected within multiple segments: – Included with Mackenzie's results were advisory mandates to other segments with assets of $1.9 billion at December 31, 2019 (2018 - $1.9 billion) and net redemptions of $206 million for the twelve months ending December 31, 2019 (2018 - net sales of $524 million). – Included in ETFs are mutual fund investments in ETFs totalling $1.6 billion at December 31, 2019 (2018 - $848 million) and net sales of $655 million for the twelve months ending December 31, 2019 (2018 - $530 million). (3) IG Wealth Management and Investment Planning Counsel total AUM and net sales include separately managed accounts. (4) During 2019, institutional clients which include Mackenzie mutual funds within their investment offerings made fund allocation changes which resulted in sales of $129 million, redemptions of $165 million and net redemptions of $36 million. During 2018, institutional clients which include Mackenzie mutual funds within their investment offerings made fund allocation changes which resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (5) During the third quarter of 2019, MD Financial Management reassigned sub-advisory responsibilities totalling $1.2 billion on mandates advised upon by Mackenzie. 32 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS SELECTED ANNUAL INFORMATION Financial information for the three most recently completed years is included in Table 8. Net Earnings and Earnings per Share – Except as noted in the reconciliation in Table 8, variations in net earnings and total revenues result primarily from changes in average daily mutual fund assets under management. Investment fund assets under management were $149.8 billion in 2017, decreased to $143.3 billion in 2018 and increased to $161.8 billion in 2019, driven largely by changes in financial markets during the period. Average investment fund assets under management for the year ended December 31, 2019 were $155.5 billion compared to $150.5 billion in 2018. The impact on earnings and revenues of changes in average daily investment fund assets under Total assets under management at December 31, 2019 were $166.8 billion and included investment fund assets under management totalling $161.8 billion. Net earnings in future periods will largely be determined by the level of investment fund assets which will continue to be influenced by global market conditions. Dividends per Common Share – Annual dividends per common share were $2.25 in 2019, unchanged from 2018 and 2017. SUMMARY OF QUARTERLY RESULTS The Summary of Quarterly Results in Table 9 includes the eight most recent quarters and the reconciliation of non-IFRS financial measures to net earnings in accordance with IFRS. management and other pertinent items are discussed in the Changes in average daily investment fund assets under Review of Segment Operating Results sections of the MD&A for management over the eight most recent quarters, as shown in both IG Wealth Management and Mackenzie. Table 9, largely reflect the impact of changes in domestic and foreign markets and net sales of the Company. 33 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 8: SELECTED ANNUAL INFORMATION Consolidated statements of earnings ($ millions) Revenues Fee income Net investment income and other Expenses Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures Restructuring and other Pension plan Proportionate share of associate’s provision Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends 2019 2018 2017 $ 3,050.4 199.4 $ 3,037.2 211.9 $ 3,005.7 167.3 3,249.8 2,264.0 985.8 (17.2) – – – – 968.6 219.7 748.9 2.2 3,249.1 2,229.6 1,019.5 – (10.7) (22.7) – – 986.1 210.0 776.1 8.8 3,173.0 2,224.4 948.6 (14.0) – (195.3) 50.4 (5.1) 784.6 173.9 610.7 8.8 Net earnings available to common shareholders $ 746.7 $ 767.3 $ 601.9 Reconciliation of Non-IFRS financial measures(1) ($ millions) Adjusted net earnings available to common shareholders – non-IFRS measure Other items: Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures, net of tax Restructuring and other, net of tax Pension plan, net of tax Proportionate share of associate’s provision $ 763.9 $ 791.8 $ 727.8 (17.2) – – – – – (7.8) (16.7) – – (14.0) – (143.6) 36.8 (5.1) Net earnings available to common shareholders – IFRS $ 746.7 $ 767.3 $ 601.9 Earnings per share ($) Adjusted net earnings available to common shareholders(1) – Basic – Diluted Net earnings available to common shareholders – Basic – Diluted Dividends per share ($) Common Preferred, Series B $ 3.19 3.19 3.12 3.12 $ 2.25 0.37 $ $ 3.29 3.29 3.19 3.18 2.25 1.48 $ $ 3.03 3.02 2.50 2.50 2.25 1.48 Average daily investment fund assets ($ millions) $ 155,532 $ 150,502 $ 143,735 Total investment fund assets under management ($ millions) $ 161,763 $ 143,282 $ 149,819 Total assets under management ($ millions) Total assets under administration ($ millions) Total corporate assets ($ millions) Total long-term debt ($ millions) Outstanding common shares (thousands) $ 166,808 $ 149,066 $ 156,513 $ 190,238 $ 170,088 $ 179,081 $ 15,391 $ 2,100 $ $ 15,609 1,850 $ $ 16,499 2,175 238,294 240,885 240,666 (1) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in addition to the Summary of Consolidated Operating Results section included in this MD&A for an explanation of Other items used to calculate the Company's Non-IFRS financial measures. 34 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 9: SUMMARY OF QUARTERLY RESULTS Consolidated statements of earnings ($ millions) Revenues Management fees Administration fees Distribution fees Net investment income and other Expenses Commission Non-commission Interest(1) Earnings before undernoted Proportionate share of associate’s one-time charges Premium paid on early redemption of debentures Restructuring and other Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends 2019 Q4 2019 Q3 2019 Q2 2019 Q1 2018 Q4 2018 Q3 2018 Q2 2018 Q1 $ 581.2 $ 574.0 $ 567.5 $ 545.2 $ 546.0 $ 573.8 $ 562.8 $ 556.6 107.6 93.3 52.1 101.7 89.3 52.9 104.5 91.1 46.5 104.2 93.4 53.9 104.1 94.2 46.1 103.3 94.4 47.8 109.1 93.3 55.8 107.1 89.9 56.2 832.7 816.1 811.9 789.1 791.5 832.0 816.0 809.6 278.3 266.0 27.8 572.1 260.6 (9.2) – – 251.4 59.8 191.6 – 272.4 254.3 27.7 554.4 261.7 – – – 261.7 59.2 202.5 – 275.8 259.7 27.7 274.7 274.4 25.2 563.2 574.3 248.7 (8.0) – – 240.7 55.6 185.1 – 214.8 – – – 214.8 45.1 169.7 2.2 272.4 269.0 24.1 565.5 226.0 – – – 226.0 43.9 182.1 2.2 270.1 245.9 27.0 543.0 289.0 – (10.7) (22.7) 255.6 55.2 200.4 2.2 270.1 252.7 28.8 551.6 264.4 – – – 264.4 58.5 205.9 2.2 286.1 253.1 30.3 569.5 240.1 – – – 240.1 52.4 187.7 2.2 Net earnings available to common shareholders $ 191.6 $ 202.5 $ 185.1 $ 167.5 $ 179.9 $ 198.2 $ 203.7 $ 185.5 Reconciliation of Non-IFRS financial measures(2) ($ millions) Adjusted net earnings available to common shareholders – non-IFRS measure Other items: Proportionate share of associate’s $ 200.8 $ 202.5 $ 193.1 $ 167.5 $ 179.9 $ 222.7 $ 203.7 $ 185.5 one-time charges Premium paid on early redemption of debentures, net of tax Restructuring and other, net of tax Net earnings available to common shareholders – IFRS Earnings per Share (¢) Adjusted net earnings available to common shareholders(1) – Basic – Diluted Net earnings available to common shareholders – Basic – Diluted (9.2) – – – – – (8.0) – – – – – – – – – (7.8) (16.7) – – – – – – $ 191.6 $ 202.5 $ 185.1 $ 167.5 $ 179.9 $ 198.2 $ 203.7 $ 185.5 84 84 80 80 85 85 85 85 81 81 77 77 70 70 70 70 75 75 75 75 92 92 82 82 85 85 85 85 77 77 77 77 Average daily investment fund assets ($ billions) $ 159.5 $ 156.8 $ 155.7 $ 149.9 $ 147.0 $ 154.0 $ 150.9 $ 150.1 Total investment fund assets under management ($ billions) $ 161.8 $ 157.6 $ 156.3 $ 154.3 $ 143.3 $ 153.4 $ 152.5 $ 149.2 Total assets under management ($ billions) $ 166.8 $ 162.5 $ 162.3 $ 160.5 $ 149.1 $ 159.7 $ 159.1 $ 155.8 Assets under administration ($ billions) $ 190.2 $ 185.1 $ 184.7 $ 182.8 $ 170.1 $ 182.6 $ 181.6 $ 177.9 (1) Interest expense includes interest on long-term debt and in 2019 also includes interest on leases as a result of the Company's adoption of IFRS 16, Leases. (2) Refer to Non-IFRS Financial Measures and Additional IFRS Measures in this MD&A in addition to the Summary of Consolidated Operating Results section included in the MD&A of the 2019 IGM Financial Inc. Annual Report for an explanation of Other items used to calculate the Company's Non-IFRS financial measures. 35 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS IG WEALTH MANAGEMENT REVIEW OF THE BUSINESS IG Wealth Management provides a broad range of financial and investment planning services to Canadians through its exclusive Fee Income – IG Wealth Management For the financial year ($ millions) network of Consultants across the country. Fee income is primarily generated from the management, administration and distribution of IG Wealth Management mutual funds and the provision of advisory services to our clients. Fee income is also earned from the distribution of insurance, securities and other financial services. Additional revenue is derived from net investment income and other income, primarily related to our mortgage business. Revenues depend largely on the level and composition of mutual fund assets under management. The comprehensive planning approach, provided by our Consultants through the broad range of financial products and services offered by IG Wealth Management, has resulted in a mutual fund redemption rate lower than the industry average. 1,776 1,833 1,927 1,940 1,959 2015 2016 2017 2018 2019 2019 DEVELOPMENTS FEE TRANSPARENCY FOR ALL CLIENTS AND PRICING encourage consolidation of our clients’ assets with IG Wealth CHANGES Management and to increase the competitiveness of our products IG Wealth Management is delivering on its client-focused to attract new clients. On March 1, 2019, IG Wealth Management commitment by expanding fee transparency while introducing enhanced the competitiveness of pricing to households with over product and pricing changes to accelerate growth. $1 million in assets with IG Wealth Management through advisory The company has also introduced more competitive pricing to IG Wealth Management is increasing fee transparency by making unbundled solutions available to all client segments in the fourth fee reductions across multiple client segments. quarter of 2019. Previously, these solutions have been available IG WEALTH MANAGEMENT STRATEGY only to high net worth clients. Under unbundled solutions, clients IG Wealth Management’s promise is to inspire financial confidence. pay an advisory fee to the dealer for its services as opposed to dealer compensation being bundled within mutual fund management fees. Prior to this change, IG’s unbundled fee option (Series U and Series I) had been limited to high net worth clients and had represented over 80% of high net worth client gross sales year to date. Over the next year, our Consultants will be migrating clients to unbundled solutions. To facilitate the move to unbundled fee options, IG Wealth Management also introduced the IG Advisory Account (IGAA) in the fourth quarter of 2019. IGAA is a fee-based account that improves fee transparency by offering the ability to simplify and consolidate investments into a single account while providing all of our clients with unbundled pricing solutions. IGAA accounts can hold both IG Wealth Our strategic mandate is to be Canada’s financial partner of choice. Our value proposition is to deliver better Gamma, better Beta and better Alpha: • Gamma – the value of all efforts that sit outside of investment portfolio construction. This includes the value that a financial advisor adds to a client relationship, and comes from the creation and follow through of a well-constructed financial plan. • Beta – the value created by well-constructed investment portfolios – achieving expected investment returns for the lowest possible risk. Management and eligible external assets. IG Wealth Management • Alpha – the value of active management – achieving returns earns fees from these external assets while also compensating its superior to passive benchmarks with a similar composition Consultants on these assets. and risk profile. 36 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISWe seek to deliver our value proposition through: Superior Advice • Superior Advice – Acquiring a deep knowledge of Canadian investors and using those insights to shape everything we do. • Segmented Client Experiences – Creating segmented experiences personalized throughout our clients’ lifetimes. • Entrepreneurial Advisors – Inspiring our entrepreneurial advisors to constantly deliver an engaging experience and a holistic plan that seeks to deliver superior outcomes. • Powerful Financial Solutions – Providing our clients with a comprehensive suite of well-constructed, high-performing and competitively priced solutions. • Business processes that are simple, easy and digitized – Re-designing client and advisor interactions to simplify processes, reduce errors, and digitize the experience with an appropriate cost structure. • Enabled by a high-performing and diverse culture. GAMMA THE VALUE OF ALL EFFORTS THAT SIT OUTSIDE OF INVESTMENT PORTFOLIO CONSTRUCTION. THIS INCLUDES THE VALUE THAT A FINANCIAL ADVISOR ADDS TO A CLIENT RELATIONSHIP, AND COMES FROM THE CREATION AND FOLLOW THROUGH OF A WELL-CONSTRUCTED FINANCIAL PLAN. Entrepreneurial Advisors IG Wealth Management has a national distribution network of Consultants based in region offices across Canada. The following provides a breakdown of the IG Wealth Management Consultant network into its significant components at December 31, 2019: • 1,759 Consultant practices (1,973 at December 31, 2018), which reflect Consultants with more than four years of IG Wealth Management experience. These practices may include Associates as described below. The level and productivity of Consultant practices is a key measurement of our business as they serve clientele representing approximately 95% of AUM. IG Wealth Management requires all Consultants with more than four years of experience to have or be enrolled to achieve the Certified Financial Planner (CFP) or its Quebec equivalent, Financial Planner (F.Pl.) designations. The CFP and F.Pl. designations are nationally recognized financial planning qualifications that require an individual to demonstrate financial planning competence through education, standardized examinations, continuing education requirements, and accountability to ethical standards. IG Wealth Management combines a number of interview and testing techniques to identify individuals who demonstrate a blend of experience, education and aptitude that makes them well suited to becoming successful financial planners. This process is continually reviewed in our efforts to select the most appropriate candidates as new Consultants to improve their likelihood of success in the future. Each year our training curriculum is reviewed and refreshed to offer new Consultants important building blocks to develop client relationships. As Consultants progress, they develop their skills as financial planners and business managers through a selection of focused educational programs including: financial planning skills, product knowledge, client service, business development skills, compliance, technology, practice management and other related topics. IG Wealth Management also supports Consultants and clients through its network of product and planning specialists who assist in the areas of advanced financial planning, mortgages and banking, insurance, and securities. These specialists provide support in ensuring that we are offering the very best in financial planning and providing plans that are comprehensive across all elements of a client’s financial life. Our specialist complement also includes wealth planning specialists who are IIROC-licensed and ensure that the same level of comprehensive advice on direct securities is available to clients who are served by both our Mutual Fund Dealers Association of Canada (MFDA) and Investment • 591 New Consultants (700 at December 31, 2018), which Industry Regulatory Organization of Canada (IIROC) licensed are those Consultants with less than four years of IG Wealth Consultants. Clients of our MFDA and IIROC licensed Consultants Management experience. have access to similar product and service offerings. • 1,031 Associates and Regional Directors (1,038 at December 31, 2018). Associates are licensed team members of Segmented Client Experiences Consultant practices who provide financial planning services IG Wealth Management distinguishes itself from its competition by and advice to the clientele served by the team. offering comprehensive planning to its clients within the context • IG Wealth Management had a total Consultant network of 3,381 (3,711 at December 31, 2018). IG Wealth Management’s recruiting standards increase the likelihood of success while also enhancing our culture and brand. of long-term relationships. The value of this approach is illustrated through independent studies demonstrating that households receiving advice from a financial advisor have greater wealth than non-advised households, and that this advantage increases based on the length of the relationship with the financial advisor. 37 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISIG Living Plan™ is a holistic, client-centric approach to financial IG Wealth Management continually reviews and enhances our planning that reflects the evolving needs, goals and aspirations of Consultant technology platform, bringing greater efficiencies to Canadian families and individuals. The IG Living Plan provides a our Consultants’ contact management and portfolio information single, integrated view of all aspects of a client’s finances including and financial planning systems to help them serve our clients retirement and estate planning, investments and tax strategies, more effectively. creating a truly synchronized and comprehensive plan. IG Wealth Management’s dealer platform provides increased The IG Living Plan leverages the experience and expertise of IG automation and supports both MFDA and IIROC licensed advisors Wealth Management’s Consultants who serve approximately one as well as new products on our investment dealer platform million clients located in communities throughout Canada. designed to support the high net worth segment of our client IG Wealth Management has a full range of products that allow us to provide a tailored IG Living Plan that evolves over time. These products include: • Powerful financial solutions that include investment vehicles that match risk and investment performance to each client’s needs and requirements. • Insurance products that include a variety of different policy types from the leading insurers in Canada. base. The platform is expected to result in efficiencies over the long term. IG Wealth Management continues the transitioning of clients to this platform. IG Wealth Management’s Personal Financial Planner (PFP) software handles a wide range of potential financial planning needs – from projections and illustrations for basic financial planning concepts to the preparation of written financial plans which integrate all disciplines of financial planning, including investment, tax, retirement, education, risk management and • Mortgage and banking to develop mortgage and other lending estate planning. strategies that meet the individual needs and goals of each client as part of their comprehensive financial plan. Enabled by a high-performing and diverse culture • Charitable Giving Program, a donor-advised giving program IG Wealth Management has established a high-performing and which enables Canadians to make donations and build an diverse culture to allow employees and Consultants to achieve enduring charitable giving legacy with considerably less expense maximum results. Gallup and other surveys are utilized to ensure and complexity than setting up and administering their own that employees and Consultants are fully engaged and have the private foundation. The National Service Centre, launched in 2018, allows us to offer a targeted, consistent and improved real-time experience for clients with smaller accounts, while our credentialed planners focus on those clients who have more complicated and sophisticated needs. The National Service Centre supports more than 200,000 clients and $1.7 billion assets under management. Business processes Administrative support for Consultants and clients includes timely and accurate client account record-keeping and reporting, effective problem resolution support, and continuous improvements to servicing systems. This administrative support is provided for Consultants and clients from both IG Wealth Management’s head office in Winnipeg, Manitoba and IG Wealth Management’s Quebec General Office resources required to excel. BETA AND ALPHA BETA - THE VALUE CREATED BY WELL-CONSTRUCTED INVESTMENT PORTFOLIOS – ACHIEVING EXPECTED INVESTMENT RETURNS FOR THE LOWEST POSSIBLE RISK. ALPHA - THE VALUE OF ACTIVE MANAGEMENT – ACHIEVING RETURNS SUPERIOR TO PASSIVE BENCHMARKS WITH A SIMILAR COMPOSITION AND RISK PROFILE. IG Wealth Management strives to provide Beta and Alpha through the selection of its global sub-advisors. The use of sub- advisors allows us to provide clients with products that provide diversification and global reach. A strong selection process exists to ensure the best available sub-advisors are selected to manage IG Wealth Management’s investment products. IG Wealth Management oversees all sub- advisors to ensure that their activities are consistent with its investment philosophy and with the investment objectives and located in Montreal for Consultants and clients residing in Quebec. strategies of the products that they advise. The Quebec General Office has approximately 180 employees and operating units for most functions supporting approximately 730 Consultants throughout Quebec. Mutual fund assets under management in Quebec were approximately $17 billion as at December 31, 2019. IG Wealth Management’s primary focus is on providing managed solutions that deliver superior risk-adjusted returns to our clients so that they can confidently pursue their goals and a more secure financial future. Engaging numerous high quality investment management organizations from all over the world is a key design aspect of these managed solutions that enables the delivery of multi-disciplinary teams, global connections, depth of research and 38 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISuse of information technology. Investment Managers are selected to a portfolio manager. There are seven different investment through a rigorous process followed by continuous performance mandates available that provide core equity exposure in monitoring and oversight. IG Wealth Management’s advisory Canadian, U.S., North American and International equity relationships include Mackenzie Investments, as well as other world markets. IG Wealth Management’s Fee-Based Account class investment firms. New Products program is a non-discretionary, fee-based brokerage account offering clients the benefits of a holistic approach to managing their portfolio. IG Wealth Management continues to enhance the performance, • IG Advisory Account (IGAA) and unbundled fee structures – The scope and diversity of our investment offering with the introduction IGAA was introduced in the fourth quarter of 2019 and is a of new funds and other product changes that are well-suited to fee-based account that improves client experience by offering the long-term diverse needs of Canadian investors. Powerful Financial Solutions the ability to simplify and consolidate selected investments into a single account while providing all of our clients with unbundled pricing solutions. IGAA accounts increase fee IG Wealth Management provides a wide range of investment and transparency and can hold both IG Wealth Management and other financial solutions that enable clients to achieve their goals. eligible external assets. • Mutual Funds – IG Wealth Management offers a wide breadth A growing portion of IG Wealth Management’s client assets and depth of mutual funds that assist clients and their are in unbundled fee structures where a separate advisory fee Consultants to develop customized portfolios to meet their (IGAA, iProfile or Series U) is charged to the client account by objectives by diversifying their holdings across investment the dealer. At December 31, 2019, $36.0 billion, or 38.7% of IG managers, asset categories, investment styles, geography, Wealth Management’s mutual fund assets under management, capitalization and sectors. • IG Wealth Portfolios – IG Wealth Management offers managed portfolios that seek to provide diversification and long-term consistent performance. Portfolios rebalance investments to ensure that the chosen mix of risk and return is maintained. IG Wealth Management has a variety of portfolio solutions including IG Core Portfolios, IG Managed Payout Portfolios, Investors Portfolios, and IG Managed Risk Portfolios. • iProfile™ - iProfile is a unique portfolio management program that is available for households with investments held at IG Wealth Management in excess of $250,000. iProfile investment portfolios have been designed to maximize returns and manage risk by diversifying across asset classes, management styles and geographic regions. were in products with unbundled fee structures, up 42.2% from $25.3 billion at December 31, 2018 which represented 30.5% of assets under management. Sales of these products to high net worth clients totalled $1.1 billion for the fourth quarter of 2019, an increase of $364 million from the fourth quarter of 2018, representing 88% of total high net worth sales and 51% of total mutual fund sales. For the twelve months ended December 31, 2019, sales totalled $3.8 billion, an increase of $0.8 billion from 2018, representing 83% of total high net worth sales and 44% of total mutual fund sales. Over the next year, the Company will migrate the majority of existing clients to unbundled fee products. Unbundled fee products separate the advisory fee that is charged directly to a client’s account from the fees charged to the underlying • Segregated Funds - IG Wealth Management offers segregated investment funds. Following this transition, IG Wealth funds which include the IG Series of Guaranteed Investment Management will discontinue offering bundled purchase options Funds (GIFs). GIFs are segregated fund policies issued by The for substantially all investment products. Great-West Life Assurance Company and include 14 fund-of- fund segregated portfolios and six individual segregated funds. These segregated funds provide for long-term investment growth potential combined with risk management, full and partial maturity and death benefit guarantee features, potential creditor protection and estate planning efficiencies. • Separately Managed Accounts and Fee-Based Brokerage Account - IG Wealth Management’s separately managed account program, Azure Managed InvestmentsTM is offered through IG Wealth Management’s brokerage services firm, Investors Group Securities Inc. Azure Managed Investments are discretionary dealer-managed accounts that allow clients to delegate responsibility for day-to-day investment decisions IG Wealth Management monitors its investment performance by comparing to certain benchmarks. Morningstar† fund ranking service is one of the rankings monitored when determining fund performance. At December 31, 2019, 57.4% of IG Wealth Management mutual funds had a rating of three stars or better from the Morningstar† fund ranking service and 16.5% had a rating of four or five stars. This compared to the Morningstar† universe of 69.5% for three stars or better and 34.4% for four and five star funds at December 31, 2019. Morningstar Ratings† are an objective, quantitative measure of a fund’s three, five and ten year risk-adjusted performance relative to comparable funds. 39 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISASSETS UNDER MANAGEMENT At December 31, 2019, IG Wealth Management’s mutual fund assets under management were $93.2 billion, an all-time quarter end high. The level of assets under management is influenced by three factors: sales, redemptions and investment returns of our funds. Changes in mutual fund assets under management for the periods under review are reflected in Table 10. HIGH NET WORTH OFFERINGS IG Wealth Management has several offerings to address the needs of high net worth clients, who represent a growing segment of our client base, and continues to look at ways to provide further offerings to this segment. Assets under management for clients in this category totalled $50.0 billion at December 31, 2019, an increase of 20.5% from one year ago, and represented 54% of total assets under management. Sales of high net worth solutions totalled $1.3 billion for the fourth quarter of 2019, an increase of 27.5% from a year ago, and represented 58% of total sales up from 48% in 2018. For the twelve month period, sales of high net worth solutions totalled $4.6 billion and represented 52% of total sales up from 45% in 2018. • Series U is available to all clients and provides a pricing structure which separates the advisory fee, which is charged directly to a client’s account, from the fees charged to the underlying investment funds. At December 31, 2019, Series U assets under management related to households with investments in IG Wealth Management funds in excess of $500,000 had increased to $20.9 billion, compared to $16.3 billion at December 31, 2018, an increase of 28.3%. CHANGES IN ASSETS UNDER MANAGEMENT AND ADMINISTRATION– 2019 VS. 2018 IG Wealth Management’s assets under administration were $97.3 billion at December 31, 2019, representing an increase of 12.7% from $86.3 billion at December 31, 2018. IG Wealth Management’s mutual fund assets under management were $93.2 billion at December 31, 2019, representing an increase of 12.1% from $83.1 billion at December 31, 2018. Average daily mutual fund assets were $91.9 billion in the fourth quarter of 2019, up 8.0% from $85.1 billion in the fourth quarter of 2018. Average daily mutual fund assets were $89.9 billion for the twelve months ended December 31, 2019, up 2.6% from $87.6 billion in 2018. For the quarter ended December 31, 2019, sales of IG Wealth Management mutual funds through its Consultant network were $2.3 billion, an increase of 6.3% from the comparable period in 2018. Mutual fund redemptions totalled $2.5 billion, an increase of 11.4% from 2018. IG Wealth Management mutual fund net redemptions for the fourth quarter of 2019 were $247 million compared with net redemptions of $125 million in 2018. During the fourth quarter, investment returns resulted in an increase of $2.6 billion in mutual fund assets compared to a decrease of $5.7 billion in the fourth quarter of 2018. IG Wealth Management’s annualized quarterly redemption rate for long-term funds was 10.2% in the fourth quarter of 2019, compared to 9.7% in the fourth quarter of 2018. IG Wealth Management’s twelve month trailing redemption rate for long-term funds was 10.3% at December 31, 2019, compared to 9.2% at December 31, 2018, and remains well below the corresponding average redemption rate for all other members of the Investment Funds Institute of Canada (IFIC) • iProfile™ - is a unique portfolio management program that is of approximately 16.2% at December 31, 2019. The increase available for households with investments held at IG Wealth in the redemption rate primarily relates to weakened investor Management in excess of $250,000. The iProfile program has confidence over the last year. a pricing structure which separates the advisory fee, which is charged directly to a client’s account, from the fees charged to the underlying investment funds. At December 31, 2019, the iProfile program assets under management were $15.1 billion, an increase of 67.2% from $9.0 billion at December 31, 2018. • Series J is available for households with investments in IG Wealth Management funds in excess of $500,000 and had assets of $14.0 billion at December 31, 2019, a decrease of 13.5% from $16.1 billion at December 31, 2018, largely as a result of transfer activity from Series J to Series U. Series J pricing structure bundles the cost of asset management and advice into one fee. For the twelve months ended December 31, 2019, sales of IG Wealth Management mutual funds through its Consultant network were $8.7 billion, a decrease of 3.9% from 2018. Mutual fund redemptions totalled $9.8 billion, an increase of 14.2% from 2018. Net redemptions of IG Wealth Management mutual funds were $1.1 billion compared with net sales of $485 million in 2018. During 2019, investment returns resulted in an increase of $11.1 billion in mutual fund assets compared to a decrease of $5.4 million in 2018. 40 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 10: CHANGE IN ASSETS UNDER MANAGEMENT AND ADMINISTRATION – IG WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Mutual fund assets under management Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets 2019 SEP. 30 2018 DEC. 31 2019 SEP. 30 $ 2019 DEC. 31 2,251 2,498 (247) 2,629 2,382 90,779 $ 2,077 2,368 $ 2,118 2,243 (291) 894 603 90,176 (125) (5,730) (5,855) 88,992 % CHANGE 2018 DEC. 31 6.3 % 11.4 (97.6) N/M N/M 2.0 12.1 % 12.7 % 8.0 % 8.4 % 5.5 15.1 194.1 N/M 0.7 2.6 % 3.0 % 1.7 % Assets under administration $ 97,277 $ 94,456 $ 86,287 Daily average mutual fund assets $ 91,931 $ 90,363 $ 85,128 $ 93,161 $ 90,779 $ 83,137 TWELVE MONTHS ENDED ($ millions) Mutual fund assets under management Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Assets under administration Daily average mutual fund assets 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 8,723 9,812 $ 9,075 8,590 (1,089) 11,113 10,024 83,137 485 (5,356) (4,871) 88,008 $ 93,161 $ 83,137 $ 97,277 $ 86,287 $ 89,875 $ 87,595 (3.9) % 14.2 N/M N/M N/M (5.5) 12.1 % 12.7 % 2.6 % CHANGES IN ASSETS UNDER MANAGEMENT AND ADMINISTRATION – Q4 2019 VS. Q3 2019 IG Wealth Management's assets under administration were $97.3 billion at December 31, 2019, an increase of 3.0% from $94.5 billion at September 30, 2019. IG Wealth Management's mutual fund assets under management were $93.2 billion at December 31, 2019, an increase of 2.6% from $90.8 billion at September 30, 2019. Average daily mutual fund assets were $91.9 billion in the fourth quarter of 2019 compared to $90.4 billion in the third quarter of 2019, an increase of 1.7%. For the quarter ended December 31, 2019, sales of IG Wealth Management mutual funds through its Consultant network were $2.3 billion, an increase of 8.4% from the third quarter of 2019. Mutual fund redemptions, which totalled $2.5 billion for the fourth quarter, increased 5.5% from the previous quarter and the annualized quarterly redemption rate was 10.2% in the fourth quarter compared to 9.9% in the third quarter of 2019. IG Wealth Management mutual fund net redemptions were $247 million for the current quarter compared to net redemptions of $291 million in the previous quarter. OTHER PRODUCTS AND SERVICES SEGREGATED FUNDS IG Wealth Management offers segregated funds which include the IG Series of Guaranteed Investment Funds (GIFs). Select GIF policies allow for a Lifetime Income Benefit (LIB) option to provide guaranteed retirement income for life. The investment components of these segregated funds are managed by IG Wealth Management. At December 31, 2019, total segregated fund assets were $1.6 billion, unchanged from December 31, 2018. INSURANCE IG Wealth Management continues to be a leader in the distribution of life insurance in Canada. Through its arrangements with leading insurance companies, IG Wealth Management offers a broad range of term, universal life, whole life, disability, critical illness, long-term care, personal health care coverage and group insurance. The Canada Life Assurance Company is a leading provider of the Company’s insurance products. Effective as of January 1, 2020, Great-West, London 41 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS Life and Canada Life, amalgamated into a single company, The Canada Life Assurance Company. The average number of policies sold by each insurance-licensed Consultant was 2.5 for the quarter ended December 31, 2019, compared to 2.6 in 2018. For the year ended December 31, 2019, the average number of policies sold by each insurance- licensed Consultant was 10.0, compared to 9.7 in 2018. Distribution of insurance products is enhanced through IG Wealth Management’s Insurance Planning Specialists, located Mortgage fundings offered through IG Wealth Management and through Solutions Banking† for the three and twelve months ended December 31, 2019 were $293 million and $1.2 billion compared to $305 million and $1.3 billion in 2018, a decrease of 3.9% and 9.8%, respectively. At December 31, 2019, mortgages offered through both sources totalled $10.3 billion, compared to $10.7 billion at December 31, 2018, a decrease of 3.7%. Available credit associated with Solutions Banking† All-in-One accounts originated for the three and twelve month periods throughout Canada, who assist Consultants with advanced ended December 31, 2019 were $240 million and $770 million, estate planning solutions for high net worth clients. respectively, compared to $187 million and $931 million in 2018. At December 31, 2019, the balance outstanding of Solutions Banking† All-in-One products was $2.9 billion, compared to $2.6 billion one year ago, and represented approximately 50% of total available credit associated with these accounts. Other products and services offered through IG Wealth Management’s Solutions Banking† include investment loans, lines of credit, personal loans, creditor insurance, deposit accounts, and credit cards. Through Solutions Banking†, clients have access to a network of banking machines, as well as a private labeled client website and client service centre. The Solutions Banking† offering supports IG Wealth Management’s approach to delivering total financial solutions for our clients through a broad financial planning platform. Total lending products of IG Wealth Management clients in the Solutions Banking† offering, including Solutions Banking† mortgages totalled $4.5 billion at December 31, 2019, compared to $4.1 billion at December 31, 2018. SECURITIES OPERATIONS Investors Group Securities Inc. is an investment dealer registered in all Canadian provinces and territories providing clients with securities services to complement their financial and investment planning. IG Wealth Management Consultants can refer clients to one of our Wealth Planning Specialists available through Investors Group Securities Inc. MORTGAGE AND BANKING OPERATIONS IG Wealth Management Mortgage Planning Specialists are located throughout each province in Canada, and work with our clients and their Consultants to develop mortgage and other lending strategies that meet the individual needs and goals of each client as part of their comprehensive financial plan. Mortgages are offered to clients by IG Wealth Management, a national mortgage lender, and through IG Wealth Management’s Solutions Banking†, provided by National Bank of Canada under a long-term distribution agreement. An All- in-One product, a comprehensive cash management solution that integrates the features of a mortgage, term loan, revolving line of credit and deposit account, is also offered through Solutions Banking†. 42 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISREVIEW OF SEGMENT OPERATING RESULTS IG Wealth Management’s earnings before interest and taxes are presented in Table 11. 2019 VS. 2018 FEE INCOME Fee income is generated from the management, administration and distribution of IG Wealth Management mutual funds. The TABLE 11: OPERATING RESULTS – IG WEALTH MANAGEMENT distribution of insurance and Solutions Banking† products and the provision of securities services provide additional fee income. IG Wealth Management earns management fees for investment management services provided to its mutual funds, which depend largely on the level and composition of mutual fund assets under management. Management fees were $381.7 million in the fourth quarter of 2019, an increase of $25.0 million THREE MONTHS ENDED ($ millions) Revenues Management fees Administration fees Distribution fees Net investment income and other Expenses Commission Commission amortization Mutual fund sales commissions expensed as incurred Other commissions Asset-based compensation Non-commission $ 2019 DEC. 31 381.7 75.3 44.0 501.0 16.8 517.8 6.5 16.1 30.7 53.3 106.3 151.9 311.5 $ 2019 SEP. 30 376.2 75.2 41.5 492.9 15.8 508.7 5.9 16.4 29.0 51.3 103.4 148.2 302.9 2018 DEC. 31 2019 SEP. 30 % CHANGE 2018 DEC. 31 $ 356.7 75.2 45.1 477.0 11.0 488.0 4.4 22.2 30.4 57.0 99.3 159.6 315.9 1.5 % 0.1 6.0 1.6 6.3 1.8 10.2 (1.8) 5.9 3.9 2.8 2.5 2.8 7.0 % 0.1 (2.4) 5.0 52.7 6.1 47.7 (27.5) 1.0 (6.5) 7.0 (4.8) (1.4) Earnings before interest and taxes $ 206.3 $ 205.8 $ 172.1 0.2 % 19.9 % TWELVE MONTHS ENDED ($ millions) Revenues Management fees Administration fees Distribution fees Net investment income and other Expenses Commission Commission amortization Mutual fund sales commissions expensed as incurred Other commissions Asset-based compensation Non-commission 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 1,488.0 299.6 171.2 1,958.8 56.2 $ 1,458.1 310.4 171.5 1,940.0 46.7 2,015.0 1,986.7 22.4 72.8 121.9 217.1 411.7 615.9 14.5 103.4 118.3 236.2 387.2 597.3 1,244.7 1,220.7 2.1 % (3.5) (0.2) 1.0 20.3 1.4 54.5 (29.6) 3.0 (8.1) 6.3 3.1 2.0 Earnings before interest and taxes $ 770.3 $ 766.0 0.6 % 43 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS or 7.0% from $356.7 million in 2018. For the twelve months insurance and banking products. IG Wealth Management no ended December 31, 2019, management fees were $1,488.0 longer offers the deferred sales purchase option for its mutual million, an increase of $29.9 million or 2.1% from $1,458.1 funds. Redemption fee income varies depending on the level of million in 2018. deferred sales charge attributable to fee-based redemptions. The net increase in management fees in the fourth quarter of 2019 was primarily due to the increase in average assets under management of 8.0%, as shown in Table 10. The average management fee rate for the fourth quarter was 165.2 basis points of average assets under management compared to NET INVESTMENT INCOME AND OTHER Net investment income and other includes income related to mortgage banking operations and net interest income related to intermediary operations. 166.1 basis points in 2018, reflecting pricing reductions effective Net investment income and other was $16.8 million in the March 1, 2019. The net increase in management fees in the year ended December 31, 2019 was primarily due to the increase in average assets under management of 2.6%, as shown in Table 10. The fourth quarter of 2019, an increase of $5.8 million from $11.0 million in 2018. For the year ended December 31, 2019, net investment income and other totalled $56.2 million, an increase of $9.5 million from $46.7 million in 2018. average management fee rate for the twelve months ended Net investment income related to IG Wealth Management’s December 31, 2019, was 165.9 basis points of average assets mortgage banking operations totalled $12.8 million for the under management compared to 166.4 basis points in 2018, fourth quarter of 2019 compared to $6.0 million in 2018, an reflecting pricing reductions effective March 1, 2019. increase of $6.8 million. For the year ended December 31, 2019, IG Wealth Management receives administration fees for providing administrative services to its mutual funds and trusteeship services to its unit trust mutual funds, which also depend largely on the level and composition of mutual fund assets under management. Administration fees totalled $75.3 million in the current quarter, up slightly from $75.2 million a year ago. Administration fees were $299.6 million for the twelve month period ended December 31, 2019 compared to $310.4 million in 2018, a decrease of 3.5%. The decrease in the twelve month period resulted primarily from the movement of assets into unbundled products which are not charged certain administration fees and changes in the composition of average assets under management. Distribution fees are earned from: • Distribution of insurance products through I.G. Insurance Services Inc. • Redemption fees on mutual funds that were sold with a deferred sales charge. • Portfolio fund distribution fees. net investment income related to IG Wealth Management’s mortgage banking operations totalled $45.4 million compared to $36.9 million in 2018, an increase of $8.5 million. The changes in mortgage banking income were largely due to fair value adjustments which increased by $6.3 million and $9.3 million for the three and twelve month periods ended December 31, 2019 to $0.2 million and ($4.3) million, respectively, compared to 2018. The increases in both periods were primarily due to negative fair value adjustments in 2018 on certain securitization related financial instruments. A summary of mortgage banking operations for the three and twelve month periods under review is presented in Table 12. EXPENSES IG Wealth Management incurs commission expense in connection with the distribution of its financial services and products. Commissions are paid on the sale of these products and fluctuate with the level of sales. Commissions paid on the sale of investment products are capitalized and amortized over their estimated useful lives where the Company receives a fee directly from the client. All other commissions paid on • Securities trading services provided through Investors Group investment product sales are expensed as incurred. Securities Inc. • Banking services provided through Solutions Banking†. Commission expense was $53.3 million for the fourth quarter of 2019, a decrease of $3.7 million from $57.0 million in Distribution fee income of $44.0 million for the fourth quarter 2018 primarily due to lower mutual fund sales and lower of 2019 decreased by $1.1 million from $45.1 million in 2018, compensation related to the distribution of insurance products. primarily due to lower distribution fee income from insurance products and lower redemption fees, offset in part by higher For the twelve month period, commission expense was $217.1 million, a decrease of $19.1 million from $236.2 million in 2018. banking income. For the twelve month period, distribution The decrease in mutual fund commissions was primarily due to fee income of $171.2 million decreased by $0.3 million from lower mutual fund sales partially offset by higher compensation $171.5 million in 2018, primarily due to lower redemption fees, related to the distribution of insurance products. offset in part by the increase in distribution fee income from 44 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 12: MORTGAGE BANKING OPERATIONS – IG WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) 2019 DEC. 31 2019 SEP. 30 2018 DEC. 31 2019 SEP. 30 % CHANGE 2018 DEC. 31 Total mortgage banking income Net interest income on securitized loans Interest income Interest expense Net interest income Gains on sales(1) Fair value adjustments Other Average mortgages serviced Securitizations Other Mortgage sales to:(2) Securitizations Other(1) TWELVE MONTHS ENDED ($ millions) Total mortgage banking income Net interest income on securitized loans Interest income Interest expense Net interest income Gains on sales(1) Fair value adjustments Other Average mortgages serviced Securitizations Other Mortgage sales to:(2) Securitizations Other(1) $ $ $ 50.5 41.3 9.2 0.6 0.2 2.8 12.8 6,996 2,744 $ $ $ 52.4 42.9 9.5 0.9 0.7 2.8 13.9 7,185 2,750 $ $ $ 51.7 42.5 9.2 – (6.1) 2.9 6.0 7,264 3,104 $ 9,740 $ 9,935 $ 10,368 $ $ 284 256 540 $ $ 469 166 635 $ $ 550 81 631 (3.6) % (3.7) (3.2) (33.3) (71.4) – (2.3) % (2.8) – N/M N/M (3.4) (7.9) % 113.3 % (2.6) % (0.2) (2.0) % (39.4) % 54.2 (15.0) % (3.7) % (11.6) (6.1) % (48.4) % 216.0 (14.4) % 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 208.0 171.9 $ 204.0 165.1 36.1 3.2 (4.3) 10.4 $ 45.4 $ 7,232 2,782 $ $ 38.9 1.5 (13.6) 10.1 36.9 7,388 3,174 $ 10,014 $ 10,562 $ 1,517 558 $ 1,841 357 $ 2,075 $ 2,198 2.0 % 4.1 (7.2) 113.3 68.4 3.0 23.0 % (2.1) % (12.4) (5.2) % (17.6) % 56.3 (5.6) % (1) Represents sales to institutional investors through private placements, to Investors Mortgage and Short Term Income Fund, and to Investors Canadian Corporate Bond Fund as well as gains realized on those sales. (2) Represents principal amounts sold. 45 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS Asset-based compensation, which is based on the value of Administration fees were $75.3 million in the fourth quarter of assets under management, increased by $7.0 million and $24.5 2019, up slightly from the third quarter. million for the three and twelve month periods ended December 31, 2019 to $106.3 million and $411.7 million, compared to 2018. The increase was primarily due to the increase in assets under management. Non-commission expenses incurred by IG Wealth Management Distribution fee income of $44.0 million in the fourth quarter of 2019 increased by $2.5 million from $41.5 million in the third quarter primarily due to an increase in distribution fee income from insurance product sales offset by lower redemption fees. primarily relate to the support of the Consultant network, NET INVESTMENT INCOME AND OTHER the administration, marketing and management of its mutual Net investment income and other was $16.8 million in the funds and other products, as well as sub-advisory fees related fourth quarter of 2019 compared to $15.8 million in the to mutual fund assets under management. Non-commission previous quarter, an increase of $1.0 million. expenses were $151.9 million for the fourth quarter of 2019 compared to $159.6 million in 2018, a decrease of $7.7 million or 4.8%. The decrease for the quarter was primarily due to advertising and marketing expenses resulting from the brand re-launch recorded in the fourth quarter of 2018. For the twelve Net investment income related to IG Wealth Management’s mortgage banking operations totalled $12.8 million in the fourth quarter, a decrease of $1.1 million from $13.9 million in the previous quarter as shown in Table 12. month period, non-commission expenses were $615.9 million in 2019 compared to $597.3 million in 2018, an increase of EXPENSES $18.6 million or 3.1%. The increase in 2019 was primarily due to increased technology expenses in the first quarter relating to the migration of clients to our new dealer platform and unbundled fee arrangements, as well as continued expenses associated with the brand re-launch. Q4 2019 VS. Q3 2019 FEE INCOME Commission expense in the current quarter was $53.3 million compared with $51.3 million in the previous quarter. The increase related to higher cash commissions paid being expensed in the quarter primarily due to higher mutual fund sales and compensation related to the distribution of insurance product sales. Non-commission expenses increased to $151.9 million in the current quarter compared to $148.2 million in the prior quarter primarily due to the seasonality of expenses offset in part by Management fee income increased by $5.5 million or 1.5% to ongoing efforts to manage non-commission expense. $381.7 million in the fourth quarter of 2019 compared with the third quarter. The increase in management fees in the fourth quarter was primarily due to the increase in average assets under management of 1.7% for the quarter, as shown in Table 10. 46 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISMACKENZIE INVESTMENTS REVIEW OF THE BUSINESS Mackenzie’s core business is the provision of investment management and related services offered through diversified investment solutions, distributed through multiple distribution channels. We are committed to delivering strong investment performance for our clients by drawing on the experience and perspective gained through over 50 years in the investment management business. Mackenzie earns revenue primarily from: • Management fees earned from its investment funds, sub- advised accounts and institutional clients. • Fees earned from its mutual funds for administrative services. Fee Income – Mackenzie For the financial year ($ millions) 809 769 809 807 808 2015 2016 2017 2018 2019 Founded in 1967, Mackenzie continues to build an investment • Redemption fees on deferred sales charge and low load units. advisory business through proprietary investment research and The largest component of Mackenzie’s revenues is management fees. The amount of management fees depends on the level and composition of assets under management. Management fee rates vary depending on the investment objective and the portfolio management while utilizing strategic partners in a selected sub-advisory capacity. Our business focuses on multiple distribution channels: Retail, Strategic Alliances and Institutional. Mackenzie primarily distributes its retail investment products account type of the underlying assets under management. Equity through third party financial advisors. Mackenzie’s sales teams based mandates have higher management fee rates than fixed income mandates and retail mutual fund accounts have higher work with many of the more than 30,000 independent financial advisors and their firms across Canada. In addition to its retail management fee rates than sub-advised and institutional accounts. distribution team, Mackenzie also has specialty teams focused MACKENZIE STRATEGY Mackenzie seeks to be Canada’s preferred global asset management solutions provider and business partner. Mackenzie’s vision: We are committed to the financial success of investors, through their eyes. This impacts the strategic priorities we select to fulfil that commitment and drive future business growth. Our strategic mandate is two-fold: win in the Canadian retail space and build meaningful strategic relationships. We aim to achieve this mandate by attracting and fostering the best minds in the investment industry, responding to changing needs of financial advisors and investors with distinctive and innovative solutions, and continuing to deliver institutional quality in everything we do. Supporting this vision and strategic mandate are six key foundational capabilities that our employees strive to achieve: • Delivering competitive and consistent risk-adjusted performance on strategic alliances and the institutional marketplace. Within the strategic alliance channel, Mackenzie offers certain series of its mutual funds and provides sub-advisory services to third party and related party investment programs offered by banks, insurance companies and other investment companies. Strategic alliances with related parties include providing advisory services to IG Wealth Management, Investment Planning Counsel and Great-West Lifeco Inc. (Lifeco) subsidiaries, and also include a private label mutual fund arrangement with Lifeco subsidiary Quadrus. Within the strategic alliance channel, Mackenzie’s primary distribution relationship is with the head office of the respective bank, insurance company or investment company. In the institutional channel, Mackenzie provides investment management services to pension plans, foundations and other institutions. Mackenzie attracts new institutional business through its relationships with pension and management consultants. Gross sales and redemption activity in strategic alliance and institutional accounts can be more pronounced than in the retail channel given the relative size and the nature of the distribution relationships of these accounts. These accounts are also subject • Offering innovative and high quality investment solutions to ongoing reviews and rebalance activities which may result in • Accelerating distribution • Advancing brand leadership • Driving operational excellence and discipline • Enabling a high-performing and diverse culture Mackenzie seeks to maximize returns on business investment by focusing resources in areas that directly impact the success of our strategic mandate: investment management, distribution and client experience. a significant change in the level of assets under management. Mackenzie is positioned to continue to build and enhance its distribution relationships given its team of experienced investment professionals, strength of its distribution network, broad product shelf, competitively priced products and its focus on client experience and investment excellence. 47 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISASSETS UNDER MANAGEMENT The changes in investment fund assets under management are summarized in Table 13 and the changes in total assets under management are summarized in Table 14. At December 31, 2019, Mackenzie’s investment fund assets under management were $64.0 billion, an all-time high, and total assets under management were $70.2 billion. The change in Mackenzie’s assets under management is determined by investment returns generated for our clients and net contributions from our clients. TABLE 13: CHANGE IN INVESTMENT FUND ASSETS UNDER MANAGEMENT – MACKENZIE(1) THREE MONTHS ENDED ($ millions) Sales Redemptions Mutual fund net sales (redemptions)(2) ETF net creations Inter-product eliminations(3) Investment fund net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Consists of: Mutual funds ETFs Inter-product eliminations(3) Investment funds 2019 DEC. 31 $ 2,587 2,569 2019 SEP. 30 2,253 2,114 $ 2018 DEC. 31 $ 2,328 2,474 18 646 (399) 265 1,576 1,841 62,150 139 597 (245) 491 264 755 61,395 (146) 137 (82) (91) (3,894) (3,985) 59,493 2019 SEP. 30 14.8 % 21.5 (87.1) 8.2 (62.9) (46.0) N/M 143.8 1.2 % CHANGE 2018 DEC. 31 11.1 % 3.8 N/M N/M N/M N/M N/M N/M 4.5 $ 63,991 $ 62,150 $ 55,508 3.0 % 15.3 % $ 60,838 4,749 (1,596) $ 59,275 4,051 (1,176) $ 53,407 2,949 (848) $ 63,991 $ 62,150 $ 55,508 2.6 % 17.2 (35.7) 3.0 % 1.9 % 13.9 % 61.0 (88.2) 15.3 % 10.2 % Daily average investment fund assets $ 62,969 $ 61,802 $ 57,138 TWELVE MONTHS ENDED ($ millions) Sales Redemptions Mutual fund net sales (redemptions)(2) ETF net creations Inter-product eliminations(3) Investment fund net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Daily average investment fund assets $ 2019 DEC. 31 9,886 9,374 512 1,559 (655) 1,416 7,067 8,483 55,508 $ 2018 DEC. 31 9,951 9,838 113 1,799 (530) 1,382 (2,417) (1,035) 56,543 $ 63,991 $ 55,508 $ 60,949 $ 57,918 % CHANGE (0.7) % (4.7) N/M (13.3) (23.6) 2.5 N/M N/M (1.8) 15.3 % 5.2 % (1) Mackenzie segment excludes investments into Mackenzie mutual funds by IG Wealth Management mutual funds from its assets under management and net sales. (2) During 2019 and 2018, institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: – Fourth quarter of 2019 – resulted in sales of $129 million, redemptions of $165 million and net redemptions of $36 million. – During 2018 – resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (3) Total investment fund net sales and assets under management exclude Mackenzie mutual fund investments in ETFs. 48 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 14: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – MACKENZIE(1) THREE MONTHS ENDED ($ millions) Net sales (redemptions) Mutual funds(2) ETF net creations Inter-product eliminations(3) Investment funds Sub-advisory, institutional and other accounts(4) Total net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Consists of: Mutual funds ETFs Inter-product eliminations(3) Investment funds Sub-advisory, institutional and other accounts(4) 2019 DEC. 31 2019 SEP. 30 2018 DEC. 31 2019 SEP. 30 $ 18 646 (399) 265 (86) 179 1,755 1,934 68,271 $ 139 597 (245) 491 (1,171) (680) 343 (337) 68,608 $ (146) 137 (82) (91) (224) (315) (4,304) (4,619) 67,347 (87.1) % 8.2 (62.9) (46.0) 92.7 N/M N/M N/M (0.5) % CHANGE 2018 DEC. 31 N/M % N/M N/M N/M 61.6 N/M N/M N/M 1.4 $ 70,205 $ 68,271 $ 62,728 2.8 % 11.9 % $ 60,838 4,749 (1,596) 63,991 6,214 $ 59,275 4,051 (1,176) 62,150 6,121 $ 53,407 2,949 (848) 55,508 7,220 2.6 % 17.2 (35.7) 3.0 1.5 2.8 % 1.4 % 13.9 % 61.0 (88.2) 15.3 (13.9) 11.9 % 7.0 % Total assets under management $ 70,205 $ 68,271 $ 62,728 Average total assets(5) $ 69,137 $ 68,209 $ 64,628 TWELVE MONTHS ENDED ($ millions) Net sales (redemptions) Mutual funds(2) ETF net creations Inter-product eliminations(3) Investment funds Sub-advisory, institutional and other accounts(4) Total net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Average total assets(5) 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 512 1,559 (655) 1,416 (1,894) (478) 7,955 7,477 62,728 $ 113 1,799 (530) 1,382 (487) 895 (2,676) (1,781) 64,509 $ 70,205 $ 62,728 $ 67,772 $ 65,860 N/M % (13.3) (23.6) 2.5 N/M N/M N/M N/M (2.8) 11.9 % 2.9 % (1) Mackenzie segment excludes investments into Mackenzie mutual funds by IG Wealth Management mutual funds from its assets under management and net sales. (2) During 2019 and 2018, institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: – Fourth quarter of 2019 – resulted in sales of $129 million, redemptions of $165 million and net redemptions of $36 million. – During 2018 – resulted in sales of $409 million, redemptions of $807 million and net redemptions of $398 million. (3) Total investment fund net sales and assets under management exclude Mackenzie mutual fund investments in ETFs. (4) During the third quarter of 2019, MD Financial Management reassigned sub-advisory responsibilities totalling $1.2 billion on mandates advised upon by Mackenzie. (5) Based on daily average investment fund assets and month-end average sub-advisory, institutional and other assets. 49 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS CHANGE IN ASSETS UNDER MANAGEMENT – 2019 VS. 2018 In the twelve months ended December 31, 2019, Mackenzie’s mutual fund gross sales were $9.9 billion, a decrease of 0.7% Mackenzie’s total assets under management at December 31, from $10.0 billion in the comparative period last year. Mutual 2019 were $70.2 billion, an increase of 11.9% from $62.7 billion fund redemptions in the current period were $9.4 billion, a at December 31, 2018. Mackenzie’s sub-advisory, institutional decrease of 4.7% from last year. Mutual fund net sales for the and other accounts at December 31, 2019 were $6.2 billion, a twelve months ended December 31, 2019 were $512 million, decrease of 13.9% from $7.2 billion last year. Mackenzie’s investment fund assets under management were $64.0 billion at December 31, 2019, an increase of 15.3% from December 31, 2018. Mackenzie’s mutual fund assets under management were $60.8 billion at December 31, 2019, an increase of 13.9% from $53.4 billion at December 31, 2018. Mackenzie’s ETF assets were $4.7 billion at December 31, 2019, inclusive of $1.6 billion in investments from Mackenzie mutual funds, compared to $2.9 billion at December 31, 2018, inclusive of $848 million in investments from Mackenzie mutual funds. In the three months ended December 31, 2019, Mackenzie’s mutual fund gross sales were $2.6 billion, the highest fourth quarter gross sales in the Company's history, compared to $2.3 billion in 2018. Mutual fund redemptions in the current quarter were $2.6 billion, an increase of 3.8% from last year. Mutual fund net sales for the three months ended December 31, 2019 were $18 million, as compared to net redemptions of $146 million last year. In the three months ended December 31, 2019, ETF net creations were $646 million compared to $137 million last year, inclusive of $399 million and $82 million, respectively, in investments from Mackenzie mutual funds. Investment fund net sales in the current quarter were $265 million compared to net redemptions of $91 million last year. During the current quarter, investment returns resulted in investment fund assets increasing as compared to net sales of $113 million last year. In the twelve months ended December 31, 2019, ETF net creations were $1.6 billion, inclusive of $655 million in investments from Mackenzie mutual funds, compared to ETF net creations of $1.8 billion, inclusive of $530 million in investments from Mackenzie mutual funds last year. Investment fund net sales in the current period were $1.4 billion, an increase of 2.5% from last year. During the current period, investment returns resulted in investment fund assets increasing by $7.1 billion as compared to a decrease of $2.4 billion last year. During the twelve months ended December 31, 2019, certain third party programs, which include Mackenzie mutual funds, made fund allocation changes resulting in gross sales of $129 million, redemptions of $165 million and net redemptions of $36 million. During the twelve months ended December 31, 2018, certain third party programs, which include Mackenzie mutual funds, made fund allocation changes resulting in gross sales of $409 million, redemptions of $807 million and net redemptions of $398 million. Excluding these transactions in 2019 and 2018, mutual fund gross sales increased 2.3% and mutual fund redemptions increased 2.0% in the twelve months ended December 31, 2019 compared to last year and mutual fund net sales were $548 million in the current year compared to $511 million last year. by $1.6 billion compared to a decrease of $3.9 billion last year. Redemptions of long-term mutual funds in the three and During the fourth quarter of 2019, certain third party programs, which include Mackenzie mutual funds, made fund allocation changes resulting in gross sales of $129 million, redemptions of $165 million and net redemptions of $36 million. Excluding these transactions in 2019, mutual fund gross sales increased 5.6% and mutual fund redemptions decreased 2.8% in the three months ended December 31, 2019 compared to last year and mutual fund net sales of $54 million in 2019 compared to mutual fund net redemptions of $146 million last year. twelve months ended December 31, 2019, were $2.5 billion and $9.0 billion, respectively, as compared to $2.4 billion and $9.5 billion last year. Redemptions of long-term mutual funds excluding mutual fund allocation changes made by third party programs were $8.8 billion in the twelve months ended December 31, 2019, compared to $8.7 billion last year. Mackenzie’s annualized quarterly redemption rate for long- term mutual funds was 16.4% in the fourth quarter of 2019, compared to 17.1% in the fourth quarter of 2018. Mackenzie’s annualized quarterly redemption rate for long-term mutual Total net sales for the three months ended December 31, 2019 funds excluding rebalance transactions was 15.3% in the fourth were $179 million, compared to net redemptions of $315 million quarter of 2019. Mackenzie’s twelve-month trailing redemption last year. During the current quarter, investment returns resulted rate for long-term mutual funds was 15.6% at December 31, in assets increasing by $1.8 billion compared to a decrease 2019, as compared to 17.1% last year. Mackenzie’s twelve of $4.3 billion last year. Excluding the mutual fund allocation month trailing redemption rate for long-term funds, excluding changes made by third party programs during the fourth quarter rebalance transactions, was 15.3% at December 31, 2019, of 2019, total net sales were $215 million in the current quarter compared to 15.6% at December 31, 2018. The corresponding compared to net redemptions of $315 million last year. average twelve-month trailing redemption rate for long-term mutual funds for all other members of IFIC was approximately 50 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS15.8% at December 31, 2019. Mackenzie’s twelve-month of $54 million in the fourth quarter compared to net sales of trailing redemption rate is comprised of the weighted average $139 million in the third quarter. redemption rate for front-end load assets, deferred sales charge and low load assets with redemption fees, and deferred sales charge assets without redemption fees (matured assets). Generally, redemption rates for front-end load assets and matured assets are higher than the redemption rates for deferred sales charge and low load assets with redemption fees. Redemptions of long-term mutual fund assets in the current quarter were $2.5 billion, compared to $2.0 billion in the third quarter of 2019. Mackenzie’s annualized quarterly redemption rate for long-term mutual funds for the current quarter was 16.4% compared to 13.7% for the third quarter. Mackenzie’s annualized quarterly redemption rate for long-term mutual Total net redemptions for the twelve months ended December funds excluding the mutual fund allocation changes made 31, 2019 were $478 million, as compared to net sales of $895 by third party programs was 15.3% during the fourth quarter. million last year. During the twelve months ended December 31, Net redemptions of long-term funds for the current quarter were 2019, investment returns resulted in assets increasing by $8.0 $19 million compared to net sales of $88 million in the previous quarter. billion, compared to a decrease of $2.7 billion last year. During the third quarter of 2019, MD Financial Management reassigned $1.2 billion of sub-advisory mandates managed by Mackenzie. The pro-forma impact on Mackenzie’s pre-tax earnings from these mandate changes is not meaningful. Excluding the reassigned MD Financial Management sub-advisory mandates For the quarter ended December 31, 2019, Mackenzie ETF net creations were $646 million, compared to $597 million in the third quarter. In the current quarter, ETF net creations were inclusive of $399 million in investments from Mackenzie mutual funds compared to $245 million in the third quarter. during the third quarter of 2019 and the mutual fund allocation Investment fund net sales in the current quarter were $265 changes in 2019 and 2018 previously discussed, total net sales million compared to net sales of $491 million in the third were $720 million for the current period compared to net sales quarter. Excluding the mutual fund allocation changes made of $1.3 billion last year. CHANGE IN ASSETS UNDER MANAGEMENT – Q4 2019 VS. Q3 2019 Mackenzie’s total assets under management at December 31, 2019, were $70.2 billion, an increase of 2.8% from $68.3 billion at September 30, 2019. Mackenzie’s sub-advisory, institutional and other accounts at December 31, 2019 were $6.2 billion, an increase of 1.5% from $6.1 billion at September 30, 2019. by third party programs during the fourth quarter of 2019, investment fund net sales of $301 million in the fourth quarter compared to net sales of $491 million in the third quarter. INVESTMENT MANAGEMENT Mackenzie has $140.1 billion in assets under management at December 31, 2019, including $69.9 billion of advisory mandates to the IG Wealth Management family of funds. It has teams located in Toronto, Montreal, Winnipeg, Boston, Dublin and Mackenzie’s investment fund assets under management were Hong Kong. $64.0 billion at December 31, 2019, an increase of 3.0% from $62.2 billion at September 30, 2019. Mackenzie’s mutual fund assets under management were $60.8 billion at December 31, 2019, an increase of 2.6% from $59.3 billion at September 30, 2019. Mackenzie’s ETF assets were $4.7 billion at December 31, 2019, inclusive of $1.6 billion in investments from Mackenzie mutual funds compared to $4.1 billion at September 30, 2019, inclusive of $1.2 billion in investments from Mackenzie mutual funds. This investment management organization continues to deliver its investment offerings through a boutique structure, with separate in-house investment teams which each have a distinct focus and investment approach. This boutique approach promotes diversification of styles and ideas and provides Mackenzie with a breadth of capabilities. Oversight is conducted through a common process intended to promote superior risk-adjusted returns over time. This process is focused upon For the quarter ended December 31, 2019, Mackenzie mutual i) identifying and encouraging each team’s performance edge, fund gross sales were $2.6 billion, an increase of 14.8% from the ii) promoting best practices in portfolio construction, and iii) third quarter of 2019. Mutual fund redemptions, which totalled emphasizing risk management. $2.6 billion for the fourth quarter, increased by 21.5% from the previous quarter. Net sales of Mackenzie mutual funds for the current quarter were $18 million compared with net sales of $139 million in the previous quarter. Excluding the mutual fund Mackenzie currently has fourteen boutiques. Initiatives during 2019 impacting the in-house investment offerings include the following: allocation changes made by third party programs during the • Mackenzie changed the portfolio management of two of fourth quarter of 2019, mutual fund gross sales increased 9.1% its mutual funds by bringing their investment management and mutual fund redemptions increased 13.7% in the fourth in-house. The Mackenzie Fixed Income Team assumed quarter compared to the third quarter and mutual fund net sales 51 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISmanagement of the Mackenzie Corporate Bond Fund and the Mackenzie North American Corporate Bond Fund. These funds were previously sub-advised by a third party. • Mackenzie’s Fixed Income Team assumed portfolio management responsibilities for all externally sub-advised mandates within the Symmetry Canadian Bond Fund. This fund is utilized in the Symmetry Managed Solutions program. In addition to its own investment teams, Mackenzie supplements its investment capabilities through the use of third party sub-advisors in selected areas. These sub-advisors include Putnam Investments Inc., TOBAM, China AMC, Pax Ellevate Management LLC, Rockefeller & Co and Greenchip Financial. Mackenzie's assets under management are diversified by investment objective as set out in Table 15. The development of a broad range of investment capabilities and products fund ranking service. At December 31, 2019, 75.1% of Mackenzie mutual fund assets measured by Morningstar† had a rating of three stars or better and 47.3% had a rating of four or five stars. This compared to the Morningstar† universe of 83.9% for three stars or better and 46.0% for four and five star funds at December 31, 2019. These ratings exclude the Quadrus Group of Funds†. Mackenzie was once again recognized for industry leading performance, winning four 2019 Lipper Awards. The award honours funds that lead in delivering strong, risk-adjusted performance relative to their peers: • Mackenzie Canadian Growth Balanced Fund Series A – Best three-year and five-year performance in the Canadian Equity Balanced category. This fund is co-managed by Mackenzie’s Bluewater, Fixed Income and Asset Allocation Teams. has proven to be, and continues to be, a key strength of • Mackenzie Floating Rate Income Fund Series A – Best three- the organization in satisfying the evolving financial needs of year performance in the Floating Rate Loan category. This our clients. Long-term investment performance is a key measure of Mackenzie’s ongoing success. At December 31, 2019, 48.3% of Mackenzie mutual fund assets were rated in the top two performance quartiles for the one year time frame, 54.4% for the three year time frame and 58.3% for the five year time frame. Mackenzie also monitors its fund performance relative to the ratings it receives on its mutual funds from the Morningstar† fund is managed by Mackenzie’s Fixed Income Team • Mackenzie Core Plus Canadian Fixed Income ETF – Best three-year performance in the Canadian Fixed Income category. This fund is managed by Mackenzie’s Fixed Income team. In addition, twelve funds were recognized for industry leading performance at the 2019 Fundata FundGrade A+ Awards. TABLE 15: ASSETS UNDER MANAGEMENT BY INVESTMENT OBJECTIVE – MACKENZIE ($ millions) Equity Domestic Foreign Balanced Domestic Foreign Fixed Income Domestic Foreign Money Market Domestic Total Consists of: Investment funds Sub-advisory, institutional and other accounts 52 2019 2018 $ 10,341 23,197 14.8 % 33.0 $ 10,442 19,932 16.6 % 31.8 33,538 47.8 30,374 48.4 12,460 14,273 26,733 4,898 4,556 9,454 17.7 20.3 38.0 7.0 6.5 13.5 11,135 12,202 23,337 4,512 4,021 8,533 17.7 19.5 37.2 7.2 6.4 13.6 480 0.7 484 0.8 $ 70,205 100.0 % $ 62,728 100.0 % $ 63,991 6,214 91.1 % 8.9 $ 55,508 7,220 88.5 % 11.5 $ 70,205 100.0 % $ 62,728 100.0 % IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS PRODUCTS Mackenzie continues to evolve its product shelf by providing enhanced investment solutions for financial advisors to offer their clients. In 2019, Mackenzie launched a number of new products, implemented pricing enhancements, and merged mutual funds to streamline and strengthen its product shelf. EXCHANGE TRADED FUNDS The addition of Exchange Traded Funds (ETF) has complemented Mackenzie’s broad and innovative fund line- up and reflects its investor-focused vision to provide advisors and investors with new solutions to drive investor outcomes and achieve their personal goals. These ETFs offer investors another investment option to utilize in building long-term diversified portfolios. During 2019, Mackenzie launched two new ETFs: • Mackenzie Emerging Markets Bond Index ETF was launched to provide investors with broad exposure to emerging markets while investing in U.S. denominated, emerging market government bonds and government related bonds. This ETF hedges foreign currency back to the Canadian dollar. • Mackenzie Emerging Markets Local Currency Bond Index MUTUAL FUNDS During 2019 Mackenzie launched five mutual funds: • Mackenzie Global Growth Balanced Fund was launched to give investors stronger geographic diversification and enhanced return potential. The Fund is managed by the Mackenzie Bluewater and Mackenzie Fixed Income Teams. Assets under management in this fund were $150 million by the end of the year. • Three new liquid alternative funds (Mackenzie Credit Absolute Return Fund, Mackenzie Global Macro Fund and Mackenzie Global Long/Short Equity Alpha Fund) were launched to enhance diversified sources of return and improve portfolio stability. These three new funds bring our liquid alternative offering to five funds, supplementing our earlier launches of the Mackenzie Diversified Alternatives Fund and Mackenzie Multi-Strategy Absolute Return Funds which have attracted $1.3 billion to date. • Mackenzie International Dividend Fund was launched to provide investors with access to high-quality, dividend-paying companies outside of Canada and the U.S. in order to help diversify geographic concentration. This fund is managed by Mackenzie’s Global Equity & Income Team. ETF was launched to provide investors with the opportunity During 2019, Mackenzie also merged five mutual funds to to access the strong growth and diversification benefits of streamline and strengthen its product shelf and make it easier investing in emerging markets. to navigate. Assets under management of these two launches surpassed $350 million by the end of the year, inclusive of $277 million in investments from Mackenzie mutual funds. PRICING ENHANCEMENTS Mackenzie is focused on delivering clear, consistent and competitive pricing. Initiatives implemented during 2019 include Mackenzie’s current line-up consists of thirty ETFs: fifteen the following: active and strategic beta ETFs and fifteen traditional index ETFs. During 2019, two milestones were achieved: i) ETF assets under management surpassed $4 billion and ii) traditional index ETF assets under management reached $2.0 billion. ETF assets under management ended the year at $4.7 billion, an all-time high, inclusive of $1.6 billion in investments from Mackenzie mutual funds. This ranks Mackenzie in sixth place in the Canadian ETF industry for assets under management. Mackenzie’s ETF assets under management passed $5 billion in January 2020. • Mackenzie reduced management fees by 5 to 15 basis points on the six High Diversification funds sub-advised by TOBAM, two fixed income mutual funds and five ETF Portfolios. • Mackenzie reduced management fees on all thirteen traditional index ETFs by 1 to 16 basis points. 53 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISREVIEW OF SEGMENT OPERATING RESULTS Mackenzie’s segment excludes revenue earned on advisory and composition of assets under management. Management mandates to IG Wealth Management funds and investments fee rates vary depending on the investment objective and the into Mackenzie mutual funds by IG Wealth Management mutual account type of the underlying assets under management. For funds. The costs of the investment management team have example, equity-based mandates have higher management been allocated across segments. Mackenzie’s earnings before interest and taxes are presented in Table 16. 2019 VS. 2018 REVENUES The largest component of Mackenzie’s revenues is management fees. The amount of management fees depends on the level TABLE 16: OPERATING RESULTS – MACKENZIE fee rates than fixed income mandates and retail mutual fund accounts have higher management fee rates than sub-advised and institutional accounts. The majority of Mackenzie’s mutual fund assets are purchased on a retail basis. Within Mackenzie’s retail mutual fund offering, certain series are offered for fee-based programs of participating dealers whereby dealer compensation on such series is charged directly by the dealer to a client (primarily Series F). As Mackenzie does not pay THREE MONTHS ENDED ($ millions) Revenues Management fees Administration fees Distribution fees Net investment income and other Expenses Commission Trailing commission Non-commission 2019 DEC. 31 2019 SEP. 30 2018 DEC. 31 2019 SEP. 30 $ 180.4 25.5 1.4 207.3 0.6 207.9 5.6 68.3 92.6 166.5 $ 178.6 25.0 1.4 205.0 (1.4) 203.6 5.4 67.6 84.2 157.2 $ 169.9 23.8 1.4 195.1 (3.1) 192.0 5.7 64.0 86.9 156.6 1.0 % 2.0 – 1.1 N/M 2.1 3.7 1.0 10.0 5.9 % CHANGE 2018 DEC. 31 6.2 % 7.1 – 6.3 N/M 8.3 (1.8) 6.7 6.6 6.3 Earnings before interest and taxes $ 41.4 $ 46.4 $ 35.4 (10.8) % 16.9 % TWELVE MONTHS ENDED ($ millions) Revenues Management fees Administration fees Distribution fees Net investment income and other Expenses Commission Trailing commission Non-commission 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 703.5 98.3 5.8 807.6 4.2 811.8 24.8 268.1 350.4 643.3 $ 701.4 98.4 6.7 806.5 (1.9) 804.6 28.7 262.4 335.1 626.2 0.3 % (0.1) (13.4) 0.1 N/M 0.9 (13.6) 2.2 4.6 2.7 Earnings before interest and taxes $ 168.5 $ 178.4 (5.5) % 54 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS the dealer compensation, these series have lower management investment income and other was $0.6 million for the three fees. At December 31, 2019, these series had $11.0 billion in months ended December 31, 2019 compared to ($3.1) million assets, an increase of 32.8% from the prior year. last year. Net investment income and other was $4.2 million for Management fees were $180.4 million for the three months ended December 31, 2019, an increase of $10.5 million or 6.2% from $169.9 million last year. Management fees were $703.5 million for the twelve months ended December 31, 2019, an increase of $2.1 million or 0.3% from $701.4 million last year. The increase in both the three and twelve month periods was due to an increase in total average assets under management offset by a decline in the effective management fee rate. Mackenzie’s average management fee rate was 103.8 the twelve months ended December 31, 2019, an increase of $6.1 million from ($1.9) million last year. EXPENSES Mackenzie’s expenses were $166.5 million for the three months ended December 31, 2019, an increase of $9.9 million or 6.3% from $156.6 million in 2018. Expenses for the twelve months ended December 31, 2019 were $643.3 million, an increase of $17.1 million or 2.7% from $626.2 million last year. and 104.0 basis points in the three and twelve months ended Mackenzie pays selling commissions to the dealers that sell its December 31, 2019 compared to 104.3 and 106.5 basis points, respectively, in the comparative periods in 2018. mutual funds on a deferred sales charge and low load purchase option. Commissions paid are expensed as incurred. The net change in management fees was due to a decline in Commission expense was $5.6 million in the three months the average management fee rate, offset by the increase in total ended December 31, 2019, as compared to $5.7 million average assets under management of 2.9%. Mackenzie’s average last year. Commission expense in the twelve months ended management fee rate in the twelve months ended December December 31, 2019 was $24.8 million compared to $28.7 31, 2019 was 104.0 basis points compared to 106.5 basis points million in 2018. in 2018. Trailing commissions paid to dealers are paid on certain classes The decrease in the average management fee rate in both the of retail mutual funds and are calculated as a percentage three and twelve month periods was due to a change in the of mutual fund assets under management. These fees vary composition of assets under management, including the impact depending on the fund type and the purchase option upon of having a greater share in non-retail priced products and which the fund was sold: front-end, deferred sales charge or Series F. Mackenzie earns administration fees primarily from providing services to its investment funds. Administration fees were $25.5 million for the three months ended December 31, 2019, an increase of $1.7 million or 7.1% from last year. Administration fees were $98.3 million for the twelve months ended December 31, 2019, a decrease of $0.1 million or 0.1% from $98.4 million last year. low load. Trailing commissions were $68.3 million in the three months ended December 31, 2019, an increase of $4.3 million or 6.7% from $64.0 million last year. Trailing commissions in the twelve months ended December 31, 2019 were $268.1 million, an increase of $5.7 million or 2.2% from $262.4 million last year. The increase in both the three and twelve month periods was primarily due to the increase in average mutual fund assets offset by a decline in the effective trailing commission rate. Trailing commissions as a percentage of average mutual fund Mackenzie earns distribution fee income on redemptions of assets under management was 45.6 and 46.0 basis points in the mutual fund assets sold on a deferred sales charge purchase three and twelve months ended December 31, 2019 compared option and on a low load purchase option. Redemption fees to 46.6 and 46.7 basis points in the three and twelve months charged for deferred sales charge assets range from 5.5% in the ended December 31, 2018. The decline was due to a change in first year and decrease to zero after seven years. Redemption composition of mutual fund assets towards those series within fees for low load assets range from 2.0% to 3.0% in the first year mutual funds that do not pay trailing commissions. and decrease to zero after two or three years, depending on the purchase option. Distribution fee income in the three months ended December 31, 2019 was $1.4 million, unchanged from the prior year. Distribution fee income in the twelve months ended December 31, 2019 was $5.8 million, a decrease of $0.9 million from $6.7 million last year. Non-commission expenses are incurred by Mackenzie in the administration, marketing and management of its assets under management. Non-commission expenses were $92.6 million in the three months ended December 31, 2019, an increase of $5.7 million or 6.6% from $86.9 million in 2018. Non-commission expenses in the twelve months ended December 31, 2019 were Net investment income and other includes investment returns $350.4 million, an increase of $15.3 million or 4.6% from $335.1 related to Mackenzie’s investments in proprietary funds. These million in 2018. investments are generally made in the process of launching a fund and are sold as third party investors subscribe. Net 55 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISQ4 2019 VS. Q3 2019 EXPENSES REVENUES Mackenzie’s expenses were $166.5 million for the current quarter, an increase of $9.3 million or 5.9% from $157.2 million Mackenzie’s revenues were $207.9 million for the current quarter, an increase of $4.3 million or 2.1% from $203.6 million in the third quarter. in the third quarter. Management fees were $180.4 million for the current quarter, an increase of $1.8 million or 1.0% from $178.6 million in the third quarter. Factors contributing to the net increase are as follows: • Average assets under management were $69.1 billion in the current quarter, an increase of 1.4% from the prior quarter. Commission expense related to selling commissions paid was $5.6 million in the quarter ended December 31, 2019, as compared to $5.4 million in the third quarter. Trailing commissions were $68.3 million in the current quarter, an increase of $0.7 million or 1.0% from $67.6 million in the third quarter. The change in trailing commissions reflects the 1.5% period over period increase in average mutual fund assets under management, offset in part by a decline in the effective • Mackenzie’s average management fee rate was 103.8 basis trailing commission rate. The effective trailing commission rate points in the current quarter compared to 104.2 basis points was 45.6 basis points in the current quarter compared to 45.8 in the prior quarter. basis points in the third quarter. Administration fees were $25.5 million in the current quarter, an Non-commission expenses were $92.6 million in the current increase of 2.0% from $25.0 million in the third quarter. quarter, an increase of $8.4 million from $84.2 million in the Net investment income and other includes investment returns related to Mackenzie’s investments in proprietary funds. Net investment income and other was $0.6 million for the current quarter compared to ($1.4) million in the third quarter. third quarter, primarily attributed to the seasonality of expenses. 56 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISCORPORATE AND OTHER REVIEW OF SEGMENT OPERATING RESULTS The Corporate and Other segment includes net investment 2019 VS. 2018 income not allocated to the IG Wealth Management or Mackenzie segments, the Company’s proportionate share of earnings of its associates, Great-West Lifeco Inc. (Lifeco), China Asset Management Co., Ltd. (China AMC) and Personal Capital Corporation (Personal Capital), operating results for Investment Planning Counsel Inc., other income, as well as consolidation elimination entries. The proportionate share of associates’ earnings decreased by $2.0 million in the fourth quarter of 2019 and decreased by $27.6 million in the year ended December 31, 2019, compared to 2018. These earnings reflect equity earnings from Lifeco and China AMC for all periods under review and from Personal Capital beginning in the first quarter 2019, as discussed in the Consolidated Financial Position section of this MD&A. The On January 24, 2019, the Company invested an additional decrease in the fourth quarter resulted primarily from the amount of $66.8 million (USD $50.0 million) in Personal Capital inclusion of the Company’s proportionate share of Personal and, as a result, the Company began using the equity method Capital’s losses of $4.5 million, offset in part by an increase in to account for its investment in Personal Capital as it exercises Lifeco’s earnings of $2.5 million. The decrease in the twelve significant influence. Significant influence arises from its voting month period ended December 31, 2019, resulted primarily interest and board representation. The Company also has investments in Wealthsimple Financial Corporation and Portag3 Ventures LPs. Corporate and other earnings before interest and taxes are presented in Table 17. from the inclusion of the Company’s proportionate share of Personal Capital’s losses of $16.8 million and the decrease in Lifeco’s earnings of $11.9 million over 2018. Net investment income and other decreased to $3.9 million in the fourth quarter of 2019 compared to $5.3 million in 2018. For the twelve month period, net investment income and other decreased to $16.6 million compared to $17.1 million in 2018. TABLE 17: OPERATING RESULTS – CORPORATE AND OTHER THREE MONTHS ENDED ($ millions) Revenues Fee income Net investment income and other Proportionate share of associates’ earnings Expenses Commission Non-commission $ 2019 DEC. 31 70.5 3.9 32.6 107.0 44.8 21.5 66.3 $ 2019 SEP. 30 71.7 3.2 28.9 103.8 44.7 21.9 66.6 2018 DEC. 31 2019 SEP. 30 % CHANGE 2018 DEC. 31 $ 71.6 5.3 34.6 111.5 46.4 22.5 68.9 (1.7) % 21.9 12.8 3.1 0.2 (1.8) (0.5) (1.5) % (26.4) (5.8) (4.0) (3.4) (4.4) (3.8) Earnings before interest and taxes $ 40.7 $ 37.2 $ 42.6 9.4 % (4.5) % TWELVE MONTHS ENDED ($ millions) Revenues Fee income Net investment income and other Proportionate share of associates’ earnings Expenses Commission Non-commission 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 284.0 16.6 122.4 423.0 179.5 88.1 267.6 $ 290.7 17.1 150.0 457.8 184.2 88.3 272.5 (2.3) % (2.9) (18.4) (7.6) (2.6) (0.2) (1.8) Earnings before interest and taxes $ 155.4 $ 185.3 (16.1) % 57 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS Earnings before interest and taxes related to Investment Planning Counsel were $1.4 million higher in the fourth quarter of 2019 compared to the same period in 2018 and were $0.7 million higher in the twelve month period. Q4 2019 VS. Q3 2019 The proportionate share of associates’ earnings was $32.6 million in the fourth quarter of 2019, an increase of $3.7 million from the third quarter of 2019 primarily resulting from an increase in Lifeco’s earnings. Net investment income and other was $3.9 million in the fourth quarter of 2019, compared to $3.2 million in the third quarter. Earnings before interest and taxes related to Investment Planning Counsel were $0.7 million lower in the fourth quarter of 2019 compared to the prior quarter. 58 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISIGM FINANCIAL INC. CONSOLIDATED FINANCIAL POSITION IGM Financial's total assets were $15.4 billion at December 31, Wealthsimple Financial Corporation (Wealthsimple) is an 2019, compared to $15.6 billion at December 31, 2018. online investment manager that provides financial investment OTHER INVESTMENTS The composition of the Company’s securities holdings is detailed in Table 18. FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FVTOCI) Gains and losses on FVTOCI investments are recorded in Other comprehensive income. CORPORATE INVESTMENTS Corporate investments is primarily comprised of the Company’s investments in Wealthsimple Financial Corporation, and Portag3 Ventures LP and Portag3 Ventures II LP. In January 2019, the Company made an additional investment of $66.8 million (USD $50.0 million) in Personal Capital Corporation which increased its voting interest to 22.7% resulting in the reclassification of $217.0 million on the Consolidated Balance Sheet from Corporate investments to Investment in associates. Portag3 Ventures LP and Portag3 Ventures II LP (Portag3) are early-stage investment funds dedicated to backing innovating financial services companies and are controlled guidance. As at December 31, 2019, the Company had invested a total of $186.9 million in Wealthsimple through a limited partnership controlled by the Company’s parent, Power Financial Corporation. The Company invested a total of $51.9 million during the current year. FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL) Securities classified as FVTPL include equity securities and proprietary investment funds. Gains and losses are recorded in Net investment income and other in the Consolidated Statements of Earnings. Certain proprietary investment funds are consolidated where the Company has made the assessment that it controls the investment fund. The underlying securities of these funds are classified as FVTPL. LOANS The composition of the Company’s loans is detailed in Table 19. Loans consisted of residential mortgages and represented 46.8% of total assets at December 31, 2019, compared to 49.6% at December 31, 2018. by the Company’s parent, Power Financial Corporation. As at Loans measured at amortized cost are primarily comprised of December 31, 2019, the Company had invested a total of $48.9 residential mortgages sold to securitization programs sponsored million in Portag3, including $14.8 million which was invested by third parties that in turn issue securities to investors. An during 2019. TABLE 18: OTHER INVESTMENTS offsetting liability, Obligations to securitization entities, has been recorded and totalled $6.9 billion at December 31, 2019, compared to $7.4 billion at December 31, 2018. ($ millions) COST FAIR VALUE COST FAIR VALUE DECEMBER 31, 2019 DECEMBER 31, 2018 Fair value through other comprehensive income Corporate investments Fair value through profit or loss Equity securities Proprietary investment funds $ 245.0 $ 301.2 $ 303.6 $ 372.4 1.6 51.3 52.9 1.8 54.4 56.2 17.0 78.5 95.5 12.9 74.6 87.5 $ 297.9 $ 357.4 $ 399.1 $ 459.9 59 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS The Company holds loans pending sale or securitization. Loans cost, with interest income and interest expense, utilizing the measured at fair value through profit or loss are residential effective interest rate method, recorded over the term of the mortgages held temporarily by the Company pending sale. mortgages, ii) the component of swaps entered into under Loans held for securitization are carried at amortized cost. the CMB Program whereby the Company pays coupons on Total loans being held pending sale or securitization are $344.5 Canada Mortgage Bonds and receives investment returns on the million at December 31, 2019 compared to $363.9 million at reinvestment of repaid mortgage principal, are recorded at fair December 31, 2018. value, and iii) cash reserves held under the ABCP program are Residential mortgages originated by IG Wealth Management are carried at amortized cost. funded primarily through sales to third parties on a fully serviced In the fourth quarter of 2019, the Company securitized loans basis, including Canada Mortgage and Housing Corporation through its mortgage banking operations with cash proceeds of (CMHC) or Canadian bank sponsored securitization programs. $277.8 million compared to $531.3 million in 2018. Additional IG Wealth Management services $12.0 billion of residential information related to the Company’s securitization activities, mortgages, including $2.4 billion originated by subsidiaries including the Company’s hedges of related reinvestment of Lifeco. SECURITIZATION ARRANGEMENTS Through the Company’s mortgage banking operations, residential mortgages originated by IG Wealth Management mortgage planning specialists are sold to securitization trusts sponsored by third parties that in turn issue securities to investors. The Company securitizes residential mortgages through the CMHC sponsored National Housing Act Mortgage- Backed Securities (NHA MBS) and the Canada Mortgage and interest rate risk, can be found in the Financial Risk section of this MD&A and in Note 6 to the Consolidated Financial Statements. INVESTMENT IN ASSOCIATES GREAT-WEST LIFECO INC. (LIFECO) At December 31, 2019, the Company held a 4% equity interest in Lifeco. IGM Financial and Lifeco are controlled by Power Financial Corporation. Bond Program (CMB Program) and through Canadian bank- The equity method is used to account for IGM Financial’s sponsored asset-backed commercial paper (ABCP) programs. investment in Lifeco, as it exercises significant influence. The Company retains servicing responsibilities and certain Changes in the carrying value for the year ended December 31, elements of credit risk and prepayment risk associated with the 2019 compared with 2018 are shown in Table 20. transferred assets. The Company’s credit risk on its securitized mortgages is partially mitigated through the use of insurance. Derecognition of financial assets in accordance with IFRS is based on the transfer of risks and rewards of ownership. As the Company has retained prepayment risk and certain elements In April 2019, the Company participated on a proportionate basis in the Lifeco substantial issuer bid by selling 2,400,255 of its shares in Lifeco for proceeds of $80.4 million. The Company’s 4% interest in Lifeco remains substantially unchanged. of credit risk associated with the Company’s securitization In June 2019, Lifeco recorded a one-time loss in relation to transactions through the CMB and ABCP programs, they are the sale of substantially all of its United States individual life accounted for as secured borrowings. The Company records insurance and annuity business. In December 2019, Lifeco the transactions under these programs as follows: i) the recorded one-time charges in relation to the revaluation of mortgages and related obligations are carried at amortized a deferred tax asset, restructuring costs and the net gain on the Scottish Friendly transaction. The Company’s after-tax proportionate share of these charges was $17.2 million. TABLE 19: LOANS ($ millions) Amortized cost Less: Allowance for expected credit losses Fair value through profit or loss 60 DECEMBER 31, 2019 DECEMBER 31, 2018 $ 7,198.7 0.7 7,198.0 – $ 7,198.0 $ 7,734.5 0.8 7,733.7 4.3 $ 7,738.0 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS CHINA ASSET MANAGEMENT CO., LTD. (CHINA AMC) As at December 31, 2019, Personal Capital had 2.41 million Founded in 1998 as one of the first fund management companies registered users, individuals who have signed up to use Personal in China, China AMC has developed and maintained a position Capital’s free dashboard platform, representing an increase of among the market leaders in China’s asset management industry. 19.8% from 2.01 million at December 31, 2018 and an increase China AMC’s total assets under management, excluding subsidiary of 4.2% from 2.32 million at September 30, 2019. assets under management, were RMB¥ 1,032.1 billion ($192.4 Personal Capital’s total assets under management were USD billion) at December 31, 2019, representing an increase of 17.3% $12.3 billion as at December 31, 2019, representing an increase of (CAD$ increase of 10.3%) from RMB¥ 879.7 billion ($174.5 billion) 57.2% from USD $7.8 billion at December 31, 2018 and an increase at December 31, 2018. of 13.6% from USD $10.8 billion as at September 30, 2019. The equity method is used to account for the Company’s 13.9% Tracked Account Value (TAV), the gross value of assets and equity interest in China AMC, as it exercises significant influence. liabilities aggregated by registered users, was USD $841 billion Changes in the carrying value for the three and twelve months as at December 31, 2019, representing an increase of 32.0% ended December 31, 2019 are shown in Table 20. The change in from USD $637 billion at December 31, 2018 and an increase of other comprehensive income in the twelve month period of 2019 7.2% from USD $784 billion as at September 30, 2019. was due to a 6.0% depreciation of the Chinese Yuan relative to the Canadian dollar. PERSONAL CAPITAL CORPORATION (PERSONAL CAPITAL) Founded in 2009 in the United States, Personal Capital is a leading digital wealth manager that has experienced significant growth since its inception. The equity method is used to account for the Company’s 24.8% equity interest in Personal Capital, as it exercises significant influence. IGM Financial’s equity earnings from Personal Capital includes its proportionate share of Personal Capital’s net loss adjusted by IGM Financial’s amortization of intangible assets that it recognized as part of its investment in the company. Changes in the carrying value for the three and twelve months ended December 31, 2019 are shown in Table 20. TABLE 20: INVESTMENT IN ASSOCIATES ($ millions) 2019 DECEMBER 31 2018 DECEMBER 31 LIFECO CHINA AMC PERSONAL CAPITAL TOTAL LIFECO CHINA AMC TOTAL THREE MONTH PERIOD Carrying value, October 1 Dividends received Proportionate share of: Earnings (losses)(1) Associate's one-time charges(1) Other comprehensive income (loss) and other adjustments $ 898.7 (15.4) $ 651.2 – $ 202.8 – $ 1,752.7 (15.4) $ 967.4 (15.4) $ 641.3 – $ 1,608.7 (15.4) 29.9 (9.2) (7.3) 7.2 – 4.3 (4.5) – (3.8) 32.6 (9.2) (6.8) 27.4 – 7.2 – 34.6 – (11.6) 35.0 23.4 Carrying value, December 31 $ 896.7 $ 662.7 $ 194.5 $ 1,753.9 $ 967.8 $ 683.5 $ 1,651.3 TWELVE MONTH PERIOD Carrying value, January 1 Transfer from corporate investments (FVTOCI) Proceeds from substantial issuer bid Dividends received Proportionate share of: Earnings (losses)(1) Associate's one-time charges(1) Other comprehensive income (loss) and other adjustments Carrying value, December 31 $ 967.8 $ 683.5 $ – $ 1,651.3 $ 901.4 $ 647.9 $ 1,549.3 – (80.4) (62.6) 109.1 (17.2) (20.0) $ 896.7 – – (10.3) 30.1 – 217.0 – – (16.8) – 217.0 (80.4) (72.9) 122.4 (17.2) – – (61.8) – – (12.2) – – (74.0) 121.0 – 29.0 – 150.0 – (40.6) (5.7) (66.3) 7.2 18.8 26.0 $ 662.7 $ 194.5 $ 1,753.9 $ 967.8 $ 683.5 $ 1,651.3 (1) The proportionate share of earnings from the Company’s investment in associates is recorded in Net investment income and other in the Corporate and other reportable segment (Tables 2, 3 and 4). 61 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY Cash and cash equivalents totalled $720.0 million at December 31, 2019 compared with $650.2 million at December 31, 2018. Cash and cash equivalents related to the Company’s deposit operations were $2.2 million at December 31, 2019, compared to $2.4 million at December 31, 2018, as shown in Table 21. Working capital, which consists of current assets less current liabilities, totalled $464.3 million at December 31, 2019 Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) For the financial year ($ millions) 1,393 1,321 1,355 1,333 1,294 EBITDA before sales commissions compared with $366.1 million at December 31, 2018 (Table 22). 1,143 1,086 1,083 1,145 1,129 EBITDA after sales commissions Working capital is utilized to: • Finance ongoing operations, including the funding of sales commissions. • Temporarily finance mortgages in its mortgage banking operations. 2015 2016 2017 2018 2019 Adjusted EBITDA before and after sales commissions excluded the following: • Pay interest and dividends related to long-term debt and 2015 - a charge related to restructuring and other charges. preferred shares. • Maintain liquidity requirements for regulated entities. • Pay quarterly dividends on its outstanding common shares. • Finance common share repurchases and retirement of long- term debt. IGM Financial continues to generate significant cash flows from its operations. Earnings before interest, taxes, depreciation and amortization before sales commissions (EBITDA before sales commissions) totalled $1,294.0 million in the year ended 2017 - charges related to restructuring and other, a favourable revaluation of the Company's pension plan obligation, charges representing the proportionate share in Great-West Lifeco Inc.'s one-time charges and restructuring provision. 2018 - charges related to restructuring and other and the premium paid on the early redemption of debentures. 2019 - the Company’s proportionate share in Great-West Lifeco Inc.’s one- time charges. December 31, 2019 compared to $1,333.0 million in 2018. compared to $1,144.5 million in 2018. EBITDA after sales EBITDA before sales commissions excludes the impact of both commissions excludes the impact of commission amortization commissions paid and commission amortization (refer to (refer to Table 1). Table 1). Refer to the Financial Instruments Risk section of this MD&A Earnings before interest, taxes, depreciation and amortization for information related to other sources of liquidity and to after sales commissions (EBITDA after sales commissions) the Company’s exposure to and management of liquidity and totalled $1,128.9 million in the year ended December 31, 2019 funding risk. TABLE 21: DEPOSIT OPERATIONS – FINANCIAL POSITION AS AT DECEMBER 31 ($ millions) Assets Cash and cash equivalents Client funds on deposit Accounts and other receivables Loans Total assets Liabilities and shareholders’ equity Deposit liabilities Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity 62 2019 2018 $ 2.2 561.3 12.3 20.4 $ 2.4 546.8 8.8 21.3 $ 596.2 $ 579.3 $ 584.3 0.5 11.4 $ 568.8 0.5 10.0 $ 596.2 $ 579.3 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS TABLE 22: WORKING CAPITAL AS AT DECEMBER 31 ($ millions) Current Assets Cash and cash equivalents Client funds on deposit Accounts receivable and other assets Current portion of mortgages and other Current Liabilities Accounts and other payables Deposits and certificates Current portion of long-term liabilities Working Capital 2019 2018 $ 720.0 561.3 345.3 1,531.7 $ 650.2 546.8 311.9 1,280.1 3,158.3 2,789.0 611.9 579.0 1,503.1 644.7 562.4 1,215.8 2,694.0 2,422.9 $ 464.3 $ 366.1 CASH FLOWS • Changes in operating assets and liabilities and other. Table 23 - Cash Flows is a summary of the Consolidated • The add-back of one-time adjustments in 2018, which Statements of Cash Flows which forms part of the Consolidated included a restructuring provision and other. Financial Statements for the year ended December 31, 2019. Cash and cash equivalents increased by $69.8 million in 2019 compared to a decrease of $316.6 million in 2018. Adjustments to determine net cash from operating activities during the year ended 2019 compared to 2018 consist of non- cash operating activities offset by cash operating activities: • The add-back of amortization of capitalized sale commissions offset by the deduction of capitalized sales commissions paid. • The deduction of restructuring provision cash payments. Financing activities during the year ended December 31, 2019 compared to 2018 related to: • An increase in obligations to securitization entities of $1,456.3 million and repayments of obligations to securitization entities of $1,960.8 million in 2019 compared to an increase in obligations to securitization entities of $1,771.7 million and repayments of obligations to securitization entities of • The add-back of amortization of capital, intangible and other assets. $2,034.4 million in 2018. • The deduction of investment in associates’ equity earnings • Issuance of debentures of $250.0 million in 2019, compared offset by dividends received. to the issuance of debentures of $200.0 million in 2018. • The add-back of pension and other post-employment benefits offset by cash contributions. TABLE 23: CASH FLOWS TWELVE MONTHS ENDED ($ millions) Operating activities Earnings before income taxes Income taxes paid Adjustments to determine net cash from operating activities Financing activities Investing activities Change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 2019 DEC. 31 2018 DEC. 31 % CHANGE $ 968.7 (236.7) (19.9) 712.1 (1,068.9) 426.6 69.8 650.2 $ 986.1 (132.6) (68.3) 785.2 (1,131.8) 30.0 (316.6) 966.8 $ 720.0 $ 650.2 (1.8) % (78.5) 70.9 (9.3) 5.6 N/M N/M (32.7) 10.7 % 63 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS • Repayment of debentures of $525.0 million in 2018. • Redemption of preferred shares of $150.0 million in the Capital As at December 31 ($ millions) second quarter of 2019. • The purchase of 2,762,788 common shares in 2019 under IGM Financial’s normal course issuer bid at a cost of $100.0 million. There were no purchases in 2018. • The payment of perpetual preferred share dividends which totalled $4.4 million in 2019 compared to $8.8 million in 2018. • The payment of regular common share dividends which totalled $539.0 million in 2019 compared to $541.8 million in 2018. Investing activities during the year ended December 31, 2019 compared to 2018 primarily related to: • The purchases of other investments totalling $118.9 million and sales of other investments with proceeds of $85.5 million in 2019 compared to $154.5 million and $93.5 million, respectively, in 2018. • An increase in loans of $1,682.1 million with repayments of loans and other of $2,211.5 million in 2019 compared to $1,748.4 million and $1,895.6 million, respectively, in 2018, primarily related to residential mortgages in the Company’s mortgage banking operations. • Net cash used in additions to intangible assets and acquisitions was $64.1 million in 2019 compared to $49.1 million in 2018. • An additional investment in Personal Capital of $66.8 million in the first quarter of 2019. • Proceeds of $80.4 million from the sale of 2,400,255 Lifeco shares in 2019 as a result of the Company’s participation in the Lifeco substantial issuer bid. CAPITAL RESOURCES The Company’s capital management objective is to maximize shareholder returns while ensuring that the Company is capitalized in a manner which appropriately supports regulatory capital requirements, working capital needs and business expansion. The Company’s capital management practices are focused on preserving the quality of its financial position by maintaining a solid capital base and a strong balance sheet. Capital of the Company consists of long-term debt, perpetual preferred shares and common shareholders’ equity which totalled $6.6 billion at December 31, 2019, compared to $6.4 billion at December 31, 2018. At December 31, 2018, capital included perpetual preferred shares of $150 million which were redeemed in April 2019. The Company regularly assesses its capital management practices in response to changing economic conditions. 64 6,052 6,072 1,325 1,325 7,000 2,175 6,599 2,100 6,452 1,850 150 150 150 150 4,577 4,597 4,675 4,452 4,499 2015 2016 2017 2018 2019 Long-term Debt Perpetual Preferred Shares Common Shareholders’ Equity The Company’s capital is primarily utilized in its ongoing business operations to support working capital requirements, long-term investments made by the Company, business expansion and other strategic objectives. Subsidiaries subject to regulatory capital requirements include investment dealers, mutual fund dealers, exempt market dealers, portfolio managers, investment fund managers and a trust company. These subsidiaries are required to maintain minimum levels of capital based on either working capital, liquidity or shareholders’ equity. The Company’s subsidiaries have complied with all regulatory capital requirements. The total outstanding long-term debt was $2.1 billion at December 31, 2019, compared to $1.9 billion at December 31, 2018. Long-term debt is comprised of debentures which are senior unsecured debt obligations of the Company subject to standard covenants, including negative pledges, but which do not include any specified financial or operational covenants. The net increase in long-term debt resulted from the issuance on March 20, 2019 of $250.0 million 4.206% debentures maturing March 21, 2050. The net proceeds from the issuance of the debenture was used by the Company in part to fund the redemption of $150 million 5.90% Non-Cumulative First Preferred Shares, Series B and for general corporate purposes. The Company redeemed the Series B Preferred Shares on April 30, 2019. IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISThe Company purchased 2,762,788 common shares during a company and are indicators of the likelihood of payment and the year ended December 31, 2019 at a cost of $100.0 the capacity of a company to meet its obligations in accordance million under its normal course issuer bid (refer to Note 17 with the terms of each obligation. Descriptions of the rating to the Consolidated Financial Statements). The Company categories for each of the agencies set forth below have been commenced a normal course issuer bid on March 26, 2019 to obtained from the respective rating agencies’ websites. purchase up to 4 million of its common shares to provide the flexibility to manage its capital position while generating value for shareholders. These ratings are not a recommendation to buy, sell or hold the securities of the Company and do not address market price or other factors that might determine suitability of a specific In connection with its normal course issuer bid, the Company security for a particular investor. The ratings also may not has established an automatic securities purchase plan for reflect the potential impact of all risks on the value of securities its common shares. The automatic securities purchase plan and are subject to revision or withdrawal at any time by the provides standard instructions regarding how IGM Financial’s rating organization. common shares are to be purchased under its normal course issuer bid during certain pre-determined trading blackout periods. Outside of these pre-determined trading blackout periods, purchases under the Company’s normal course issuer bid will be completed based upon management’s discretion. The A rating assigned to IGM Financial’s senior unsecured debentures by S&P is the sixth highest of the 22 ratings used for long-term debt. This rating indicates S&P’s view that the Company’s capacity to meet its financial commitment on the obligation is strong, but the obligation is somewhat more Other activities in 2019 included the declaration of perpetual susceptible to the adverse effects of changes in circumstances preferred share dividends of $2.2 million or $0.36875 per share and economic conditions than obligations in higher and common share dividends of $537.6 million or $2.25 per rated categories. share. Changes in common share capital are reflected in the Consolidated Statements of Changes in Shareholders’ Equity. The A (High) rating assigned to IGM Financial’s senior unsecured debentures by DBRS is the fifth highest of the 26 ratings used Standard & Poor’s (S&P) current rating on the Company’s senior for long-term debt. Under the DBRS long-term rating scale, unsecured debentures is “A” with a stable outlook. Dominion debt securities rated A (High) are of good credit quality and the Bond Rating Service’s (DBRS) current rating on the Company’s capacity for the payment of financial obligations is substantial. senior unsecured debentures is “A (High)” with a stable While this is a favourable rating, entities in the A (High) category rating trend. Credit ratings are intended to provide investors with an independent measure of the credit quality of the securities of TABLE 24: FINANCIAL INSTRUMENTS may be vulnerable to future events, but qualifying negative factors are considered manageable. ($ millions) CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE DECEMBER 31, 2019 DECEMBER 31, 2018 Financial assets recorded at fair value Other investments – Fair value through other comprehensive income – Fair value through profit or loss $ 301.2 56.2 $ 301.2 56.2 $ 372.4 87.5 $ 372.4 87.5 Loans – Fair value through profit or loss Derivative financial instruments Financial assets recorded at amortized cost Loans – Amortized cost Financial liabilities recorded at fair value Derivative financial instruments Other financial liabilities Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt – 15.2 – 15.2 4.3 16.4 4.3 16.4 7,198.0 7,273.8 7,733.7 7,785.5 17.2 – 17.2 – 29.0 8.2 29.0 8.2 584.3 6,913.6 2,100.0 584.7 6,997.0 2,453.6 568.8 7,370.2 1,850.0 569.0 7,436.9 2,050.3 65 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL INSTRUMENTS Table 24 presents the carrying amounts and fair values of financial assets and financial liabilities. The table excludes fair value information for financial assets and financial liabilities not • Obligations to securitization entities are valued by discounting the expected future cash flows at prevailing market yields for securities issued by these securitization entities having similar terms and characteristics. measured at fair value if the carrying amount is a reasonable • Deposits and certificates are valued by discounting the approximation of fair value. These items include cash and contractual cash flows using market interest rates currently cash equivalents, accounts and other receivables, certain other offered for deposits with similar terms and credit risks. financial assets, accounts payable and accrued liabilities and • Long-term debt is valued using quoted prices for each certain other financial liabilities. debenture available in the market. Fair value is determined using the following methods and assumptions: • Other investments and other financial assets and liabilities are valued using quoted prices from active markets, when available. When a quoted market price is not readily available, valuation techniques are used that require assumptions related to discount rates and the timing and amount of future cash flows. Wherever possible, observable market inputs are used in the valuation techniques. • Derivative financial instruments are valued based on quoted market prices, where available, prevailing market rates for instruments with similar characteristics and maturities, or discounted cash flow analysis. See Note 23 of the Consolidated Financial Statements which provides additional discussion on the determination of fair value of financial instruments. Although there were changes to both the carrying values and fair values of financial instruments, these changes did not have • Loans classified as held for trading are valued using market a material impact on the financial condition of the Company for interest rates for loans with similar credit risk and maturity, the twelve months ended December 31, 2019. specifically lending rates offered to retail borrowers by financial institutions. • Loans classified as amortized cost are valued by discounting the expected future cash flows at prevailing market yields. 66 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISRISK MANAGEMENT The Company is exposed to a variety of risks that are inherent Committee which oversees conflicts of interest as well as the in its business activities. Its ability to manage these risks is key administration of the Code of Business Conduct and Ethics for to its ongoing success. The Company emphasizes a strong risk Directors, Officers and Employees (Code of Conduct). management culture and the implementation of an effective risk management approach. The risk management approach coordinates risk management across the organization and its business units and seeks to ensure prudent and measured risk- taking in order to achieve an appropriate balance between risk and return. Fundamental to our enterprise risk management program is protecting and enhancing our reputation. RISK MANAGEMENT FRAMEWORK The Company’s risk management approach is undertaken through its Enterprise Risk Management (ERM) Framework which includes five core elements: risk governance, risk appetite, risk principles, a defined risk management process, and risk Management oversight for risk management resides with the executive Risk Management Committee which is comprised of the President and Chief Executive Officer, IGM Financial and IG Wealth Management, the President and Chief Executive Officer, Mackenzie Investments, the Chief Financial Officer, the General Counsel, the Chief Operating Officer and the Executive Vice President Chief Strategy and Corporate Development Officer. The committee is responsible for providing oversight of the Company’s risk management process by: i) establishing and maintaining the risk framework and policy, ii) defining the Company’s risk appetite, iii) ensuring the Company’s risk profile and processes are aligned with corporate strategy and risk appetite, and iv) establishing “tone at the top” and reinforcing a management culture. The ERM Framework is established under strong culture of risk management. the Company’s ERM Policy, which is approved by the Risk Management Committee. RISK GOVERNANCE The Company’s risk governance structure emphasizes a comprehensive and consistent framework throughout the Company and its subsidiaries, with identified ownership of risk management in each business unit and oversight by an executive Risk Management Committee accountable to the Board of Directors. Additional oversight is provided by the Enterprise Risk Management (ERM) Department, compliance groups, and the Company’s Internal Audit Department. The Board of Directors provides primary oversight and carries out its risk management mandate. The Board is responsible for the oversight of enterprise risk management by: i) ensuring that appropriate procedures are in place to identify and manage risks and establish risk tolerances, ii) ensuring that appropriate policies, procedures and controls are implemented to manage risks, and iii) reviewing the risk management process on a regular basis to ensure that it is functioning effectively. Other specific risks are managed with the support of the following Board committees: • The Audit Committee has specific risk oversight responsibilities in relation to financial disclosure, internal controls and the control environment as well as the Company’s compliance activities. The Chief Executive Officers of the operating companies have overall responsibility for overseeing risk management of their respective companies. The Company has assigned responsibility for risk management using the Three Lines of Defence model, with the First Line reflecting the business units having primary responsibility for risk management, supported by Second Line risk management functions and a Third Line Internal Audit function providing assurance and validation of the design and effectiveness of the ERM Framework. First Line of Defence The leaders of the various business units and support functions have primary ownership and accountability for the ongoing risk management associated with their respective activities. Responsibilities of business unit and support function leaders include: i) establishing and maintaining procedures for the identification, assessment, documentation and escalation of risks, ii) implementing control activities to mitigate risks, iii) identifying opportunities for risk reduction or transfer, and iv) aligning business and operational strategies with the risk culture and risk appetite of the organization as established by the Risk Management Committee. Second Line of Defence The Enterprise Risk Management (ERM) Department provides oversight, analysis and reporting to the Risk Management • Other committees having specific risk oversight responsibilities include: i) the Human Resource Committee which oversees Committee on the level of risks relative to the established risk appetite for all activities of the Company. Other responsibilities compensation policies and practices, ii) the Governance and include: i) developing and maintaining the enterprise risk Nominating Committee which oversees corporate governance management program and framework, ii) managing the practices, and iii) the Related Party and Conduct Review enterprise risk management process, and iii) providing guidance and training to business unit and support function leaders. 67 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISThe Company has a number of committees of senior business We use a consistent methodology across our organizations leaders which provide oversight of specific business risks, and business units for identification and assessment of risks. including the Financial Risk Management and Operational Risks are assessed by evaluating the impact and likelihood of Risk Management committees. These committees perform the potential risk event after consideration of controls and any critical reviews of risk assessments, risk management practices risk transfer activities. The results of these assessments are and risk response plans developed by business units and considered relative to risk appetite and tolerances and may support functions. result in action plans to adjust the risk profile. Other oversight accountabilities reside with the Company’s Risk assessments are monitored and reviewed on an ongoing corporate and compliance groups which are responsible for basis by business units and by oversight areas including the ERM ensuring compliance with policies, laws and regulations. Department. The ERM Department promotes and coordinates Third Line of Defence communication and consultation to support effective risk management and escalation. The ERM Department regularly The Internal Audit Department is the third line of defence and reports on the results of risk assessments and on the assessment provides independent assurance to senior management and the Board of Directors on the effectiveness of risk management process to the Risk Management Committee and to the Board of Directors. policies, processes and practices. RISK MANAGEMENT CULTURE RISK APPETITE AND RISK PRINCIPLES Risk management is intended to be everyone’s responsibility The Risk Management Committee establishes the Company’s within the organization. The ERM Department engages appetite for different types of risk through the Risk Appetite all business units in workshops to foster awareness and Framework. Under the Risk Appetite Framework, one of four incorporation of our risk framework into our business activities. appetite levels is established for each risk type and business activity of the Company. These appetite levels range from those where the Company has no appetite for risk and seeks to minimize any losses, to those where the Company readily accepts exposure while seeking to ensure that risks are well understood and managed. These appetite levels guide our business units as We have an established business planning process which reinforces our risk management culture. Our compensation programs are typically objectives-based, and do not encourage or reward excessive or inappropriate risk taking, and often are aligned specifically with risk management objectives. they engage in business activities, and inform them in establishing Our risk management program emphasizes integrity, ethical policies, limits, controls and risk transfer activities. A Risk Appetite Statement and Risk Principles provide further guidance to business leaders and employees as they conduct risk management activities. The Risk Appetite Statement’s emphasis is to maintain the Company’s reputation and brand, ensure financial practices, responsible management and measured risk-taking with a long-term view. Our standards of integrity and ethics are reflected within our Code of Conduct which applies to directors, officers and employees. flexibility, and focus on mitigating operational risk. KEY RISKS OF THE BUSINESS RISK MANAGEMENT PROCESS The Company identifies risks to which its businesses and operations could be exposed considering factors both internal The Company’s risk management process is designed to foster: and external to the organization. These risks are broadly • Ongoing assessment of risks and tolerance in a changing operating environment. • Appropriate identification and understanding of existing and emerging risks and risk response. • Timely monitoring and escalation of risks based upon changing circumstances. grouped into six categories. 1) FINANCIAL RISK LIQUIDITY AND FUNDING RISK Liquidity and funding risk is the risk of the inability to generate or obtain sufficient cash in a timely and cost-effective manner to meet contractual or anticipated commitments as they come Significant risks that may adversely affect the Company’s ability due or arise. to achieve its strategic and business objectives are identified through the Company’s ongoing risk management process. The Company’s liquidity management practices include: • Maintaining liquid assets and lines of credit to satisfy near term liquidity needs. • Ensuring effective controls over liquidity management processes. 68 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS• Performing regular cash forecasts and stress testing. insured by an insurer that is approved by CMHC. The availability • Regular assessment of capital market conditions and the of mortgage insurance is dependent upon market conditions Company’s ability to access bank and capital market funding. and is subject to change. • Ongoing efforts to diversify and expand long-term mortgage As part of ongoing liquidity management during 2019 and 2018, funding sources. the Company: • Oversight of liquidity management by the Financial Risk Management Committee, a committee of finance and other business leaders. A key funding requirement for the Company is the funding of Consultant network compensation paid for the distribution of financial products and services. This compensation continues to be paid from operating cash flows. The Company also maintains sufficient liquidity to fund and temporarily hold mortgages pending sale or securitization • Continued to assess additional funding sources for the Company’s mortgage banking operations. • Repaid the $150 million 6.58% debentures in March 2018. • Issued $200 million of 30 year 4.174% debentures in July 2018. The net proceeds were used by IGM Financial, together with a portion of IGM Financial’s existing internal cash resources, to fund the early redemption in August of all of its $375 million aggregate principal amount of 7.35% debentures due April 8, 2019. to long-term funding sources and to manage any derivative • Issued $250 million 4.206% debentures in March 2019 collateral requirements related to the mortgage banking maturing March 21, 2050. The net proceeds were used by the operation. Through its mortgage banking operations, residential Company to fund the redemption of $150 million 5.90% Non- mortgages are sold to third parties including certain mutual Cumulative First Preferred Shares, Series B and for general funds, institutional investors through private placements, corporate purposes. The Company redeemed the Series B Canadian bank-sponsored securitization trusts, and by issuance Preferred Shares on April 30, 2019. and sale of National Housing Act Mortgage-Backed Securities (NHA MBS) securities including sales to Canada Housing Trust under the CMB Program. The Company maintains committed capacity within certain Canadian bank-sponsored securitization trusts. Capacity for sales under the CMB Program consists of participation in new CMB issues and reinvestment of principal • Participated in the Lifeco substantial issuer bid by selling 2,400,255 of its shares in Lifeco for proceeds of $80.4 million. The Company’s contractual obligations are reflected in Table 25. The maturity schedule for long-term debt of $2.1 billion is reflected in the accompanying chart (Long-Term Debt repayments held in the Principal Reinvestment Accounts. The Maturity Schedule). Company’s continued ability to fund residential mortgages through Canadian bank-sponsored securitization trusts and NHA MBS is dependent on securitization market conditions and government regulations that are subject to change. A condition of the NHA MBS and CMB Program is that securitized loans be In addition to IGM Financial’s current balance of cash and cash equivalents, liquidity is available through the Company’s lines of credit. The Company’s lines of credit with various Schedule I Canadian chartered banks totalled $825 million at December 31, 2019, unchanged from December 31, 2018. The TABLE 25: CONTRACTUAL OBLIGATIONS AS AT DECEMBER 31, 2019 ($ millions) Derivative financial instruments Deposits and certificates Obligations to securitization entities Leases(1) Long-term debt Pension funding(2) DEMAND LESS THAN 1 YEAR $ – 573.0 – – – – $ 6.9 6.0 1,473.6 26.2 – 26.1 $ 1-5 YEARS 10.1 4.2 5,431.5 54.7 – – $ AFTER 5 YEARS 0.2 1.1 8.5 23.5 2,100.0 – $ TOTAL 17.2 584.3 6,913.6 104.4 2,100.0 26.1 Total contractual obligations $ 573.0 $ 1,538.8 $ 5,500.5 $ 2,133.3 $ 9,745.6 (1) Includes remaining lease payments related to office space and equipment used in the normal course of business. (2) The next required actuarial valuation will be completed based on a measurement date of December 31, 2020. Pension funding requirements beyond 2020 are subject to significant variability and will be determined based on future actuarial valuations. Pension contribution decisions are subject to change, as contributions are affected by many factors including market performance, regulatory requirements, changes in assumptions and management's ability to change funding policy. 69 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS Long-Term Debt Maturity Schedule ($ millions) 525 175 150 150 200 450 250 200 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Year lines of credit at December 31, 2019 consisted of committed 2018 to reduce its solvency deficit and increase its going lines of $650 million and uncommitted lines of $175 million, concern surplus. The Company expects to make contributions unchanged from December 31, 2018. The Company has of approximately $26.1 million in 2020. Pension contribution accessed its uncommitted lines of credit in the past; however, decisions are subject to change, as contributions are affected any advances made by a bank under the uncommitted lines of by many factors including market performance, regulatory credit are at the bank’s sole discretion. As at December 31, 2019 requirements, changes in assumptions and management’s ability and December 31, 2018, the Company was not utilizing its to change funding policy. committed lines of credit or its uncommitted lines of credit. Management believes cash flows from operations, available The actuarial valuation for funding purposes related to the cash balances and other sources of liquidity described above are Company’s registered defined benefit pension plan, based on a sufficient to meet the Company’s liquidity needs. The Company measurement date of December 31, 2017, was completed in continues to have the ability to meet its operational cash May 2018. The valuation determines the plan surplus or deficit flow requirements, its contractual obligations, and its declared on both a solvency and going concern basis. The solvency basis dividends. The current practice of the Company is to declare determines the relationship between the plan assets and its and pay dividends to common shareholders on a quarterly basis liabilities assuming that the plan is wound up and settled on at the discretion of the Board of Directors. The declaration of the valuation date. A going concern valuation compares the dividends by the Board of Directors is dependent on a variety relationship between the plan assets and the present value of of factors, including earnings which are significantly influenced the expected future benefit cash flows, assuming the plan will by the impact that debt and equity market performance has on be maintained indefinitely. Based on the actuarial valuation, the the Company’s fee income and commission and certain other registered pension plan had a solvency deficit of $47.2 million expenses. The Company’s liquidity position and its management compared to $82.7 million in the previous actuarial valuation, of liquidity and funding risk have not changed materially since which was based on a measurement date of December 31, December 31, 2018. 2016. The decrease in the solvency deficit resulted primarily from higher assets due to contribution and investment returns CREDIT RISK and is required to be funded over five years. The registered Credit risk is the potential for financial loss to the Company if a pension plan had a going concern surplus of $46.1 million counterparty to a transaction fails to meet its obligations. compared to $24.4 million in the previous valuation. The next required actuarial valuation will be based on a measurement date of December 31, 2020. During 2019, the Company made contributions of $26.4 million (2018 - $40.4 million). The Company utilized $10.5 million of the payments made during The Company’s cash and cash equivalents, other investment holdings, mortgage portfolios, and derivatives are subject to credit risk. The Company monitors its credit risk management practices on an ongoing basis to evaluate their effectiveness. 70 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISCash and Cash Equivalents • Credit risk for mortgages securitized by transfer to bank- At December 31, 2019, cash and cash equivalents of $720.0 million sponsored securitization trusts totalling $2.9 billion (2018 (2018 - $650.2 million) consisted of cash balances of $68.0 million – $3.1 billion) is limited to amounts held in cash reserve (2018 - $81.8 million) on deposit with Canadian chartered banks accounts and future net interest income, the fair values of and cash equivalents of $652.0 million (2018 - $568.4 million). which were $71.9 million (2018 - $74.1 million) and $37.9 Cash equivalents are comprised of Government of Canada treasury million (2018 - $35.6 million), respectively, at December 31, bills totalling $34.5 million (2018 - $103.5 million), provincial 2019. Cash reserve accounts are reflected on the balance government treasury bills and promissory notes of $206.5 million sheet, whereas rights to future net interest income are not (2018 - $76.2 million), bankers’ acceptances and other short- reflected on the balance sheet and will be recorded over term notes issued by Canadian chartered banks of $411.0 million the life of the mortgages. This risk is further mitigated by (2018 - $364.3 million). Also included in 2018 were highly rated insurance with 4.6% of mortgages held in ABCP Trusts insured corporate commercial paper of $24.4 million. at December 31, 2019 (2018 – 8.3%). The Company manages credit risk related to cash and cash At December 31, 2019, residential mortgages recorded on equivalents by adhering to its Investment Policy that outlines credit risk parameters and concentration limits. The Company regularly balance sheet were 59.1% insured (2018 – 61.5%). As at December 31, 2019, impaired mortgages on these portfolios reviews the credit ratings of its counterparties. The maximum were $2.4 million, compared to $3.3 million at December 31, exposure to credit risk on these financial instruments is their 2018. Uninsured non-performing mortgages over 90 days carrying value. The Company’s exposure to and management of credit risk related on these portfolios were $1.6 million at December 31, 2019, compared to $1.8 million at December 31, 2018. to cash and cash equivalents and fixed income securities have not The Company also retains certain elements of credit risk on changed materially since December 31, 2018. Mortgage Portfolio As at December 31, 2019, residential mortgages, recorded on the Company’s balance sheet, of $7.2 billion (2018 - $7.7 billion) consisted of $6.8 billion sold to securitization programs (2018 - $7.3 billion), $344.5 million held pending sale or securitization (2018 - $363.9 million) and $24.2 million related to the Company’s intermediary operations (2018 - $25.6 million). mortgage loans sold to the Investors Mortgage and Short Term Income Fund and to the Investors Canadian Corporate Bond Fund through an agreement to repurchase mortgages in certain circumstances benefiting the funds. These loans are not recorded on the Company’s balance sheet as the Company has transferred substantially all of the risks and rewards of ownership associated with these loans. The Company regularly reviews the credit quality of the mortgages and the adequacy of the allowance for expected The Company manages credit risk related to residential credit losses. mortgages through: • Adhering to its lending policy and underwriting standards; • Its loan servicing capabilities; • Use of client-insured mortgage default insurance and mortgage portfolio default insurance held by the Company; and • Its practice of originating its mortgages exclusively through its own network of Mortgage Planning Specialists and IG Wealth Management Consultants as part of a client’s IG Living Plan. The Company’s allowance for expected credit losses was $0.7 million at December 31, 2019, compared to $0.8 million at December 31, 2018, and is considered adequate by management to absorb all credit-related losses in the mortgage portfolios based on: i) historical credit performance experience and recent trends, ii) current portfolio credit metrics and other relevant characteristics, and iii) regular stress testing of losses under adverse real estate market conditions. The Company’s exposure to and management of credit risk related to mortgage portfolios have not changed materially In certain instances, credit risk is also limited by the terms and nature of securitization transactions as described below: since December 31, 2018. • Under the NHA MBS program totalling $3.9 billion (2018 Derivatives - $4.2 billion), the Company is obligated to make timely payment of principal and coupons irrespective of whether The Company is exposed to credit risk through derivative contracts it utilizes to hedge interest rate risk, to facilitate such payments were received from the mortgage borrower. securitization transactions and to hedge market risk related However, as required by the NHA MBS program, 100% of the to certain stock-based compensation arrangements. These loans are insured by an approved insurer. derivatives are discussed more fully under the Market Risk section of this MD&A. 71 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISTo the extent that the fair value of the derivatives is in a totalled negative $4.9 million (December 31, 2018 - negative gain position, the Company is exposed to credit risk that $11.0 million), on an outstanding notional amount of $1.6 its counterparties fail to fulfil their obligations under these billion at December 31, 2019 (December 31, 2018 - $1.7 arrangements. The Company’s derivative activities are managed in accordance with its Investment Policy which includes counterparty limits and other parameters to manage counterparty risk. The aggregate credit risk exposure related to derivatives that are in a gain position of $15.7 million (2018 - $19.4 million) does not give effect to any netting agreements or collateral arrangements. The exposure to credit risk, considering netting agreements and collateral arrangements and including rights to future net interest income, was $0.7 million at December 31, 2019 (2018 - nil). Counterparties are all Canadian Schedule I chartered banks and, as a result, management has determined that the Company’s overall credit risk related to derivatives was not significant at December 31, 2019. Management of credit risk related to derivatives has not changed materially since December 31, 2018. Additional information related to the Company’s securitization activities and utilization of derivative contracts can be found in Notes 2, 6 and 22 to the Annual Financial Statements. MARKET RISK Market risk is the potential for loss to the Company from changes in the values of its financial instruments due to changes in foreign exchange rates, interest rates or equity prices. Interest Rate Risk The Company is exposed to interest rate risk on its mortgage portfolio and on certain of the derivative financial instruments used in the Company’s mortgage banking operations. billion). The net fair value of these swaps of negative $5.8 million at December 31, 2019 (December 31, 2018 - negative $6.1 million) is recorded on the balance sheet and has an outstanding notional amount of $2.4 billion (December 31, 2018 - $2.6 billion). • The Company is exposed to the impact that changes in interest rates may have on the value of mortgages committed to or held pending sale or securitization to long-term funding sources. The Company enters into interest rate swaps to hedge the interest rate risk related to funding costs for mortgages held by the Company pending sale or securitization. Beginning in 2018, hedge accounting is applied to the cost of funds on certain securitization activities. The effective portion of fair value changes of the associated interest rate swaps are initially recognized in Other comprehensive income and subsequently recognized in Net investment income and other over the term of the related Obligations to securitization entities. The fair value of these swaps was $0.6 million (December 31, 2018 - negative $1.8 million) on an outstanding notional amount of $180.4 million at December 31, 2019 (December 31, 2018 - $249.9 million). As at December 31, 2019, the impact to annual net earnings of a 100 basis point increase in interest rates would have been a decrease of approximately $2.0 million (December 31, 2018 - decrease of $0.5 million). The Company’s exposure to and management of interest rate risk have not changed materially since December 31, 2018. Equity Price Risk The Company is exposed to equity price risk on its equity The Company manages interest rate risk associated with its investments which are classified as either fair value through mortgage banking operations by entering into interest rate other comprehensive income or fair value through profit or loss. swaps with Canadian Schedule I chartered banks as follows: The fair value of the equity investments was $357.4 million at • The Company has in certain instances funded floating rate mortgages with fixed rate Canada Mortgage Bonds as part December 31, 2019 (December 31, 2018 - $459.9 million), as shown in Table 18. of the securitization transactions under the CMB Program. The Company sponsors a number of deferred compensation As previously discussed, as part of the CMB Program, the arrangements for employees where payments to participants Company is party to a swap whereby it is entitled to receive are deferred and linked to the performance of the common investment returns on reinvested mortgage principal and is shares of IGM Financial Inc. The Company hedges its exposure obligated to pay Canada Mortgage Bond coupons. This swap to this risk through the use of forward agreements and total had a negative fair value of $0.9 million (December 31, 2018 return swaps. – positive $4.9 million) and an outstanding notional amount of $0.8 billion at December 31, 2019 (December 31, 2018 Foreign Exchange Risk - $0.9 billion). The Company enters into interest rate swaps with Canadian Schedule I chartered banks to hedge the risk that the interest rates earned on floating rate mortgages and reinvestment returns decline. The fair value of these swaps The Company is exposed to foreign exchange risk on its investments in Personal Capital and China AMC. Changes to the carrying value due to changes in foreign exchange rates on these investments are recognized in Other comprehensive 72 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISincome. A 5% appreciation (depreciation) in Canadian currency The Company’s exposure to the value of assets under relative to foreign currencies would decrease (increase) management aligns it with the experience of its clients. Assets the aggregate carrying value of foreign investments by under management are broadly diversified by asset class, approximately $40.5 million ($44.8 million). geographic region, industry sector, investment team and style. The Company’s proportionate share of China AMC’s and Personal Capital’s earnings (losses), recorded in Proportionate share of associates’ earnings in the Consolidated Statements of Earnings, is also affected by changes in foreign exchange rates. A 5% appreciation (depreciation) in Canadian currency relative to foreign currencies would decrease (increase) the Company’s proportionate share of associates’ earnings (losses) by approximately $0.7 million ($0.6 million). RISKS RELATED TO ASSETS UNDER MANAGEMENT At December 31, 2019, IGM Financial’s total assets under management were $166.8 billion compared to $149.1 billion at December 31, 2018. The Company regularly reviews the sensitivity of its assets under management, revenues, earnings and cash flow to changes in financial markets. The Company believes that over the long term, exposure to investment returns on its client portfolios is beneficial to the Company’s results and consistent with stakeholder expectations, and generally it does not engage in risk transfer activities such as hedging in relation to these exposures. 2) OPERATIONAL RISK Operational risks relating to people and processes are mitigated through policies and process controls. Oversight of risks and ongoing evaluation of the effectiveness of controls is provided by the Company’s Compliance Department, ERM Department and The Company’s primary sources of revenues are management, Internal Audit Department. administration and other fees which are applied as an annual percentage of the level of assets under management. As a result, the level of the Company’s revenues and earnings are indirectly exposed to a number of financial risks that affect the value of assets under management on an ongoing basis. These include market risks, such as changes in equity prices, interest rates and foreign exchange rates, as well as credit risk on debt securities, loans and credit exposures from other counterparties within our client portfolios. The Company has an insurance review process where it assesses and determines the nature and extent of insurance that is appropriate to provide adequate protection against unexpected losses, and where it is required by law, regulators or contractual agreements. OPERATIONAL RISK Operational risk is the risk of loss resulting from inadequate or failed internal processes or systems, human interaction or Changing financial market conditions may also lead to a change external events, but excludes business risk. in the composition of the Company’s assets under management between equity and fixed income instruments, which could result in lower revenues depending upon the management fee rates associated with different asset classes and mandates. Operational risk affects all business activities, including the processes in place to manage other risks. As a result, operational risk can be difficult to measure, given that it forms part of other risks of the Company and may not always be separately identified. Our Company is exposed to a broad range of operational risks, including information technology security TABLE 26: IGM FINANCIAL ASSETS UNDER MANAGEMENT – ASSET AND CURRENCY MIX AS AT DECEMBER 31, 2019 Cash Short-term fixed income and mortgages Other fixed income Domestic equity Foreign equity Real Property CAD USD Other INVESTMENT FUNDS TOTAL 1.8 % 4.8 27.2 22.2 41.2 2.8 2.0 % 4.7 26.8 22.3 41.5 2.7 100.0 % 100.0 % 56.2 % 28.4 15.4 56.1 % 28.2 15.7 100.0 % 100.0 % 73 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS and system failures, errors relating to transaction processing, MODEL RISK financial models and valuations, fraud and misappropriation of The Company uses a variety of models to assist in: the valuation of assets, and inadequate application of internal control processes. financial instruments, operational scenario testing, management The impact can result in significant financial loss, reputational of cash flows, capital management, and assessment of potential harm or regulatory actions. The Company’s risk management framework emphasizes operational risk management and internal control. The Company has a very low appetite for risk in this area. acquisitions. These models incorporate internal assumptions, observable market inputs and available market prices. Effective controls exist over the development, implementation and application of these models. However, changes in the internal assumptions or other factors affecting the models could have an The business unit leaders are responsible for management of the adverse effect on the Company’s consolidated financial position. day to day operational risks of their respective business units. Specific programs, policies, training, standards and governance LEGAL AND REGULATORY COMPLIANCE processes have been developed to support the management of operational risk. The Company has a business continuity management program to support the sustainment, management and recovery of critical operations and processes in the event of a business disruption. TECHNOLOGY AND CYBER RISK Legal and regulatory compliance risk is the risk of not complying with laws, contractual agreements or regulatory requirements. These risks relate to regulation governing product distribution, investment management, accounting, reporting and communications. IGM Financial is subject to complex and changing legal, taxation and regulatory requirements, including the requirements of Technology and cyber risk driven by systems are managed agencies of the federal, provincial and territorial governments through controls over technology development and change in Canada which regulate the Company and its activities. management. Information security is a significant risk to our The Company and its subsidiaries are also subject to the industry and our Company’s operations. The Company uses requirements of self-regulatory organizations to which they systems and technology to support its business operations and belong. These and other regulatory bodies regularly adopt the client and financial advisor experience. As a result, we are new laws, rules, regulations and policies that apply to the exposed to risks relating to technology and cyber security such Company and its subsidiaries. These requirements include as data breaches, identity theft and hacking, including the risk those that apply to IGM Financial as a publicly traded company of denial of service or malicious software attacks. Such attacks and those that apply to the Company's subsidiaries based on could compromise confidential information of the Company and the nature of their activities. They include regulations related that of clients or other stakeholders, and could result in negative to the management and provision of financial products and consequences including lost revenue, litigation, regulatory scrutiny services, including securities, insurance and mortgages, and or reputational damage. To remain resilient to such threats, other activities carried on by the Company in the markets in the Company has established enterprise-wide cyber security which it operates. Regulatory standards affecting the Company programs, benchmarked capabilities to sound industry practices, and the financial services industry are significant and continually and has implemented threat and vulnerability assessment and evolve. The Company and its subsidiaries are subject to reviews response capabilities. as part of the normal ongoing process of oversight by the THIRD PARTY SERVICE PROVIDERS The Company regularly engages third parties to provide expertise and efficiencies that support our operational activities. Our exposure to third party service provider risk could include reputational, regulatory and other operational risks. Policies, standard operating procedures and dedicated resources, including a supplier code of conduct, have been developed and implemented to specifically address third party service provider risk. Due diligence and monitoring activities are performed by the Company prior to entering into contractual relationships with third party service providers and on an ongoing basis. As our reliance on external service providers continues to grow, we continue to enhance resources and processes to support third party risk management. various regulators. Failure to comply with laws, rules or regulations could lead to regulatory sanctions and civil liability, and may have an adverse reputational or financial effect on the Company. The Company manages legal and regulatory compliance risk through its efforts to promote a strong culture of compliance. The monitoring of regulatory developments and their impact on the Company is overseen by the Regulatory Initiatives Committee chaired by the Executive Vice-President, General Counsel. The Company also continues to develop and maintain compliance policies, processes and oversight, including specific communications on compliance and legal matters, training, testing, monitoring and reporting. The Audit Committee of the Company receives regular reporting on compliance initiatives and issues. 74 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISIGM Financial promotes a strong culture of ethics and integrity The Company has a business planning process that supports through its Code of Conduct approved by the Board of Directors, development of an annual business plan, approved by the Board which outlines standards of conduct that apply to all IGM of Directors, which incorporates objectives and targets for the Financial directors, officers and employees. The Code of Conduct Company. Components of management compensation are references many policies relating to the conduct of directors, associated with the achievement of earnings targets and other officers and employees. Other corporate policies cover anti- objectives associated with the plan. Strategic plans and direction money laundering and privacy. Training is provided on these are part of this planning process and are integrated into the policies on an annual basis. Individuals subject to the Code of Company’s risk management program. Conduct attest annually that they understand the requirements and have complied with its provisions. ACQUISITION RISK Business units are responsible for management of legal and regulatory compliance risk, and implementing appropriate policies, procedures and controls. The Company’s Compliance Departments are responsible for providing oversight of all regulated compliance activities. The Internal Audit Department also provides oversight and investigations concerning regulatory compliance matters. CONTINGENCIES The Company is subject to legal actions arising in the normal course of its business. In December 2018, a proposed class action was filed in the Ontario Superior Court against Mackenzie which alleges that the company should not have paid mutual fund trailing commissions to order execution only dealers. Although it is difficult to predict the outcome of any such legal The Company is also exposed to risks related to its acquisitions. The Company undertakes thorough due diligence prior to completing an acquisition, but there is no assurance that the Company will achieve the expected strategic objectives or cost and revenue synergies subsequent to an acquisition. Subsequent changes in the economic environment and other unanticipated factors may affect the Company’s ability to achieve expected earnings growth or expense reductions. The success of an acquisition is dependent on retaining assets under management, clients, and key employees of an acquired company. 4) REGULATORY DEVELOPMENTS Regulatory development risk is the potential for changes to regulatory, legal, or tax requirements that may have an adverse impact upon the Company’s business activities or financial results. actions, based on current knowledge and consultation with legal The Company is exposed to the risk of changes in laws, taxation counsel, management does not expect the outcome of any of and regulation that could have an adverse impact on the these matters, individually or in aggregate, to have a material Company. Particular regulatory initiatives may have the effect adverse effect on the Company’s consolidated financial position. of making the products of the Company’s subsidiaries appear to be less competitive than the products of other financial service 3) GOVERNANCE, OVERSIGHT AND STRATEGIC RISK providers, to third party distribution channels and to clients. Governance, oversight and strategic risk is the risk of potential Regulatory differences that may impact the competitiveness adverse impacts resulting from inadequate or inappropriate of the Company’s products include regulatory costs, tax governance, oversight, management of incentives and conflicts, treatment, disclosure requirements, transaction processes or and strategic planning. IGM Financial believes in the importance of good corporate governance and the central role played by directors in the governance process. We believe that sound corporate governance is essential to the well-being of the Company and its shareholders. other differences that may be as a result of differing regulation or application of regulation. Regulatory developments may also impact product structures, pricing, and dealer and advisor compensation. While the Company and its subsidiaries actively monitor such initiatives, and where feasible comment upon or discuss them with regulators, the ability of the Company and its subsidiaries to mitigate the imposition of differential regulatory Oversight of IGM Financial is performed by the Board of treatment of financial products or services is limited. Directors directly and through its five committees. The Company’s President and Chief Executive Officer has overall CLIENT FOCUSED REFORMS responsibility for management of the Company. The Company’s On October 3, 2019, the Canadian Securities Administrators activities are carried out principally by three operating companies - Investors Group Inc., Mackenzie Financial (the CSA) published final rule amendments to implement enhancements to the obligations owed by registrants to their Corporation and Investment Planning Counsel Inc. - each of clients (the Client Focused Reforms). which are managed by a President and Chief Executive Officer. 75 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISThe Client Focused Reforms include rule amendments that, when redeeming their investments. These factors may also affect implemented, will require registrants to: the level and volatility of financial markets and the value of the • Address all material conflicts of interest in the best interest of the client; • Put the client’s interest first when making a suitability determination; and • Do more to clarify for clients what they should expect from their registrants. The rule amendments are expected to come into force on December 31, 2019, with a phased transition period spanning over a two year period. The Company believes it is well positioned to implement the Client Focused Reforms. MUTUAL FUND EMBEDDED COMMISSIONS On December 19, 2019, the CSA published a notice announcing that all provinces and territories in Canada will eliminate trailing commissions paid to dealers who only execute orders and do not provide advice, such as discount brokers; and all provinces and territories, excluding Ontario, will eliminate the Deferred Sales Charge (DSC) purchase option. The rule amendments are expected to be published in 2020 and be subject to a two-year transition period. The Ontario Securities Commission will explore alternative approaches to the elimination of the DSC purchase option in Ontario. The Company believes it is well positioned to respond to these proposals, as IG Wealth Management and Investment Planning Counsel no longer offer the deferred sales charge option. 5) BUSINESS RISK GENERAL BUSINESS CONDITIONS General business conditions risk refers to the potential for an unfavourable impact on IGM Financial resulting from competitive or other external factors relating to the marketplace. Company’s assets under management, as described more fully under the Risks Related to Assets Under Management section of this MD&A. The Company, across its operating subsidiaries, is focused on communicating with clients and emphasizing the importance of financial planning across economic cycles. The Company and the industry continue to take steps to educate Canadian investors on the merits of financial planning, diversification and long-term investing. In periods of volatility, Consultants and independent financial advisors play a key role in assisting investors in maintaining perspective and focus on their long-term objectives. Redemption rates for long-term funds are summarized in Table 27 and are discussed in the IG Wealth Management and Mackenzie Segment Operating Results sections of this MD&A. PRODUCT/SERVICE OFFERING There is potential for unfavourable impacts on IGM Financial resulting from inadequate product or service performance, quality or breadth. IGM Financial and its subsidiaries operate in a highly competitive environment, competing with other financial service providers, investment managers and product and service types. Client development and retention can be influenced by a number of factors, including products and services offered by competitors, relative service levels, relative pricing, product attributes, reputation and actions taken by competitors. This competition could have an adverse impact upon the Company’s financial position and operating results. Please refer to The Competitive Landscape section of this MD&A for further discussion. The Company provides Consultants, independent financial advisors, as well as retail and institutional clients with a high level of service and support and a broad range of investment Global economic conditions, changes in equity markets, products, with a focus on building enduring relationships. demographics and other factors including geopolitical risk and The Company’s subsidiaries also continually review their government instability, can affect investor confidence, income respective product and service offering and pricing to ensure levels and savings decisions. This could result in reduced sales of competitiveness in the marketplace. IGM Financial’s products and services and/or result in investors TABLE 27: TWELVE MONTH TRAILING REDEMPTION RATE FOR LONG-TERM FUNDS IGM Financial Inc. IG Wealth Management Mackenzie Counsel 76 2019 DEC. 31 2018 DEC. 31 10.3 % 15.6 % 19.3 % 9.2 % 17.1 % 19.2 % IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS The Company strives to deliver strong investment performance investment performance record, marketing, educational and service on its products relative to benchmarks and peers. Poor support has made Mackenzie one of Canada’s leading investment investment performance relative to benchmarks or peers management companies. These factors are discussed further in could reduce the level of assets under management and sales the Mackenzie Review of the Business section of this MD&A. and asset retention, as well as adversely impact our brands. Meaningful and/or sustained underperformance could affect PEOPLE RISK the Company's results. The Company's objective is to cultivate People risk refers to the potential inability to attract or retain investment processes and disciplines that provide it with a key employees or Consultants, develop to an appropriate level of competitive advantage, and does so by diversifying its assets proficiency, or manage personnel succession or transition. under management and product shelf by investment team, brand, asset class, mandate, style and geographic region. BUSINESS/CLIENT RELATIONSHIPS Business/Client relationships risk refers to the risk potential for unfavourable impacts on IGM Financial resulting from changes to other key relationships. These relationships primarily include IG Wealth Management clients and Consultants, Mackenzie retail distribution, strategic and significant business partners, clients of Mackenzie funds, and sub-advisors and other product suppliers. Management, investment and distribution personnel play an important role in developing, implementing, managing and distributing products and services offered by IGM Financial. The loss of these individuals or an inability to attract, retain and motivate sufficient numbers of qualified personnel could affect IGM Financial’s business and financial performance. 6) ENVIRONMENTAL AND SOCIAL RISK Environmental and social risk is the potential risk of financial loss or harm resulting from environmental or social issues arising from IG Wealth Management Consultant network – IG Wealth our business operations or investment activities. Environmental Management derives all of its mutual fund sales through its and social risks are identified as one of the six categories of risks Consultant network. IG Wealth Management Consultants have within the Company’s ERM Framework. regular direct contact with clients which can lead to a strong and personal client relationship based on the client’s confidence in that individual Consultant. The market for financial advisors is extremely competitive. The loss of a significant number of key Consultants could lead to the loss of client accounts which could have an adverse effect on IG Wealth Management’s results of Environmental risks include issues such as climate change, biodiversity, pollution, waste, and the unsustainable use of energy, water and other resources. Social risks include issues such as human rights, labour standards, diversity and inclusion, and community impacts. operations and business prospects. IG Wealth Management is IGM Financial has a long-standing commitment to responsible focused on strengthening its distribution network of Consultants management, as articulated in the Company’s Corporate and on responding to the complex financial needs of its clients by Responsibility Statement approved by the Board of Directors. delivering a diverse range of products and services in the context The Board’s risk management oversight includes ensuring of personalized financial advice, as discussed in the IG Wealth that material environmental and social risks are appropriately Management Review of the Business section of this MD&A. identified, managed and monitored. Mackenzie – Mackenzie derives the majority of its mutual fund The Company’s executive Risk Management Committee is sales through third party financial advisors. Financial advisors responsible for providing oversight of the risk management generally offer their clients investment products in addition to, process. Other management committees provide oversight of and in competition with Mackenzie. Mackenzie also derives specific risks including the Corporate Responsibility Committee. sales of its investment products and services from its strategic The Corporate Responsibility Committee is comprised of senior alliance and institutional clients. Due to the nature of the executives of the Company who are responsible for ensuring distribution relationship in these relationships and the relative implementation of policy and strategy, establishing goals and size of these accounts, gross sale and redemption activity can be initiatives, measuring progress, and approving annual reporting for more pronounced in these accounts than in a retail relationship. environmental, social and governance matters. Mackenzie’s ability to market its investment products is highly dependent on continued access to these distribution networks. The inability to have such access could have a material adverse effect on Mackenzie’s operating results and business prospects. Mackenzie is well positioned to manage this risk and to continue to build and enhance its distribution relationships. Mackenzie’s diverse portfolio of financial products and its long-term Our commitment to responsible management is demonstrated through various mechanisms – including our Code of Conduct for our employees, contractors, and directors; our Supplier Code of Conduct for the firms that do business with us; our Respectful Workplace Policy; our Diversity Policy; our Environmental Policy; and other related policies. 77 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISIG Wealth Management and Mackenzie Investments are signatories to the Principles for Responsible Investment (PRI). IG Wealth Management sub-advisors were also required to be signatories to the PRI by the end of 2019. Under the PRI, investors formally commit to incorporate environmental, social and governance issues into their investment decision making and active ownership processes. In addition, IG Wealth Management, Mackenzie Investments and Investment Planning Counsel have implemented Responsible Investment Policies outlining the practices at each company. IGM Financial also reports annually on its environmental, social and governance management and performance in its Corporate Responsibility Report available on our website. The information in these reports does not form a part of this document. CLIMATE CHANGE We believe that financial services companies have an important role to play in addressing climate change. Global practices are continually evolving relating to the identification, analysis, and management of climate risks and opportunities IGM Financial is a long-standing participant in the CDP (formerly Carbon Disclosure Project), which promotes corporate disclosures on greenhouse gas emissions and climate change management including setting and monitoring emission reduction targets. For the 2018 and 2019 surveys, IGM Financial was the only Canadian firm recognized by CDP as a corporate leader in climate change disclosure with a position on their Climate Change A List. The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) was established in response to investor demand for enhanced information on climate- related risks and opportunities. IGM Financial and its operating companies support the TCFD recommendations which include a framework for consistent, voluntary climate-related financial disclosures that provide decision-useful information to investors and other stakeholders. 78 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISOUTLOOK THE FINANCIAL SERVICES ENVIRONMENT Canadians held $4.4 trillion in discretionary financial assets with financial institutions at December 31, 2018 based on the most recent report from Investor Economics. The nature of holdings was diverse, ranging from demand deposits held for short-term cash management purposes to longer-term investments held for retirement purposes. Approximately 65% ($2.9 trillion) of these financial assets are held within the context of a relationship with a financial advisor, and this is the primary channel serving the longer-term savings needs of Canadians. Of the $1.5 trillion held outside of a financial advisory relationship, approximately 63% consisted of bank deposits. Financial advisors represent the primary distribution channel for the Company’s products and services, and the core emphasis of the Company’s business model is to support these financial advisors as they work with clients to plan for and achieve their financial goals. Multiple sources of emerging research show significantly better financial outcomes for Canadians who use financial advisors compared to those who do not. The Company actively promotes the value of financial advice and the importance of a relationship with an advisor to develop and remain focused on long-term financial plans and goals. diversified, vertically-integrated participants, similar to IGM Financial, who offer both financial planning and investment management services. Canadian banks distribute financial products and services through their traditional bank branches, as well as through their full service and discount brokerage subsidiaries. Bank branches continue to place increased emphasis on both financial planning and mutual funds. In addition, each of the “big six” banks has one or more mutual fund management subsidiaries. Collectively, mutual fund assets of the “big six” bank-owned mutual fund managers and affiliated firms represented 46% of total industry long-term mutual fund assets at December 31, 2019. The Canadian mutual fund industry continues to be very concentrated, with the ten largest firms and their subsidiaries representing 73% of industry long-term mutual fund assets and 73% of total mutual fund assets under management at December 31, 2019. Management anticipates continuing consolidation in this segment of the industry as smaller participants are acquired by larger organizations. Management believes that the financial services industry will continue to be influenced by the following trends: Approximately 40% of Canadian discretionary financial assets or $1.8 trillion resided in investment funds at December 31, 2018, making it the largest financial asset class held by Canadians. • Shifting demographics as the number of Canadians in their prime savings and retirement years continue to increase. • Changes in investor attitudes based on economic conditions. Other asset types include deposit products and direct securities • Continued importance of the role of the financial advisor. such as stocks and bonds. Approximately 77% of investment funds are comprised of mutual fund products, with other product categories including segregated funds, hedge funds, pooled funds, closed end funds and exchange traded funds. With $162 billion in investment fund assets under management at December 31, 2019, the Company is among the country’s largest investment fund managers. Management believes that investment funds are likely to remain the preferred savings vehicle of Canadians. Investment funds provide investors with the benefits of diversification, professional management, flexibility and convenience, and are available in a broad range of mandates and structures to meet most investor requirements and preferences. Competition and technology have fostered a trend towards financial service providers offering a comprehensive range of proprietary products and services. Traditional distinctions between bank branches, full service brokerages, financial planning firms and insurance agent sales forces have become obscured as many of these financial service providers strive to offer comprehensive financial advice implemented through access to a broad product shelf. Accordingly, the Canadian financial services industry is characterized by a number of large, • Public policy related to retirement savings. • Changes in the regulatory environment. • An evolving competitive landscape. • Advancing and changing technology. THE COMPETITIVE LANDSCAPE IGM Financial and its subsidiaries operate in a highly competitive environment. IG Wealth Management and Investment Planning Counsel compete directly with other retail financial service providers, including other financial planning firms, as well as full service brokerages, banks and insurance companies. IG Wealth Management, Mackenzie and Investment Planning Counsel compete directly with other investment managers for assets under management, and their products compete with stocks, bonds and other asset classes for a share of the investment assets of Canadians. Competition from other financial service providers, alternative product types or delivery channels, and changes in regulations or public preferences could impact the characteristics of product and service offerings of the Company, including pricing, product 79 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISstructures, dealer and advisor compensation and disclosure. The BROAD PRODUCT CAPABILITIES Company monitors developments on an ongoing basis, and IGM Financial's subsidiaries continue to develop and launch engages in policy discussions and develops product and service innovative products and strategic investment planning tools to responses as appropriate. assist advisors in building optimized portfolios for clients. IGM Financial continues to focus on its commitment to provide quality investment advice and financial products, service innovations, effective management of the Company and long- term value for its clients and shareholders. Management believes that the Company is well-positioned to meet competitive challenges and capitalize on future opportunities. ENDURING RELATIONSHIPS IGM Financial enjoys significant advantages as a result of the enduring relationships that advisors enjoy with clients. In addition, the Company's subsidiaries have strong heritages and cultures which are challenging for competitors to replicate. The Company enjoys several competitive strengths, including: BENEFITS OF BEING PART OF THE POWER FINANCIAL GROUP OF COMPANIES As part of the Power Financial group of companies, IGM Financial benefits through expense savings from shared service arrangements, as well as through access to distribution, products and capital. • Broad and diversified distribution with an emphasis on those channels emphasizing comprehensive financial planning through a relationship with a financial advisor. • Broad product capabilities, leading brands and quality sub- advisory relationships. • Enduring client relationships and the long-standing heritages and cultures of its subsidiaries. • Benefits of being part of the Power Financial group of companies. BROAD AND DIVERSIFIED DISTRIBUTION IGM Financial's distribution strength is a competitive advantage. In addition to owning two of Canada’s largest financial planning organizations, IG Wealth Management and Investment Planning Counsel, IGM Financial has, through Mackenzie, access to distribution through over 30,000 independent financial advisors. Mackenzie also, in its growing strategic alliance business, partners with Canadian and U.S. manufacturing and distribution complexes to provide investment management to a number of retail investment fund mandates. 80 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISCRITICAL ACCOUNTING ESTIMATES AND POLICIES SUMMARY OF CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with IFRS requires management to exercise judgment in the process of applying accounting policies and requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies are common in the financial services industry; others are specific to IGM Financial's businesses and operations. IGM Financial's These tests involve the use of estimates and assumptions appropriate in the circumstances. In assessing the recoverable amounts, valuation approaches are used that include discounted cash flow analysis and application of capitalization multiples to financial and operating metrics based upon precedent acquisition transactions and trading comparables. Assumptions and estimates employed include future changes in assets under management resulting from net sales and investment returns, pricing and profit margin changes, discount rates, and capitalization multiples. The Company completed its annual impairment tests of goodwill and indefinite life intangible assets as at April 1, significant accounting policies are described in detail in Note 2 2019, and determined there was no impairment in the value of the Consolidated Financial Statements. of those assets. Critical accounting estimates relate to the fair value of financial instruments, goodwill and intangibles, income taxes, capitalized sales commissions, provisions and employee benefits. • Income taxes – The provision for income taxes is determined on the basis of the anticipated tax treatment of transactions recorded in the Consolidated Statements of Earnings. The determination of the provision for income taxes requires The major critical accounting estimates are summarized below: interpretation of tax legislation in a number of jurisdictions. • Fair value of financial instruments – The Company’s financial instruments are carried at fair value, except for loans, deposits and certificates, obligations to securitization entities, and long-term debt which are all carried at amortized cost. The fair value of publicly traded financial instruments is determined using published market prices. The fair value of financial instruments where published market prices are not available, including derivatives related to the Company’s securitized loans, are determined using various valuation models which maximize the use of observable market inputs where available. Valuation methodologies and assumptions used in valuation models are reviewed on an ongoing basis. Changes in these assumptions or valuation methodologies could result in significant changes in net earnings. • Goodwill and intangible assets – Goodwill, indefinite life intangible assets, and definite life intangible assets are reflected in Note 11 of the Consolidated Financial Statements. The Company tests the fair value of goodwill and indefinite life intangible assets for impairment at least once a year and more frequently if an event or circumstance indicates the asset may be impaired. An impairment loss is recognized if the amount of the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units). Finite life intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Tax planning may allow the Company to record lower income taxes in the current year and income taxes recorded in prior years may be adjusted in the current year to reflect management’s best estimates of the overall adequacy of its provisions. Any related tax benefits or changes in management’s best estimates are reflected in the provision for income taxes. The recognition of deferred tax assets depends on management’s assumption that future earnings will be sufficient to realize the future benefit. The amount of the deferred tax asset or liability recorded is based on management’s best estimate of the timing of the realization of the assets or liabilities. If our interpretation of tax legislation differs from that of the tax authorities or if timing of reversals is not as anticipated, the provision for income taxes could increase or decrease in future periods. Additional information related to income taxes is included in the Summary of Consolidated Operating Results in this MD&A and in Note 15 to the Consolidated Financial Statements. • Capitalized sales commissions – Commissions paid directly by the client on the sale of certain mutual fund products are deferred and amortized over a maximum period of seven years. The Company regularly reviews the carrying value of capitalized sales commissions with respect to any events or circumstances that indicate impairment. Among the tests performed by the Company to assess recoverability is the comparison of the future economic benefits derived from the capitalized sales commission asset in relation to its carrying value. At December 31, 2019, there were no indications of impairment to capitalized sales commissions. 81 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS• Provisions – A provision is recognized when there is a present $46.3 million, which were recorded in Other comprehensive obligation as a result of a past transaction or event, it is income. The assets in the Company’s registered defined “probable” that an outflow of resources will be required to benefit pension plan also increased due to the Company settle the obligation and a reliable estimate can be made contributing $26.4 million (2018 - $40.4 million) to the of the obligation. In determining the best estimate for a pension plan. The decrease in the discount rate utilized to provision, a single estimate, a weighted average of all possible value the defined benefit pension plan obligation resulted outcomes, or the midpoint where there is a range of equally in actuarial losses of $62.0 million which were recorded in possible outcomes are all considered. A significant change in Other comprehensive income. Demographic assumptions assessment of the likelihood or the best estimate may result in and experience adjustments were revised which resulted in additional adjustments to net earnings. • Employee benefits – The Company maintains a number of employee benefit plans. These plans include a funded registered defined benefit pension plan for all eligible employees, unfunded supplementary executive retirement plans for certain executive officers (SERPs) and an unfunded post-employment health care and life insurance plan for eligible retirees. The funded registered defined benefit pension plan provides pensions based on length of service and final average earnings. The measurement date for the Company’s defined benefit net actuarial gains of $0.9 million. The total defined benefit pension plan obligation was $565.6 million at December 31, 2019 compared to $496.7 million at December 31, 2018. As a result of these changes, the defined benefit pension plan had an accrued benefit liability of $99.1 million at December 31, 2019 compared to $89.3 million at the end of 2018. The unfunded SERPs and other post-retirement benefits plans had an accrued benefit liability of $69.2 million and $39.1 million, respectively, at December 31, 2019 compared to $62.1 million and $37.7 million in 2018. pension plan assets and for the accrued benefit obligations on A decrease of 0.25% in the discount rate utilized in 2019 all defined benefit plans is December 31. Due to the long-term nature of these plans, the calculation of the accrued benefit liability depends on various assumptions including discount rates, rates of return on assets, the level and types of benefits provided, healthcare cost trend rates, projected salary increases, retirement age, and mortality and would result in a change of $27.3 million in the accrued pension obligation, $25.5 million in other comprehensive income, and $1.8 million in pension expense. Additional information regarding the Company’s accounting and sensitivities related to pensions and other post-retirement benefits is included in Notes 2 and 14 of the Consolidated termination rates. The discount rate assumption is determined Financial Statements. using a yield curve of AA corporate debt securities. All other assumptions are determined by management and reviewed by independent actuaries who calculate the pension CHANGES IN ACCOUNTING POLICIES and other future benefits expenses and accrued benefit IFRS 16 LEASES (IFRS 16) obligations. Actual experience that differs from the actuarial As of January 1, 2019, the Company adopted IFRS 16 using assumptions will result in actuarial gains or losses as well as the modified retrospective method with no restatement of changes in benefits expense. The Company records actuarial comparative financial information. Under this approach, the gains and losses on all of its defined benefit plans in Other Company recognized a lease liability of $105.5 million equal to comprehensive income. the present value of the remaining lease payments discounted During 2019, the performance of the defined benefit pension using the Company's incremental borrowing rate at January 1, plan assets was positively impacted by market conditions. 2019. The weighted average discount rate applied was 4.4%. A Corporate bond yields decreased in 2019 thereby impacting right-of-use asset of $96.1 million representing the Company's the discount rate used to measure the Company’s accrued property leases was also recognized at its carrying amount as benefit liability. The discount rate utilized to value the defined if IFRS 16 had been applied since each lease commencement benefit pension plan accrued benefit liability at December 31, date, net of the accumulated amortization that would have 2019 was 3.20% compared to 3.90% at December 31, 2018. been recognized up to January 1, 2019. The difference between Pension plan assets increased to $466.5 million at December the right-of-use asset and the lease liability of $9.4 million 31, 2019 from $407.4 million at December 31, 2018. The was recognized as an adjustment to retained earnings as at increase in plan assets was due to market performance of January 1, 2019. The following practical expedients were applied $62.4 million comprised of interest income of $16.1 million on transition: calculated based on the discount rate, which was recorded as a reduction to the pension expense, and actuarial gains of • Applied a single discount rate to a portfolio of leases with reasonably similar characteristics. 82 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS• Accounted for leases for which the remaining lease term ends FUTURE ACCOUNTING CHANGES within 12 months of the date of initial application as a short- term lease. The Company continuously monitors the potential changes proposed by the International Accounting Standards Board • Relied on its assessment of whether leases are onerous (IASB) and analyzes the effect that changes in the standards may have on the Company’s operations. The IASB is currently undertaking a number of projects which will result in changes to existing IFRS standards that may affect the Company. Updates will be provided as the projects develop. applying IAS 37, Provisions, Contingent Liabilities and Contingent Assets, immediately before the date of initial application as an alternative to performing an impairment review. Amortization expense increased due to the amortization of the right-of-use asset and interest expense increased due to the imputed interest on the lease liability; however total expenses are not noticeably different due to the offsetting decrease to operating lease expense. Table 28 details the impact of IFRS 16 on the Consolidated Balance Sheet as at January 1, 2019. TABLE 28: IMPACT OF IFRS 16 ON BALANCE SHEET ($ millions) Assets Other assets(1) Capital assets Liabilities Accounts payable and accrued liabilities (1) Lease obligations Deferred income taxes Retained earnings (1) Write-off of free rent inducement on capitalized leases. DECEMBER 31, 2018 ADJUSTMENT DUE TO ADOPTION OF IFRS 16 JANUARY 1, 2019 $ $ 46.5 138.6 397.4 – 295.7 2,840.6 $ $ $ (0.1) 96.1 96.0 (1.9) 105.5 (2.0) (5.6) $ 96.0 $ $ 46.4 234.7 395.5 105.5 293.7 2,835.0 83 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSIS DISCLOSURE CONTROLS AND PROCEDURES The Company’s disclosure controls and procedures are designed The Company's management, under the supervision of the to provide reasonable assurance that (a) material information President and Chief Executive Officer and the Chief Financial relating to the Company is made known to the President and Officer, has evaluated the effectiveness of the Company’s Chief Executive Officer and the Chief Financial Officer by others, disclosure controls and procedures. Based on their evaluations particularly during the period in which the annual filings are as of December 31, 2019, the President and Chief Executive being prepared, and (b) information required to be disclosed by Officer and the Chief Financial Officer have concluded that the the Company in its annual filings, interim filings or other reports Company’s disclosure controls and procedures are effective. filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. INTERNAL CONTROL OVER FINANCIAL REPORTING The Company’s internal control over financial reporting is has concluded that this outsourcing has not materially affected designed to provide reasonable assurance regarding the the Company’s internal controls in 2019. As the transition reliability of financial reporting and the preparation of financial proceeds over the coming months and years, management will statements for external purposes in accordance with IFRS. The continually reassess its impact on the Company’s internal control Company’s management is responsible for establishing and over financial reporting. maintaining adequate internal control over financial reporting. The Company's management, under the supervision of the All internal control systems have inherent limitations and may President and Chief Executive Officer and the Chief Financial become inadequate because of changes in conditions. Therefore, Officer, has evaluated the effectiveness of the Company’s even those systems determined to be effective can provide internal control over financial reporting based on the Internal only reasonable assurance with respect to financial statement Control - Integrated Framework (COSO 2013 Framework) preparation and presentation. Effective November 18, 2019, IGM Financial entered into an outsourcing agreement with CIBC Mellon to assume most of IGM Financial’s fund services functions. This will add fund administration servicing solutions to the custody and related services that CIBC Mellon already performs for IGM Financial. As a result of the outsourcing, substantially all of IGM Financial’s employees in the outsourced functions were hired by CIBC Mellon and continued performing the same functions during published by The Committee of Sponsoring Organizations of the Treadway Commission. The Company transitioned to the COSO 2013 Framework during 2014. Based on their evaluations as of December 31, 2019, the President and Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. the remainder of the fourth quarter. Contractually, CIBC Mellon Notwithstanding the above, during the fourth quarter of 2019, is required to develop and implement internal controls and has there have been no changes in the Company’s internal control agreed to work with IGM Financial to implement compliance over financial reporting that have materially affected, or are measures to satisfy CSA National Instrument 52-109. CIBC reasonably likely to materially affect, the Company’s internal Mellon has agreed to make minimal changes to processes and control over financial reporting. systems through year end 2019. Accordingly, management 84 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISOTHER INFORMATION TRANSACTIONS WITH RELATED PARTIES After obtaining advanced tax rulings in October 2017, the IGM Financial enters into transactions with Great-West Life Assurance Company (Great-West), London Life Insurance Company (London Life) and The Canada Life Assurance Company (Canada Life), which are all subsidiaries of its affiliate, Lifeco, which is a subsidiary of Power Financial Corporation. Effective as of January 1, 2020, Great-West, London Life and Canada Life, amalgamated into a single company, The Canada Life Assurance Company. These transactions are in the normal course of operations and have been recorded at fair value: • During 2019 and 2018, the Company provided to and received from Great-West certain administrative services enabling each organization to take advantage of economies of scale and areas of expertise. Company agreed to tax loss consolidation transactions with the Power Corporation of Canada group whereby shares of a subsidiary that has generated tax losses may be acquired in each year up to and including 2020. The acquisitions are expected to close in the fourth quarter of each year. The Company will recognize the benefit of the tax losses realized throughout the year. On each of December 31, 2019 and December 31, 2018, the Company acquired shares of such loss companies and recorded the benefit of the tax losses acquired. For further information on transactions involving related parties, see Notes 8 and 26 to the Company’s Consolidated Financial Statements. • The Company distributes insurance products under a OUTSTANDING SHARE DATA distribution agreement with Great-West and Canada Life and received $54.8 million in distribution fees (2018 - $62.6 million). The Company received $17.1 million (2018 - $17.5 million) and paid $26.2 million (2018 - $25.4 million) to Great-West and related subsidiary companies for the provision of sub-advisory services for certain investment funds. The Company paid $78.8 million (2018 – $78.3 million) to London Life related to the distribution of certain mutual funds of the Company. • In order to manage its overall liquidity position, the Company’s mortgage banking operation is active in the securitization market and also sells residential mortgage loans to third parties, on a fully serviced basis. During 2019, the Company sold residential mortgage loans to Great-West and London Life for $10.8 million compared to $61.4 million in 2018. Outstanding common shares of IGM Financial as at December 31, 2019 totalled 238,294,090. Outstanding stock options as at December 31, 2019 totalled 10,529,360, of which 5,470,178 were exercisable. As at February 11, 2020, outstanding common shares totalled 238,300,145 and outstanding stock options totalled 10,514,061 of which 5,464,123 were exercisable. SEDAR Additional information relating to IGM Financial, including the Company’s most recent financial statements and Annual Information Form, is available at www.sedar.com. 85 IGM FINANCIAL INC. ANNUAL REPORT 2019 | MANAGEMENT’S DISCUSSION AND ANALYSISCONSOLIDATED FINANCIAL STATEMENTS Management’s Responsibility for Financial Reporting Independent Auditor’s Report Consolidated Statements of Earnings Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Changes in Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1 Corporate information Note 2 Summary of significant accounting policies Note 3 Non-commission expense Note 4 Other investments Note 5 Loans Note 6 Securitizations Note 7 Other assets Note 8 Investment in associates Note 9 Capital assets Note 10 Capitalized sales commissions Note 11 Goodwill and intangible assets Note 12 Deposits and certificates Note 13 Other liabilities Note 14 Employee benefits Note 15 Income taxes Note 16 Long-term debt Note 17 Share capital Note 18 Capital management Note 19 Share-based payments Note 20 Accumulated other comprehensive income (loss) Note 21 Risk management Note 22 Derivative financial instruments Note 23 Fair value of financial instruments Note 24 Earnings per common share Note 25 Contingent liabilities and guarantees Note 26 Related party transactions Note 27 Segmented information 87 88 90 91 92 93 94 95 95 95 101 101 102 102 103 104 106 106 107 108 108 109 112 113 114 115 115 117 118 122 122 125 126 126 127 86 IGM FINANCIAL INC. ANNUAL REPORT 2019 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The Consolidated Financial Statements of IGM Financial Inc. have been prepared by Management, which is responsible for the integrity, objectivity and reliability of the information presented, including selecting appropriate accounting principles and making judgments and estimates. These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards. Financial information presented elsewhere in this Annual Report is consistent with that in the Consolidated Financial Statements for comparable periods. Systems of internal control and supporting procedures are maintained to provide reasonable assurance of the reliability of financial information and the safeguarding of all assets controlled by the Company. These controls and supporting procedures include quality standards in hiring and training employees, the establishment of organizational structures providing a well-defined division of responsibilities and accountability for performance, and the communication of policies and guidelines through the organization. Internal controls are reviewed and evaluated extensively by the internal auditor and are subject to scrutiny by the external auditors. Ultimate responsibility for the Consolidated Financial Statements rests with the Board of Directors. The Board is assisted in discharging this responsibility by an Audit Committee, consisting entirely of independent directors. This Committee reviews the Consolidated Financial Statements and recommends them for approval by the Board. In addition, the Audit Committee reviews the recommendations of the internal auditor and the external auditors for improvements in internal control and the action of Management to implement such recommendations. In carrying out its duties and responsibilities, the Committee meets regularly with Management and with both the internal auditor and the external auditors to review the scope and timing of their respective audits, to review their findings and to satisfy itself that their responsibilities have been properly discharged. Deloitte LLP, independent auditors appointed by the shareholders, have examined the Consolidated Financial Statements of the Company in accordance with Canadian generally accepted auditing standards, and have expressed their opinion upon the completion of their examination in their Report to the Shareholders. The external auditors have full and free access to the Audit Committee to discuss their audit and related findings. Jeffrey R. Carney President and Chief Executive Officer Luke Gould Executive Vice-President and Chief Financial Officer 87 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT To the Shareholders of IGM Financial Inc. OPINION We have audited the consolidated financial statements of IGM Financial Inc. (the “Company”), which comprise the consolidated balance sheets as at December 31, 2019 and 2018, and the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). BASIS FOR OPINION We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OTHER INFORMATION Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information, other than the financial statements and our auditor’s report thereon, in the Annual Report. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 88 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTSINDEPENDENT AUDITOR’S REPORT (continued) AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is David Dalziel. Chartered Professional Accountants Winnipeg, Manitoba February 14, 2020 89 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 (in thousands of Canadian dollars, except per share amounts) Revenues Management fees Administration fees Distribution fees Net investment income and other Proportionate share of associates' earnings (Note 8) Expenses Commission Non–commission (Note 3) Interest (Note 16 and 27) Earnings before income taxes Income taxes (Note 15) Net earnings Perpetual preferred share dividends 2019 2018 $ 2,267,960 414,457 368,036 76,928 105,225 $ 2,239,182 427,093 370,906 61,928 149,962 3,232,606 3,249,071 1,101,165 1,054,389 108,386 1,098,643 1,043,482 120,859 2,263,940 2,262,984 968,666 219,719 748,947 2,213 986,087 209,919 776,168 8,850 Net earnings available to common shareholders $ 746,734 $ 767,318 Earnings per share (in dollars) (Note 24) – Basic – Diluted (See accompanying notes to consolidated financial statements.) $ $ 3.12 3.12 $ $ 3.19 3.18 90 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31 (in thousands of Canadian dollars) Net earnings Other comprehensive income (loss), net of tax Items that will not be reclassified to Net earnings Fair value through other comprehensive income investments 2019 2018 $ 748,947 $ 776,168 Other comprehensive income (loss), net of tax of $(1,651) and $(2,835) 10,597 18,166 Employee benefits Net actuarial gains (losses), net of tax of $6,243 and $6,117 Investment in associates - employee benefits and other Other comprehensive income (loss), net of tax of nil Items that may be reclassified subsequently to Net earnings Investment in associates and other Other comprehensive income (loss), net of tax of $3,448 and $(412) Total comprehensive income (See accompanying notes to consolidated financial statements.) (16,895) (16,523) (19,129) 5,035 (35,009) 18,637 (60,436) 25,315 $ 688,511 $ 801,483 91 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31 (in thousands of Canadian dollars) Assets Cash and cash equivalents Other investments (Note 4) Client funds on deposit Accounts and other receivables Income taxes recoverable Loans (Note 5) Derivative financial instruments (Note 22) Other assets (Note 7) Investment in associates (Note 8) Capital assets (Note 9) Capitalized sales commissions (Note 10) Deferred income taxes (Note 15) Intangible assets (Note 11) Goodwill (Note 11) Liabilities Accounts payable and accrued liabilities Income taxes payable Derivative financial instruments (Note 22) Deposits and certificates (Note 12) Other liabilities (Note 13) Obligations to securitization entities (Note 6) Lease obligations Deferred income taxes (Note 15) Long–term debt (Note 16) Shareholders' Equity Share capital Perpetual preferred shares Common shares Contributed surplus Retained earnings Accumulated other comprehensive income (loss) 2019 2018 $ 720,005 357,362 561,269 394,210 11,925 7,198,043 15,204 45,843 1,753,882 216,956 149,866 76,517 1,230,127 2,660,267 $ 650,228 459,911 546,787 319,609 9,316 7,738,031 16,364 46,531 1,651,304 138,647 105,044 75,607 1,191,068 2,660,267 $ 15,391,476 $ 15,608,714 $ 434,957 4,867 17,193 584,331 441,902 6,913,636 90,446 305,049 2,100,000 $ 397,379 51,894 28,990 568,799 444,173 7,370,193 – 295,719 1,850,000 10,892,381 11,007,147 – 1,597,860 48,677 2,980,260 (127,702) 150,000 1,611,263 45,536 2,840,566 (45,798) 4,499,095 4,601,567 $ 15,391,476 $ 15,608,714 These financial statements were approved and authorized for issuance by the Board of Directors on February 14, 2020. Jeffrey R. Carney Director John McCallum Director (See accompanying notes to consolidated financial statements.) 92 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (in thousands of Canadian dollars) 2019 Balance, beginning of year As previously reported Change in accounting policy (Note 2) IFRS 16 As restated Net earnings Other comprehensive income (loss), net of tax Total comprehensive income Redemption of preferred shares Common shares Issued under stock option plan Purchased for cancellation Stock options Current period expense Exercised Perpetual preferred share dividends Common share dividends Transfer out of fair value through other comprehensive income Common share cancellation excess and other SHARE CAPITAL PERPETUAL PREFERRED SHARES (Note 17) COMMON SHARES (Note 17) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED TOTAL SHAREHOLDERS’ CONTRIBUTED SURPLUS EARNINGS (Note 20) EQUITY $ 150,000 $ 1,611,263 $ 45,536 $ 2,840,566 $ (45,798) $ 4,601,567 – – – (5,568) – (5,568) 150,000 1,611,263 45,536 2,834,998 (45,798) 4,595,999 – – – (150,000) – – – – – – – – – – – – 5,111 (18,514) – – – – – – – – – – – – – – – 3,406 (265) – – – – (2,213) (537,588) 748,947 – 748,947 – (60,436) (60,436) 748,947 (60,436) 688,511 – – – – – – – (150,000) 5,111 (18,514) 3,406 (265) (2,213) (537,588) – – 21,468 (85,352) (21,468) – – (85,352) Balance, end of year $ – $ 1,597,860 $ 48,677 $ 2,980,260 $ (127,702) $ 4,499,095 2018 Balance, beginning of year Net earnings Other comprehensive income (loss), net of tax Total comprehensive income Common shares Issued under stock option plan Stock options Current period expense Exercised Perpetual preferred share dividends Common share dividends Other $ 150,000 $ 1,602,726 $ 42,633 $ 2,620,797 $ (71,113) $ 4,345,043 – – – – – – – – – – – – 8,537 – – – – – – – – – 3,687 (784) – – – 776,168 – 776,168 – 776,168 25,315 25,315 25,315 801,483 – – – (8,850) (541,883) (5,666) – – – – – – 8,537 3,687 (784) (8,850) (541,883) (5,666) Balance, end of year $ 150,000 $ 1,611,263 $ 45,536 $ 2,840,566 $ (45,798) $ 4,601,567 (See accompanying notes to consolidated financial statements.) 93 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (in thousands of Canadian dollars) Operating activities Earnings before income taxes Income taxes paid Adjustments to determine net cash from operating activities Capitalized sales commission amortization Capitalized sales commissions paid Amortization of capital, intangible and other assets Proportionate share of associates' earnings, net of dividends received Pension and other post–employment benefits Restructuring provisions and other Changes in operating assets and liabilities and other Cash from operating activites before restructuring provision payments Restructuring provision cash payments Financing activities Net decrease in deposits and certificates Increase in obligations to securitization entities Repayments of obligations to securitization entities and other Repayment of lease obligations Issue of debentures Repayment of debentures Redemption of preferred shares Issue of common shares Common shares purchased for cancellation Perpetual preferred share dividends paid Common share dividends paid Investing activities Purchase of other investments Proceeds from the sale of other investments Increase in loans Repayment of loans and other Net additions to capital assets Net cash used in additions to intangible assets and acquisitions Investment in Personal Capital Corporation Proceeds from substantial issuer bid (Note 8) Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Cash Cash equivalents Supplemental disclosure of cash flow information related to operating activities Interest and dividends received Interest paid (See accompanying notes to consolidated financial statements.) 94 2019 2018 $ 968,666 $ (236,676) 986,087 (132,611) 22,387 (67,209) 79,496 (32,251) (4,810) – 9,316 738,919 (26,853) 14,462 (55,685) 56,065 (77,190) (18,428) 22,758 51,626 847,084 (61,931) 712,066 785,153 (2,472) 1,456,265 (1,960,757) (23,370) 250,000 – (150,000) 4,846 (99,963) (4,425) (539,046) (1,248) 1,771,735 (2,034,429) – 200,000 (525,000) – 7,753 – (8,850) (541,759) (1,068,922) (1,131,798) (118,917) 85,462 (1,682,079) 2,211,504 (18,813) (64,121) (66,811) 80,408 (154,463) 93,498 (1,748,387) 1,895,648 (7,117) (49,149) – – 426,633 30,030 69,777 650,228 (316,615) 966,843 $ $ 720,005 $ 650,228 67,986 $ 652,019 81,799 568,429 $ 720,005 $ 650,228 $ $ 301,738 $ 271,914 $ 296,793 290,510 IGM FINANCIAL INC. ANNUAL REPORT 2019 | CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2019 and 2018 (In thousands of Canadian dollars, except shares and per share amounts) NOTE 1 CORPORATE INFORMATION IGM Financial Inc. (the Company) is a publicly listed company (TSX: IGM), incorporated and domiciled in Canada. The registered address of the Company is 447 Portage Avenue, Winnipeg, Manitoba, Canada. The Company is controlled by Power Financial Corporation. IGM Financial Inc. is a wealth and asset management company which serves the financial needs of Canadians through its principal subsidiaries, each operating distinctly within the advice segment of the financial services market. The Company’s wholly-owned principal subsidiaries are Investors Group Inc. and Mackenzie Financial Corporation. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The policies set out below were consistently applied to all the periods presented unless otherwise noted. USE OF JUDGMENT, ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with IFRS requires management to exercise judgment in the process of applying accounting policies and requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements. The key areas where judgment has been applied include: the determination of which financial assets should be derecognized; the assessment of the appropriate classification of financial instruments, including those classified as fair value through profit or loss; and the assessment that significant influence exists for its investment in associates. Key components of the financial statements requiring management to make estimates include: the fair value of financial instruments, goodwill, intangible assets, income taxes, capitalized sales commissions, provisions and employee benefits. Actual results may differ from such estimates. Further detail of judgments and estimates are found in the remainder of Note 2 and in Notes 6, 8, 10, 11, 13, 14, 15 and 23. BASIS OF CONSOLIDATION The Consolidated Financial Statements include the accounts of the Company and all subsidiaries on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement and has the ability to affect those returns through its power to direct the relevant activities of the entity. The Company’s investments in Great-West Lifeco Inc. (Lifeco), China Asset Management Co., Ltd. (China AMC) and Personal Capital Corporation (Personal Capital) are accounted for using the equity method. The investments were initially recorded at cost and the carrying amounts are increased or decreased to recognize the Company’s share of the investments’ comprehensive income (loss) and the dividends received since the date of acquisition. CHANGES IN ACCOUNTING POLICIES IFRS 16 Leases (IFRS 16) As of January 1, 2019, the Company adopted IFRS 16 using the modified retrospective method with no restatement of comparative financial information. Under this approach, the Company recognized a lease liability of $105.5 million equal to the present value of the remaining lease payments discounted using the Company's incremental borrowing rate at January 1, 2019. The weighted average discount rate applied was 4.4%. A right-of-use asset of $96.1 million representing the Company's property leases was also recognized at its carrying amount as if IFRS 16 had been applied since each lease commencement date, net of the accumulated amortization that would have been recognized up to January 1, 2019. The difference between the right-of-use asset and the lease liability of 95 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) CHANGES IN ACCOUNTING POLICIES (continued) IFRS 16 Leases (IFRS 16) (continued) $9.4 million ($5.6 million after-tax and other adjustments) was recognized as an adjustment to retained earnings as at January 1, 2019. The following practical expedients were applied on transition: • Applied a single discount rate to a portfolio of leases with reasonably similar characteristics. • Accounted for leases for which the remaining lease term ends within 12 months of the date of initial application as a short-term lease. • Relied on its assessment of whether leases are onerous applying IAS 37, Provisions, Contingent Liabilities and Contingent Assets, immediately before the date of initial application as an alternative to performing an impairment review. Amortization expense increased due to the amortization of the right-of-use asset and interest expense increased due to the imputed interest on the lease liability; however total expenses are not materially different due to the offsetting decrease to operating lease expense. Impact of the changes in accounting policies on the Consolidated Balance Sheet: DECEMBER 31, 2018 ADJUSTMENT DUE TO ADOPTION OF IFRS 16 JANUARY 1, 2019 Assets Other assets(1) Capital assets Liabilities & Shareholders' Equity Accounts payable and accrued liabilities(1) Lease obligations Deferred income taxes Retained earnings (1) Write-off of free rent inducement on capitalized leases REVENUE RECOGNITION $ $ 46,531 138,647 397,379 - 295,719 2,840,566 $ $ $ $ (61) 96,065 96,004 (1,958) 105,539 (2,009) (5,568) 96,004 $ $ 46,470 234,712 395,421 105,539 293,710 2,834,998 Management fees are based on the net asset value of investment fund or other assets under management and are accrued as the service is performed. Administration fees are also accrued as the service is performed. Distribution fees derived from investment fund and securities transactions are recognized on a trade date basis. Distribution fees derived from insurance and other financial services transactions are recognized on an accrual basis. Consideration is collected within a short period from the date of revenue recognition of the associated services. Aggregate receivables related to these services as at December 31, 2019 were $92.1 million (2018 - $66.0 million). FINANCIAL INSTRUMENTS All financial assets are initially recognized at fair value in the Consolidated Balance Sheets and are subsequently classified as measured at fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVTOCI) or amortized cost based on the Company’s assessment of the business model within which the financial asset is managed and the financial asset’s contractual cash flow characteristics. A financial asset is measured at amortized cost if it is held within a business model of holding financial assets and collecting contractual cash flows and those cash flows are comprised solely of payments of principal and interest. A financial asset is measured at FVTOCI if the financial asset is held within a business model of both collecting contractual cash flows and selling the financial assets or through an irrevocable election for equity instruments that are not held for trading. All other financial assets are measured at FVTPL. A financial asset that would otherwise be measured at amortized cost or FVTOCI can be designated as FVTPL through an irrevocable election if doing so eliminates or significantly reduces an accounting mismatch. 96 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENTS (continued) Financial assets can only be reclassified when there is a change to the business model within which they are managed. Such reclassifications are applied on a prospective basis. Financial liabilities are classified either as measured at amortized cost using the effective interest method or as FVTPL, which are recorded at fair value. Unrealized gains and losses on financial assets classified as FVTOCI as well as other comprehensive income amounts, including unrealized foreign currency translation gains and losses related to the Company’s investment in its associates, are recorded in the Consolidated Statements of Comprehensive Income on a net of tax basis. Accumulated other comprehensive income forms part of Shareholders’ equity. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash and temporary investments consisting of highly liquid investments with short-term maturities. Interest income is recorded on an accrual basis in Net investment income and other in the Consolidated Statements of Earnings. OTHER INVESTMENTS Other investments, which are recorded on a trade date basis, are classified as either FVTOCI or FVTPL. The Company has elected to classify certain equity investments that are not held for trading as FVTOCI. Unrealized gains and losses on these FVTOCI investments are recorded in Other comprehensive income and transferred directly to retained earnings when realized without being recorded through profit or loss. Dividends declared are recorded in Net investment income and other in the Consolidated Statements of Earnings. FVTPL investments are held for trading and are comprised of fixed income and equity investments and investments in proprietary investment funds. Unrealized and realized gains and losses, dividends declared, and interest income on these investments are recorded in Net investment income and other in the Consolidated Statements of Earnings. LOANS Loans are classified as either FVTPL or amortized cost, based on the Company’s assessment of the business model within which the loan is managed. Changes in fair value of loans measured at FVTPL are recorded in Net investment income and other in the Consolidated Statements of Earnings. Loans measured at amortized cost are recorded net of an allowance for expected credit losses. Interest income is accounted for on the accrual basis using the effective interest method for all loans and is recorded in Net investment income and other in the Consolidated Statements of Earnings. The Company applies a three-stage impairment approach to measure expected credit losses on loans: 1) On origination, an allowance for 12-month expected credit losses is established, 2) Lifetime expected credit losses are recognized where there is a significant deterioration of credit quality, and 3) A loan is considered credit impaired when there is no longer reasonable assurance of collection. DERECOGNITION The Company enters into transactions where it transfers financial assets recognized on its balance sheet. The determination of whether the financial assets are derecognized is based on the extent to which the risks and rewards of ownership are transferred. The gains or losses and the servicing fee revenue for financial assets that are derecognized are reported in Net investment income and other in the Consolidated Statements of Earnings. The transactions for financial assets that are not derecognized are accounted for as secured financing transactions. SALES COMMISSIONS Commissions are paid on investment product sales where the Company either receives a fee directly from the client or where it receives a fee directly from the investment fund. 97 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) SALES COMMISSIONS (continued) Commissions paid on investment product sales where the Company receives a fee directly from the client are capitalized and amortized over their estimated useful lives, not exceeding a period of seven years. The Company regularly reviews the carrying value of capitalized selling commissions with respect to any events or circumstances that indicate impairment. Among the tests performed by the Company to assess recoverability is the comparison of the future economic benefits derived from the capitalized selling commission asset in relation to its carrying value. All other commissions paid on investment product sales are expensed as incurred. CAPITAL ASSETS Capital assets are comprised of Property and equipment and Right-of-use assets. Property and equipment Buildings, furnishings and equipment are amortized on a straight-line basis over their estimated useful lives, which range from 3 to 17 years for equipment and furnishings and 10 to 50 years for the building and its components. Capital assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Right-of-use assets A right-of-use asset representing the Company's property leases is depreciated using the straight-line method from the commencement date to the end of the lease term and is recorded in Non-commission expense. LEASES For contracts that contain a lease, the Company recognizes a right-of-use asset and a lease liability. Imputed interest on the lease liability is recorded in Interest expense. Lease payments included in the measurement of the lease liability comprises fixed payments less any lease incentives receivable, variable payments that depend on an index or a rate, and payments or penalties for terminating the lease, if any. The lease payments are discounted using the Company's incremental borrowing rate, which is applied to portfolios of leases with reasonably similar characteristics. The Company does not recognize a right-of-use asset or lease liability for leases that, at commencement date, have a lease term of 12 months or less, and leases for which the underlying asset is of low value. The Company recognizes the payments associated with these leases as an expense on a straight-line basis over the term of the lease. GOODWILL AND INTANGIBLE ASSETS The Company tests the carrying value of goodwill and indefinite life intangible assets for impairment at least once a year and more frequently if an event or circumstance indicates the asset may be impaired. An impairment loss is recognized if the amount of the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal or its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units). Investment fund management contracts have been assessed to have an indefinite useful life as the contractual right to manage the assets has no fixed term. Trade names have been assessed to have an indefinite useful life as they contribute to the revenues of the Company’s integrated asset management business as a whole and the Company intends to utilize them for the foreseeable future. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Software assets are amortized over a period not exceeding 7 years and distribution and other management contracts are amortized over a period not exceeding 20 years. Finite life intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. 98 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) EMPLOYEE BENEFITS The Company maintains a number of employee benefit plans including defined benefit plans and defined contribution pension plans for eligible employees. These plans are related parties in accordance with IFRS. The Company’s defined benefit plans include a funded defined benefit pension plan for eligible employees, unfunded supplementary executive retirement plans (SERP) for certain executive officers, and an unfunded post-employment health care, dental and life insurance plan for eligible retirees. The defined benefit pension plan provides pensions based on length of service and final average earnings. The cost of the defined benefit plans is actuarially determined using the projected unit credit method prorated on service based upon management’s assumptions about discount rates, compensation increases, retirement ages of employees, mortality and expected health care costs. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company’s accrued benefit liability in respect of defined benefit plans is calculated separately for each plan by discounting the amount of the benefit that employees have earned in return for their service in current and prior periods and deducting the fair value of any plan assets. The Company determines the net interest component of the pension expense for the period by applying the discount rate used to measure the accrued benefit liability at the beginning of the annual period to the net accrued benefit liability. The discount rate used to value liabilities is determined using a yield curve of AA corporate debt securities. If the plan benefits are changed, or a plan is curtailed, any past service costs or curtailment gains or losses are recognized immediately in net earnings. Current service costs, past service costs and curtailment gains or losses are included in Non-commission expenses. Remeasurements arising from defined benefit plans represent actuarial gains and losses and the actual return on plan assets, less interest calculated at the discount rate. Remeasurements are recognized immediately through Other comprehensive income (OCI) and are not reclassified to net earnings. The accrued benefit liability represents the deficit related to defined benefit plans and is included in Other liabilities. Payments to the defined contribution pension plans are expensed as incurred. SHARE-BASED PAYMENTS The Company uses the fair value based method to account for stock options granted to employees. The fair value of stock options is determined on each grant date. Compensation expense is recognized over the period that the stock options vest, with a corresponding increase in Contributed surplus. When stock options are exercised, the proceeds together with the amount recorded in Contributed surplus are added to Share capital. The Company recognizes a liability for cash settled awards including those granted under the Performance Share Unit, Restricted Share Unit and Deferred Share Unit plans. Compensation expense is recognized over the vesting period, net of related hedges. The liability is remeasured at fair value at each reporting period. PROVISIONS A provision is recognized if, as a result of a past event, the Company has a present obligation where a reliable estimate can be made, and it is probable that an outflow of resources will be required to settle the obligation. INCOME TAXES The Company uses the liability method in accounting for income taxes whereby deferred income tax assets and liabilities reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases and tax loss carryforwards. Deferred income tax assets and liabilities are measured based on the enacted or substantively enacted tax rates which are anticipated to be in effect when the temporary differences are expected to reverse. 99 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) EARNINGS PER SHARE Basic earnings per share is determined by dividing Net earnings available to common shareholders by the weighted average number of common shares outstanding for the year. Diluted earnings per share is determined using the same method as basic earnings per share except that the average number of common shares outstanding includes the potential dilutive effect of outstanding stock options granted by the Company as determined by the treasury stock method. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are utilized by the Company in the management of equity price and interest rate risks. The Company does not utilize derivative financial instruments for speculative purposes. The Company formally documents all hedging relationships, as well as its risk management objective and strategy for undertaking various hedging transactions. This process includes linking all derivatives to specific assets and liabilities on the Consolidated Balance Sheets or to anticipated future transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Derivative financial instruments are recorded at fair value in the Consolidated Balance Sheets. Derivative financial instruments specifically designated as a hedge and meeting the criteria for hedge effectiveness offset the changes in fair values or cash flows of hedged items. A hedge is designated either as a cash flow hedge or a fair value hedge. A cash flow hedge requires the change in fair value of the derivative, to the extent effective, to be recorded in Other comprehensive income, which is reclassified to the Consolidated Statements of Earnings when the hedged item affects earnings. The change in fair value of the ineffective portion of the derivative in a cash flow hedge is recorded in the Consolidated Statements of Earnings. A fair value hedge requires the change in fair value of the hedging derivative and the change in fair value of the hedged item relating to the hedged risk to both be recorded in the Consolidated Statements of Earnings. The Company enters into interest rate swaps as part of its mortgage banking and intermediary operations. These swap agreements require the periodic exchange of net interest payments without the exchange of the notional principal amount on which the payments are based. Swaps entered into to hedge the costs of funds on certain securitization activities are designated as hedging instruments (Note 21). The effective portion of changes in fair value are initially recorded in Other comprehensive income and subsequently recorded in Net investment income and other in the Consolidated Statements of Earnings over the term of the associated Obligations to securitization entities. Remaining mortgage related swaps are not designated as hedging instruments and changes in fair value are recorded directly in Net investment income and other in the Consolidated Statements of Earnings. The Company also enters into total return swaps and forward agreements to manage its exposure to fluctuations in the total return of its common shares related to deferred compensation arrangements. Total return swap and forward agreements require the exchange of net contractual payments periodically or at maturity without the exchange of the notional principal amounts on which the payments are based. Certain of these derivatives are not designated as hedging instruments and changes in fair value are recorded in Non- commission expense in the Consolidated Statements of Earnings. Derivatives continue to be utilized on a basis consistent with the risk management policies of the Company and are monitored by the Company for effectiveness as economic hedges even if specific hedge accounting requirements are not met. OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES Financial assets and liabilities are offset and the net amount is presented on the Consolidated Balance Sheets when the Company has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the assets and settle the liabilities simultaneously. FUTURE ACCOUNTING CHANGES The Company continuously monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on the Company’s operations. 100 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3 NON-COMMISSION EXPENSE Salaries and employee benefits Restructuring and other Occupancy Amortization of capital, intangible and other assets Other 2019 2018 $ $ 517,796 – 27,840 79,496 429,257 481,116 22,758 56,816 56,065 426,727 $ 1,054,389 $ 1,043,482 In 2018, the Company incurred restructuring and other charges of $22.7 million related to the re-engineering of North American equity offerings and associated personnel changes, as well as other initiatives to improve the Company’s offerings and operational effectiveness. NOTE 4 OTHER INVESTMENTS Fair value through other comprehensive income (FVTOCI) Corporate investments Fair value through profit or loss (FVTPL) Equity securities Proprietary investment funds 2019 FAIR VALUE COST 2018 FAIR VALUE COST $ 244,989 $ 301,196 $ 303,619 $ 372,396 1,575 51,304 1,759 54,407 16,976 78,504 12,915 74,600 52,879 56,166 95,480 87,515 $ 297,868 $ 357,362 $ 399,099 $ 459,911 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Corporate investments Corporate investments is primarily comprised of the Company’s investments in Wealthsimple Financial Corporation (Wealthsimple), and Portag3 Ventures LP and Portag3 Ventures II LP (Portag3). At December 31, 2018, investments also included Personal Capital Corporation (Personal Capital). In January 2019, the Company invested an additional amount of $66.8 million (USD $50.0 million) in Personal Capital which increased its voting interest to 22.7% and resulted in reclassification of the investment in Personal Capital from FVTOCI to the equity method (Note 8). Wealthsimple is an online investment manager that provides financial investment guidance. Portag3 is an early-stage investment fund dedicated to backing innovating financial services companies. Wealthsimple and Portag3 are both controlled by the Company’s parent, Power Financial Corporation. In 2019, the Company invested $51.9 million related to Wealthsimple (2018 - $72.3 million) and $14.8 million related to Portag3 (2018 - $16.3 million). FAIR VALUE THROUGH PROFIT OR LOSS Proprietary investment funds The Company manages and provides services and earns management and administration fees, in respect of investment funds that are not recognized in the Consolidated Balance Sheets. As at December 31, 2019, there were $161.8 billion in investment fund assets under management (2018 - $143.3 billion). The Company’s investments in proprietary investment funds are classified on the Company’s Consolidated Balance Sheets as fair value through profit or loss. These investments are generally made in the process of launching a new fund and are sold as third party investors subscribe. This balance represents the Company’s maximum exposure to loss associated with these investments. 101 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 OTHER INVESTMENTS (continued) FAIR VALUE THROUGH PROFIT OR LOSS (continued) Proprietary investment funds (continued) Certain investment funds are consolidated where the Company has made the assessment that it controls the investment fund. As at December 31, 2019, the underlying investments related to these consolidated investment funds primarily consisted of cash and short-term investments of $7.1 million (2018 - $11.2 million), equity securities of $21.8 million (2018 - $33.8 million) and fixed income securities of $6.0 million (2018 – $3.0 million). The underlying securities of these funds are classified as FVTPL and recognized at fair value. NOTE 5 LOANS Amortized cost Residential mortgages Less: Allowance for expected credit losses Fair value through profit or loss The change in the allowance for expected credit losses is as follows: Balance, beginning of year Write-offs, net of recoveries Expected credit losses Balance, end of year Total credit impaired loans as at December 31, 2019 were $2,381 (2018 - $3,271). CONTRACTUAL MATURITY 1 YEAR OR LESS 1 – 5 YEARS OVER 5 YEARS 2019 TOTAL 2018 TOTAL $ 1,524,491 $ 5,666,635 $ 7,592 $ 7,198,718 $ 7,734,529 675 801 7,198,043 – 7,733,728 4,303 $ 7,198,043 $ 7,738,031 $ $ 801 (863) 737 806 (326) 321 $ 675 $ 801 Total interest income on loans was $218.3 million (2018 - $213.9 million). Total interest expense on obligations to securitization entities, related to securitized loans, was $171.9 million (2018 - $165.2 million). Gains realized on the sale of residential mortgages totalled $3.2 million (2018 - $1.5 million). Fair value adjustments related to mortgage banking operations totalled negative $4.3 million (2018 - negative $13.6 million). These amounts were included in Net investment income and other. Net investment income and other also includes other mortgage banking related items including portfolio insurance, issue costs, and other items. NOTE 6 SECURITIZATIONS The Company securitizes residential mortgages through the Canada Mortgage and Housing Corporation (CMHC) sponsored National Housing Act Mortgage-Backed Securities (NHA MBS) Program and Canada Mortgage Bond (CMB) Program and through Canadian bank-sponsored asset-backed commercial paper (ABCP) programs. These transactions do not meet the requirements for derecognition as the Company retains prepayment risk and certain elements of credit risk. Accordingly, the Company has retained these mortgages on its balance sheets and has recorded offsetting liabilities for the net proceeds received as Obligations to securitization entities which are recorded at amortized cost. The Company earns interest on the mortgages and pays interest on the obligations to securitization entities. As part of the CMB transactions, the Company enters into a swap transaction whereby the Company pays coupons on CMBs and receives investment returns on the NHA MBS and the reinvestment of repaid mortgage principal. A component of this swap, related to the obligation to pay CMB coupons and receive investment returns on repaid mortgage principal, is recorded as a derivative and had a negative fair value of $0.9 million at December 31, 2019 (2018 - positive $4.9 million). 102 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 SECURITIZATIONS (continued) Under the NHA MBS and CMB Program, the Company has an obligation to make timely payments to security holders regardless of whether amounts are received from mortgagors. All mortgages securitized under the NHA MBS and CMB Program are insured by CMHC or another approved insurer under the program. As part of the ABCP transactions, the Company has provided cash reserves for credit enhancement which are recorded at cost. Credit risk is limited to these cash reserves and future net interest income as the ABCP Trusts have no recourse to the Company's other assets for failure to make payments when due. Credit risk is further limited to the extent these mortgages are insured. 2019 Carrying value NHA MBS and CMB Program Bank sponsored ABCP Total Fair value 2018 Carrying value NHA MBS and CMB Program Bank sponsored ABCP Total Fair value SECURITIZED SECURITIZATION OBLIGATIONS TO MORTGAGES ENTITIES NET $ 3,890,955 2,938,910 $ 3,938,732 2,974,904 $ 6,829,865 $ 6,913,636 $ 6,907,742 $ 6,996,953 $ $ $ (47,777) (35,994) (83,771) (89,211) $ 4,246,668 3,102,498 $ 4,250,641 3,119,552 $ 7,349,166 $ 7,370,193 $ 7,405,170 $ 7,436,873 $ $ $ (3,973) (17,054) (21,027) (31,703) The carrying value of Obligations to securitization entities, which is recorded net of issue costs, includes principal payments received on securitized mortgages that are not due to be settled until after the reporting period. Issue costs are amortized over the life of the obligation on an effective interest rate basis. NOTE 7 OTHER ASSETS Deferred and prepaid expenses Other 2019 2018 $ 44,673 1,170 $ 45,461 1,070 $ 45,843 $ 46,531 Total other assets of $19.1 million as at December 31, 2019 (2018 - $18.9 million) are expected to be realized within one year. 103 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 INVESTMENT IN ASSOCIATES 2019 Balance, beginning of year Transfer from Corporate investments (FVTOCI) Proceeds from substantial issuer bid Dividends received Proportionate share of: Earnings (losses) Associate's one-time charges Other comprehensive income (loss) and other adjustments LIFECO CHINA AMC PERSONAL CAPITAL TOTAL $ 967,829 $ 683,475 $ – $ 1,651,304 – (80,408) (62,673) 109,088 (17,200) – – (10,301) 30,119 – 216,952 – – (16,782) – 216,952 (80,408) (72,974) 122,425 (17,200) (19,985) (40,599) (5,633) (66,217) Balance, end of year $ 896,651 $ 662,694 $ 194,537 $ 1,753,882 2018 Balance, beginning of year Dividends received Proportionate share of: Earnings Other comprehensive income (loss) and other adjustments $ 901,405 (61,831) $ 647,880 (12,156) $ 120,966 28,996 7,289 18,755 Balance, end of year $ 967,829 $ 683,475 $ – – – – – $ 1,549,285 (73,987) 149,962 26,044 $ 1,651,304 The Company uses the equity method to account for its investments in Great-West Lifeco Inc., China Asset Management Co., Ltd. and Personal Capital Corporation as it exercises significant influence. GREAT-WEST LIFECO INC. (LIFECO) Lifeco is a publicly listed company that is incorporated and domiciled in Canada and is controlled by Power Financial Corporation. Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses, primarily in Canada, the United States, Europe and Asia. At December 31, 2019, the Company held 37,337,133 (2018 - 39,737,388) shares of Lifeco, which represented an equity interest of 4.0% (2018 - 4.0%). Significant influence arises from several factors, including but not limited to the following: common control of Lifeco by Power Financial Corporation, directors common to the boards of the Company and Lifeco, certain shared strategic alliances, significant intercompany transactions and service agreements that influence the financial and operating policies of both companies. The Company’s proportionate share of Lifeco’s earnings is recorded in the Consolidated Statements of Earnings. In April 2019, the Company participated on a proportionate basis in the Lifeco substantial issuer bid by selling 2,400,255 of its shares in Lifeco for proceeds of $80.4 million. In June 2019, Lifeco recorded a one-time loss in relation to the sale of substantially all of its United States individual life insurance and annuity business. In December 2019, Lifeco recorded one-time charges in relation to the revaluation of a deferred tax asset, restructuring costs and the net gain on the Scottish Friendly transaction. The Company’s after-tax proportionate share of these charges was $17.2 million. The fair value of the Company’s investment in Lifeco totalled $1,241.8 million at December 31, 2019 (2018 - $1,118.6 million). The Company has elected to apply the exemption in IFRS 4 Insurance Contracts to retain Lifeco’s relevant accounting policies related to Lifeco’s deferral of the adoption of IFRS 9 Financial Instruments. Lifeco directly owned 9,200,000 shares of the Company at December 31, 2019 (2018 – 9,200,000). Lifeco’s financial information as at December 31, 2019 can be obtained in its publicly available information. 104 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 INVESTMENT IN ASSOCIATES (continued) CHINA ASSET MANAGEMENT CO., LTD. (CHINA AMC) China AMC is an asset management company established in Beijing, China and is controlled by CITIC Securities Company Limited. As at December 31, 2019, the Company held a 13.9% ownership interest in China AMC (2018 - 13.9%). Significant influence arises from board representation, participating in the policy making process, shared strategic initiatives including joint product launches and collaboration between management and investment teams. The following table sets forth certain summary financial information from China AMC: AS AT DECEMBER 31 (millions) Total assets Total liabilities FOR THE YEAR ENDED DECEMBER 31 Revenue Net earnings available to common shareholders Total comprehensive income CANADIAN DOLLARS 2,171 504 2019 CHINESE YUAN 11,645 2,701 CANADIAN DOLLARS 2,051 445 2018 CHINESE YUAN 10,342 2,242 763 230 234 3,977 1,201 1,219 733 224 235 3,733 1,140 1,171 PERSONAL CAPITAL CORPORATION (PERSONAL CAPITAL) In January 2019, the Company invested an additional amount of $66.8 million (USD $50.0 million) in Personal Capital which increased its voting interest to 22.7% and, combined with its board representation, resulted in the Company exercising significant influence. As at December 31, 2019, the Company held a 24.8% equity interest in Personal Capital. IGM Financial’s equity earnings from Personal Capital includes its proportionate share of Personal Capital’s net loss adjusted by IGM Financial’s amortization of intangible assets that it recognized as part of its investment in the company. The following table sets forth certain summary financial information for Personal Capital: AS AT DECEMBER 31 (millions) Total assets Total liabilities FOR THE YEAR ENDED DECEMBER 31 Revenue Net loss available to common shareholders Total comprehensive loss CANADIAN DOLLARS 85.9 23.0 2019 US DOLLARS 66.1 17.7 99.8 (56.4) (56.4) 75.3 (42.5) (42.5) CANADIAN DOLLARS 2018 US DOLLARS – – – – – – – – – – 105 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 CAPITAL ASSETS 2019 FURNITURE AND EQUIPMENT BUILDING AND COMPONENTS RIGHT-OF-USE ASSETS TOTAL Cost Less: accumulated amortization $ 321,108 (236,809) $ 66,817 (15,016) $ 104,343 (23,487) $ 492,268 (275,312) $ 84,299 $ 51,801 $ 80,856 $ 216,956 Changes in capital assets: Balance, beginning of year Adoption of IFRS 16 Additions Disposals Amortization $ 88,185 $ 50,462 $ – $ – 16,679 (893) (19,672) – 2,841 – (1,502) 96,065 8,278 – (23,487) 138,647 96,065 27,798 (893) (44,661) Balance, end of year $ 84,299 $ 51,801 $ 80,856 $ 216,956 2018 Cost Less: accumulated amortization Changes in capital assets: Balance, beginning of year Additions Disposals Amortization $ 306,416 (218,231) $ 63,976 (13,514) $ 88,185 $ 50,462 $ 99,335 16,177 (5,833) (21,494) $ 52,186 213 (536) (1,401) $ $ $ Balance, end of year $ 88,185 $ 50,462 $ NOTE 10 CAPITALIZED SALES COMMISSIONS Cost Less: accumulated amortization Changes in capitalized sales commissions Balance, beginning of year Changes due to: Sales of investment funds Amortization Balance, end of year 106 – – – – – – – – $ 370,392 (231,745) $ 138,647 $ 151,521 16,390 (6,369) (22,895) $ 138,647 2019 2018 $ 192,504 (42,638) $ 125,264 (20,220) $ 149,866 $ 105,044 $ 105,044 $ 63,821 67,209 (22,387) 55,685 (14,462) 44,822 41,223 $ 149,866 $ 105,044 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 GOODWILL AND INTANGIBLE ASSETS FINITE LIFE INDEFINITE LIFE DISTRIBUTION AND OTHER MUTUAL FUND MANAGEMENT MANAGEMENT SOFTWARE CONTRACTS CONTRACTS TRADE NAMES TOTAL INTANGIBLE ASSETS GOODWILL 2019 Cost Less: accumulated amortization $ 256,365 (117,866) $ 147,248 (81,356) $ 740,559 – $ 285,177 – $ 1,429,349 (199,222) $ 2,660,267 – $ 138,499 $ 65,892 $ 740,559 $ 285,177 $ 1,230,127 $ 2,660,267 Changes in goodwill and intangible assets: Balance, beginning of year Additions Disposals Amortization $ $ 116,697 44,421 – (22,619) 48,635 25,457 (1,726) (6,474) $ 740,559 – – – $ 285,177 – – – $ 1,191,068 69,878 (1,726) (29,093) $ 2,660,267 – – – Balance, end of year $ 138,499 $ 65,892 $ 740,559 $ 285,177 $ 1,230,127 $ 2,660,267 2018 Cost Less: accumulated amortization $ 212,006 (95,309) $ 125,630 (76,995) $ 740,559 – $ 285,177 – $ 1,363,372 (172,304) $ 2,660,267 – $ 116,697 $ 48,635 $ 740,559 $ 285,177 $ 1,191,068 $ 2,660,267 Changes in goodwill and intangible assets: Balance, beginning of year Additions Disposals Amortization $ $ 119,019 18,940 (216) (21,046) 39,696 16,366 (1,877) (5,550) $ 740,559 – – – $ 285,177 – – – $ 1,184,451 35,306 (2,093) (26,596) $ 2,660,267 – – – Balance, end of year $ 116,697 $ 48,635 $ 740,559 $ 285,177 $ 1,191,068 $ 2,660,267 The goodwill and indefinite life intangible assets consisting of investment fund management contracts and trade names are allocated to each cash generating unit (CGU) as summarized in the following table: IG Wealth Management Mackenzie Other Total 2019 INDEFINITE LIFE INTANGIBLE 2018 INDEFINITE LIFE INTANGIBLE GOODWILL ASSETS GOODWILL ASSETS $ 1,347,781 1,168,580 143,906 $ – 1,002,681 23,055 $ 1,347,781 1,168,580 143,906 $ – 1,002,681 23,055 $ 2,660,267 $ 1,025,736 $ 2,660,267 $ 1,025,736 107 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 GOODWILL AND INTANGIBLE ASSETS (continued) The Company tests whether goodwill and indefinite life intangible assets are impaired by assessing the carrying amounts with the recoverable amounts. The recoverable amount of the Company’s CGUs is based on the best available evidence of fair value less costs of disposal. Fair value is initially assessed with reference to valuation multiples of comparable publicly-traded financial institutions and precedent business acquisition transactions. These valuation multiples may include price-to-earnings or other conventionally used measures for investment managers or other financial service providers (multiples of value to assets under management, revenues, or other measures of profitability). This assessment may give regard to a variety of relevant considerations, including expected growth, risk and capital market conditions, among other factors. The valuation multiples used in assessing fair value represent Level 2 fair value inputs. The fair value less costs of disposal of the Company’s CGUs was compared with the carrying amount and it was determined there was no impairment. Changes in assumptions and estimates used in determining the recoverable amounts of CGUs can result in significant adjustments to the valuation of the CGUs. NOTE 12 DEPOSITS AND CERTIFICATES Deposits and certificates are classified as other financial liabilities measured at amortized cost. Included in the assets of the Consolidated Balance Sheets are cash and cash equivalents, client funds on deposit and loans amounting to $584.3 million (2018 - $568.8 million) related to deposits and certificates. Deposits Certificates NOTE 13 OTHER LIABILITIES Dividends payable Interest payable Accrued benefit liabilities (Note 14) Provisions Other TERM TO MATURITY DEMAND 1 YEAR OR LESS $ 572,974 - $ 5,546 454 $ 1–5 YEARS 3,607 630 OVER 5 YEARS 2019 TOTAL 2018 TOTAL $ 255 865 $ 582,382 1,949 $ 566,605 2,194 $ 572,974 $ 6,000 $ 4,237 $ 1,120 $ 584,331 $ 568,799 2019 2018 $ $ 134,040 30,127 207,441 20,513 49,781 137,710 27,527 189,113 50,768 39,055 $ 441,902 $ 444,173 The Company establishes restructuring provisions related to business acquisitions, divestitures and other items, as well as other provisions in the normal course of its operations. Changes in provisions during 2019 consisted of additional estimates of $2.2 million, provision reversals of $3.3 million and payments of $29.2 million. Total other liabilities of $221.5 million as at December 31, 2019 (2018 - $238.5 million) are expected to be settled within one year. 108 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 EMPLOYEE BENEFITS DEFINED BENEFIT PLANS The Company maintains a number of employee pension and post-employment benefit plans. These plans include a funded registered defined benefit pension plan for all eligible employees, unfunded supplementary executive retirement plans (SERPs) for certain executive officers, and an unfunded post-employment health care, dental and life insurance plan for eligible retirees. Effective July 1, 2012, the defined benefit pension plan was closed to new members. For all eligible employees hired after July 1, 2012, the Company has a registered defined contribution pension plan. The defined benefit pension plan is a separate trust that is legally separated from the Company. The defined benefit pension plan is registered under the Pension Benefits Act of Manitoba (Act) and the Income Tax Act (ITA). As required by the Act, the defined benefit pension plan is governed by a pension committee which includes current and retired employees. The Pension Committee has certain responsibilities as described in the Act but may delegate certain activities to the Company. The ITA governs the employer’s ability to make contributions and also has parameters that the plan must meet with respect to investments in foreign property. The defined benefit pension plan provides lifetime pension benefits to all eligible employees based on length of service and final average earnings subject to limits established by the ITA. Death benefits are available on the death of an active member or a retired member. Employees who are not senior officers are required to make annual contributions based on a percentage of salaries which are subject to a maximum amount. The actuarial valuation for funding purposes related to the Company’s registered defined benefit pension plan, based on a measurement date of December 31, 2017, was completed in May 2018. The valuation determines the plan surplus or deficit on both a solvency and going concern basis. The solvency basis determines the relationship between the plan assets and its liabilities assuming that the plan is wound up and settled on the valuation date. A going concern valuation compares the relationship between the plan assets and the present value of the expected future benefit cash flows, assuming the plan will be maintained indefinitely. Based on the actuarial valuation, the registered pension plan had a solvency deficit of $47.2 million compared to $82.7 million in the previous actuarial valuation, which was based on a measurement date of December 31, 2016. The decrease in the solvency deficit resulted primarily from higher assets due to contribution and investment returns, and is required to be funded over five years. The registered pension plan had a going concern surplus of $46.1 million compared to $24.4 million in the previous valuation. The next required actuarial valuation will be based on a measurement date of December 31, 2020. During 2019, the Company made contributions of $26.4 million (2018 - $40.4 million). The Company utilized $10.5 million of the payments made during 2018 to reduce its solvency deficit and increase its going concern surplus. The Company expects to make contributions of approximately $26.1 million in 2020. Pension contribution decisions are subject to change, as contributions are affected by many factors including market performance, regulatory requirements, changes in assumptions and management’s ability to change funding policy. The SERPs are non-registered, non-contributory defined benefit plans which provide supplementary benefits to certain retired executives. The other post-employment benefit plan is a non-contributory plan and provides eligible employees a reimbursement of medical costs or a fixed amount per year to cover medical costs during retirement. The SERPs and other post-employment benefit plans are managed by the Company with oversight from the Board of Directors. The defined benefit plans expose the Company to actuarial risks such as mortality risk which represents life expectancy and impacts the calculation of the obligations; interest rate risk which impacts the discount rate used to calculate the obligations and the actual return on plan assets; salary risk as estimated salary increases are used in the calculation of the obligations; and investment risk as the nature of the investments impact the actual return on the plan assets. The risks are managed by regular monitoring of the plans, applicable regulations and other factors that could impact the Company’s expenses and cash flows.  109 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 14 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) Plan assets, benefit obligations and funded status: Fair value of plan assets Balance, beginning of year Employee contributions Employer contributions Benefits paid Interest income Remeasurements: - Return on plan assets Balance, end of year Accrued benefit obligation Balance, beginning of year Benefits paid Current service cost Curtailment (gain) loss Employee contributions Interest expense Remeasurements: Actuarial losses (gains) - Demographic assumption - Experience adjustments - Financial assumptions DEFINED BENEFIT OTHER POST– EMPLOYMENT DEFINED BENEFIT 2019 2018 OTHER POST– EMPLOYMENT PENSION PLAN SERPS BENEFITS PENSION PLAN SERPS BENEFITS $ $ 407,428 2,316 26,368 (32,014) 16,065 46,384 466,547 496,715 (32,014) 18,540 – 2,316 19,048 – (970) 61,971 $ – – – – – – – 62,084 (3,308) 1,462 – – 2,265 – 1,934 4,798 – – – – – – – 37,742 (2,266) 539 – – 1,337 $ $ 417,687 2,464 40,438 (35,411) 15,246 (32,996) 407,428 493,610 (35,411) 20,293 (776) 2,464 17,403 – (648) 2,443 17,397 (3,098) (15,167) $ – – – – – – – 63,134 (2,873) 1,400 – – 2,153 – (12) (1,718) – – – – – – – 45,405 (2,373) 918 36 – 1,521 (5,708) (787) (1,270) Balance, end of year 565,606 69,235 39,147 496,715 62,084 37,742 Accrued benefit liability $ 99,059 $ 69,235 $ 39,147 $ 89,287 $ 62,084 $ 37,742 Significant actuarial assumptions used to calculate the defined benefit obligation: Discount rate Rate of compensation increase Health care cost trend rate (1) Mortality rates at age 65 for current pensioners DEFINED BENEFIT OTHER POST– EMPLOYMENT DEFINED BENEFIT 2019 2018 OTHER POST– EMPLOYMENT PENSION PLAN SERPS BENEFITS PENSION PLAN SERPS BENEFITS 3.20% 3.90% N/A 2.95%-3.10% 3.75% N/A 3.05% N/A 4.00% 3.90% 4.30% N/A 3.55%-3.80% 3.75% N/A 3.70% N/A 5.78% 23.6 years 23.6 years 23.6 years 23.6 years 23.6 years 23.6 years (1) Trending to 4.00% in 2044 and remaining at that rate thereafter. 110 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) The weighted average duration of the pension plan’s defined benefit obligation at the end of the reporting period is 19.1 years (2018 - 18.3 years). Benefit expense: DEFINED BENEFIT OTHER POST- EMPLOYMENT DEFINED BENEFIT 2019 2018 OTHER POST- EMPLOYMENT PENSION PLAN SERPS BENEFITS PENSION PLAN SERPS BENEFITS Current service cost Curtailment (gain) loss Net interest cost $ $ 18,540 – 2,983 $ 1,462 – 2,265 $ 539 – 1,337 $ 20,293 (776) 2,157 $ 1,400 – 2,153 918 36 1,521 $ 21,523 $ 3,727 $ 1,876 $ 21,674 $ 3,553 $ 2,475 Sensitivity analysis: The calculation of the accrued benefit liability and the related benefit expense are sensitive to the significant actuarial assumptions. The following table presents the sensitivity analysis: Defined benefit pension plan Discount rate (+ / - 0.25%) Increase Decrease Rate of compensation (+ / - 0.25%) Increase Decrease Mortality Increase 1 year SERPs Discount rate (+ / - 0.25%) Increase Decrease Rate of compensation (+ / - 0.25%) Increase Decrease Mortality Increase 1 year Other post-employment benefits Discount rate (+ / - 0.25%) Increase Decrease Health care cost trend rates (+ / - 1.00%) Increase Decrease Mortality Increase 1 year 2019 2018 INCREASE INCREASE INCREASE INCREASE (DECREASE) (DECREASE) (DECREASE) (DECREASE) IN LIABILITY IN EXPENSE IN LIABILITY IN EXPENSE $ (25,523) 27,313 $ (1,782) 1,815 $ (21,322) 22,784 $ (1,719) 1,743 9,676 (9,555) 812 (806) 7,245 (7,198) 720 (707) 12,476 686 9,725 705 (1,825) 1,908 79 (78) 52 (56) 23 (22) (1,640) 1,713 75 (74) 1,681 58 1,418 (982) 1,028 1,372 (1,183) 1,180 43 (46) 39 (35) 44 (902) 940 1,180 (1,027) 987 52 (57) 22 (24) 57 36 (39) 44 (38) 45 111 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur as changes in certain assumptions may be correlated. Asset allocation of defined benefit pension plan by asset category: Equity securities Fixed income securities Alternative strategies Cash and cash equivalents 2019 2018 59.2 % 30.3 9.4 1.1 56.4 % 32.5 9.9 1.2 100.0 % 100.0 % The defined benefit pension plan adheres to its Statement of Investment Policies and Procedures which includes investment objectives, asset allocation guidelines and investment limits by asset class. The defined benefit pension plan assets are invested in proprietary investment funds with the exception of cash on deposit with Schedule I Canadian chartered banks. DEFINED CONTRIBUTION PENSION PLANS The Company maintains a number of defined contribution pension plans for eligible employees. The total expense recorded in Non- commission expense was $5.5 million (2018 - $4.8 million). GROUP RETIREMENT SAVINGS PLAN (RSP) The Company maintains a group RSP for eligible employees. The Company’s contributions are recorded in Non-commission expense as paid and totalled $6.9 million (2018 - $6.7 million). NOTE 15 INCOME TAXES Income tax expense: Income taxes recognized in net earnings Current taxes Tax on current year's earnings Adjustments in respect of prior years Deferred taxes Effective income tax rate: Income taxes at Canadian federal and provincial statutory rates Effect of: Proportionate share of associates' earnings (Note 8) Proportionate share of associate's one-time charges (Note 8) Tax loss consolidation (Note 26) Other items Effective income tax rate 112 2019 2018 $ 200,736 513 $ 223,924 (9,317) 201,249 18,470 214,607 (4,688) $ 219,719 $ 209,919 2019 2018 26.77 % 26.81 % (3.31) 0.48 (1.41) 0.15 (3.79) – (1.40) (0.33) 22.68 % 21.29 % IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 INCOME TAXES (continued) DEFERRED INCOME TAXES Sources of deferred income taxes: Deferred income tax assets Accrued benefit liabilities Loss carryforwards Other Deferred income tax liabilities Capitalized sales commissions (Note 2) Intangible assets Other Deferred income tax assets and liabilities are presented on the Consolidated Balance Sheets as follows: Deferred income tax assets Deferred income tax liabilities 2019 2018 $ $ 55,994 33,700 38,483 51,025 33,165 38,726 128,177 122,916 40,006 268,734 47,969 28,254 265,343 49,431 356,709 343,028 $ 228,532 $ 220,112 2019 2018 $ 76,517 305,049 $ 75,607 295,719 $ 228,532 $ 220,112 As at December 31, 2019, the Company had non-capital losses of $10.0 million (2018 - $4.6 million) available to reduce future taxable income, the benefit of which had not been recognized. $9.2 million of the losses can be carried forward indefinitely and the remainder expire on December 31, 2037. NOTE 16 LONG-TERM DEBT MATURITY January 26, 2027 December 13, 2027 May 9, 2031 December 31, 2032 March 7, 2033 December 10, 2040 January 25, 2047 December 9, 2047 July 13, 2048 March 21, 2050 RATE 2019 2018 3.44% 6.65% 7.45% 7.00% 7.11% 6.00% 4.56% 4.115% 4.174% 4.206% 400,000 125,000 150,000 175,000 150,000 200,000 200,000 250,000 200,000 250,000 400,000 125,000 150,000 175,000 150,000 200,000 200,000 250,000 200,000 - $ 2,100,000 $ 1,850,000 113 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 LONG-TERM DEBT (continued) Long-term debt consists of unsecured debentures which are redeemable by the Company, in whole or in part, at any time, at the greater of par and a formula price based upon yields at the time of redemption. Long-term debt is classified as other financial liabilities and is recorded at amortized cost. Interest expense relating to long-term debt was $104.3 million (2018 - $120.9 million). On March 20, 2019, the Company issued $250.0 million 4.206% debentures maturing March 21, 2050. The net proceeds were used by the Company to fund the redemption of $150.0 million of its issued and outstanding 5.90% Non-Cumulative First Preferred Shares, Series B and for general corporate purposes. The Company redeemed the Series B Preferred Shares on April 30, 2019. On March 7, 2018, the $150.0 million 6.58% debentures were due and were repaid. On July 11, 2018, the Company issued $200.0 million of 4.174% debentures maturing July 13, 2048. On August 10, 2018, the net proceeds were used by the Company, together with a portion of IGM Financial’s existing internal cash resources, to fund the early redemption of all of its $375 million aggregate principal amount of 7.35% debentures due April 8, 2019. A premium of $10.7 million was paid on the early redemption of the 7.35% debentures and is included in interest expense in the Consolidated Statements of Earnings. NOTE 17 SHARE CAPITAL AUTHORIZED Unlimited number of: First preferred shares, issuable in series Second preferred shares, issuable in series Class 1 non-voting shares Common shares, no par value ISSUED AND OUTSTANDING Perpetual preferred shares - classified as equity: First preferred shares, Series B Common shares: Balance, beginning of year Issued under Stock Option Plan (Note 19) Purchased for cancellation 2019 STATED VALUE SHARES 2018 STATED VALUE SHARES – $ – 6,000,000 $ 150,000 240,885,317 171,561 (2,762,788) $ 1,611,263 5,111 (18,514) 240,666,131 219,186 – $ 1,602,726 8,537 – Balance, end of year 238,294,090 $ 1,597,860 240,885,317 $ 1,611,263 PERPETUAL PREFERRED SHARES The Company redeemed the First preferred shares, Series B for $150.0 million on April 30, 2019. NORMAL COURSE ISSUER BID The Company commenced a normal course issuer bid on March 26, 2019 which is effective until the earlier of March 25, 2020 and the date on which the Company has purchased the maximum number of common shares permitted under the normal course issuer bid. Pursuant to this bid, the Company may purchase up to 4.0 million or 1.7% of its common shares outstanding as at March 14, 2019. The Company’s previous normal course issuer bid expired on March 19, 2018. 114 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 SHARE CAPITAL (continued) NORMAL COURSE ISSUER BID (continued) In 2019, there were 2,762,788 shares (2018 – nil) purchased at a cost of $100.0 million. The premium paid to purchase the shares in excess of the stated value was charged to Retained earnings. In connection with its normal course issuer bid, the Company established an automatic securities purchase plan for its common shares. The automatic securities purchase plan provides standard instructions regarding how the Company’s common shares are to be purchased under its normal course issuer bid during certain pre-determined trading blackout periods. Outside of these pre-determined trading blackout periods, purchases under the Company’s normal course issuer bid will be completed based upon management’s discretion. NOTE 18 CAPITAL MANAGEMENT The Company’s capital management objective is to maximize shareholder returns while ensuring that the Company is capitalized in a manner which appropriately supports regulatory capital requirements, working capital needs and business expansion. The Company’s capital management practices are focused on preserving the quality of its financial position by maintaining a solid capital base and a strong balance sheet. Capital of the Company consists of long-term debt and common shareholders’ equity. At December 31, 2018, Capital also included perpetual preferred shares which were redeemed in April 2019. The Company regularly assesses its capital management practices in response to changing economic conditions. The Company’s capital is primarily utilized in its ongoing business operations to support working capital requirements, long-term investments made by the Company, business expansion and other strategic objectives. Subsidiaries subject to regulatory capital requirements include investment dealers, mutual fund dealers, exempt market dealers, portfolio managers, investment fund managers and a trust company. These subsidiaries are required to maintain minimum levels of capital based on either working capital, liquidity or shareholders’ equity. The Company’s subsidiaries have complied with all regulatory capital requirements. The total outstanding long-term debt was $2,100.0 million at December 31, 2019, compared to $1,850.0 million at December 31, 2018. Long-term debt is comprised of debentures which are senior unsecured debt obligations of the Company subject to standard covenants, including negative pledges, but which do not include any specified financial or operational covenants. The net increase in long-term debt resulted from the issuance on March 20, 2019 of $250.0 million 4.206% debentures maturing March 21, 2050. The net proceeds from the issuance of the debenture was used by the Company in part to fund the redemption of $150 million 5.90% Non-Cumulative First Preferred Shares, Series B and for general corporate purposes. The Company redeemed the Series B Preferred Shares on April 30, 2019. The Company purchased 2,762,788 common shares during the year ended December 31, 2019 at a cost of $100.0 million under its normal course issuer bid (Note 17). Other activities in 2019 included the declaration of perpetual preferred share dividends of $2.2 million or $0.36875 per share and common share dividends of $537.6 million or $2.25 per share. Changes in common share capital are reflected in the Consolidated Statements of Changes in Shareholders’ Equity. NOTE 19 SHARE-BASED PAYMENTS STOCK OPTION PLAN Under the terms of the Company’s Stock Option Plan (Plan), options to purchase common shares are periodically granted to employees at prices not less than the weighted average trading price per common share on the Toronto Stock Exchange for the five trading days preceding the date of the grant. The options are subject to time vesting conditions set out at the grant date. Options vest over a period of up to 7.5 years from the grant date and are exercisable no later than 10 years after the grant date. At December 31, 2019, 20,415,351 (2018 - 20,586,912) common shares were reserved for issuance under the Plan. 115 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 19 SHARE-BASED PAYMENTS (continued) STOCK OPTION PLAN (continued) During 2019, the Company granted 1,511,540 options to employees (2018 - 1,336,990). The weighted-average fair value of options granted during the year ended December 31, 2019 has been estimated at $1.82 per option (2018 - $2.56) using the Black-Scholes option pricing model. The weighted-average closing share price at the grant dates was $34.35 (2018 - $39.10). The assumptions used in these valuation models include: Exercise price Risk-free interest rate Expected option life Expected volatility Expected dividend yield 2019 2018 $ 34.34 $ 2.07% 7 years 18.00% 6.55% 39.28 2.35% 6 years 17.00% 5.73% Expected volatility has been estimated based on the historic volatility of the Company’s share price over seven years which is reflective of the expected option life. Stock options were exercised regularly throughout 2019 and the average share price in 2019 was $36.22. The Company recorded compensation expense related to its stock option program of $3.4 million (2018 - $3.7 million). Balance, beginning of year Granted Exercised Forfeited Balance, end of year Exercisable, end of year OPTIONS OUTSTANDING AT DECEMBER 31, 2019 2019 WEIGHTED- NUMBER OF AVERAGE NUMBER OF 2018 WEIGHTED- AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE 9,701,894 1,511,540 (171,561) (512,513) 10,529,360 5,470,178 $ $ $ 42.27 34.34 28.25 45.20 8,912,748 1,336,990 (219,186) (328,658) 41.22 9,701,894 43.99 4,742,050 $ $ $ 42.59 39.28 35.37 43.53 42.27 44.28 EXPIRY DATE EXERCISE OPTIONS OPTIONS PRICE $ OUTSTANDING EXERCISABLE 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 40.45 - 42.82 42.49 - 46.72 45.56 - 47.23 44.73 - 47.26 53.81 43.28 - 43.97 34.88 - 38.17 39.71 - 41.74 37.58 - 40.10 34.29 - 36.91 559,351 426,531 659,948 999,590 763,700 1,090,690 1,939,899 1,292,707 1,319,699 1,477,245 559,351 426,531 659,948 887,348 683,950 725,413 833,563 428,035 266,039 – 10,529,360 5,470,178 SHARE UNIT PLANS The Company has share unit plans for eligible employees to assist in retaining and further aligning the interests of senior management with those of the shareholders. These plans include Performance Share Unit (PSU), Deferred Share Unit (DSU) and Restricted Share Unit (RSU) plans. Under the terms of the plans, share units are awarded annually and are subject to time vesting conditions. In addition, the PSU and DSU plans are subject to performance vesting conditions. The value of each share unit is based on the share price of the Company’s common shares. The PSUs and RSUs are cash settled and vest over a three year period. Certain employees can elect at the time of grant to receive a portion of their PSUs in the form of deferred share units which vest over a three year period. Deferred share units are redeemable when a participant is no longer an employee of the Company or any of its affiliates by a lump sum payment 116 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 SHARE-BASED PAYMENTS (continued) SHARE UNIT PLANS (continued) based on the value of the deferred share unit at that time. Additional share units are issued in respect of dividends payable on common shares based on a value of the share unit at the dividend payment date. The Company recorded compensation expense, excluding the impact of hedging, of $17.0 million in 2019 (2018 - $6.8 million) and a liability of $26.5 million at December 31, 2019 (2018 - $20.4 million). SHARE PURCHASE PLANS Under the Company’s share purchase plans, eligible employees and IG Wealth Management consultants can elect each year to have a percentage of their annual earnings withheld, subject to a maximum, to purchase the Company’s common shares. The Company matches 50% of the contribution amounts. All contributions are used by the plan trustee to purchase common shares in the open market. Shares purchased with Company contributions vest after a maximum period of 3 years following the date of purchase. The Company’s contributions are recorded in Non-commission expense as paid and totalled $10.0 million (2018 - $12.4 million). DIRECTORS’ DEFERRED SHARE UNIT PLAN The Company has a Deferred Share Unit (DSU) plan for the directors of the Company to promote a greater alignment of interests between directors and shareholders of the Company. Under the terms of the plan, directors are required to receive 50% of their annual board retainer in the form of DSUs and may elect to receive the balance of their annual board retainer in cash or DSUs. Directors may elect to receive certain fees in a combination of DSUs and cash. The number of DSUs granted is determined by dividing the amount of remuneration payable by the average closing price on the Toronto Stock Exchange of the common shares of the Company on the last five days of the fiscal quarter (value of DSU). A director who has elected to receive DSUs will receive additional DSUs in respect of dividends payable on common shares, based on the value of a DSU at the dividend payment date. DSUs are redeemable when a participant is no longer a director, officer or employee of the Company or any of its affiliates by cash payments, based on the value of the DSUs at that time. At December 31, 2019, the fair value of the DSUs outstanding was $18.6 million (2018 - $13.4 million). Any difference between the change in fair value of the DSUs and the change in fair value of the total return swap, which is an economic hedge for the DSU plan, is recognized in Non-commission expense in the period in which the change occurs. NOTE 20 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 2019 Balance, beginning of year Other comprehensive income (loss) Transfer out of FVTOCI Balance, end of year 2018 Balance, beginning of year Other comprehensive income (loss) Balance, end of year Amounts are recorded net of tax.  EMPLOYEE OTHER IN ASSOCIATES BENEFITS INVESTMENTS AND OTHER TOTAL INVESTMENT $ (149,052) (16,895) – $ 57,234 10,597 (21,468) $ 46,020 (54,138) – $ (45,798) (60,436) (21,468) $ (165,947) $ 46,363 $ (8,118) $ (127,702) $ (132,529) (16,523) $ 39,068 18,166 $ 22,348 23,672 $ (71,113) 25,315 $ (149,052) $ 57,234 $ 46,020 $ (45,798) 117 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 RISK MANAGEMENT The Company actively manages its liquidity, credit and market risks. LIQUIDITY AND FUNDING RISK RELATED TO FINANCIAL INSTRUMENTS Liquidity and funding risk is the risk of the inability to generate or obtain sufficient cash in a timely and cost-effective manner to meet contractual or anticipated commitments as they come due or arise. The Company’s liquidity management practices include: • Maintaining liquid assets and lines of credit to satisfy near term liquidity needs. • Ensuring effective controls over liquidity management processes. • Performing regular cash forecasts and stress testing. • Regular assessment of capital market conditions and the Company’s ability to access bank and capital market funding. • Ongoing efforts to diversify and expand long-term mortgage funding sources. • Oversight of liquidity by management and by the Financial Risk Management Committee, a committee of finance and other business leaders. A key funding requirement for the Company is the funding of Consultant network compensation paid for the distribution of financial products and services. This compensation continues to be paid from operating cash flows. The Company also maintains sufficient liquidity to fund and temporarily hold mortgages pending sale or securitization to long- term funding sources and to manage any derivative collateral requirements related to the mortgage banking operation. Through its mortgage banking operations, residential mortgages are sold to third parties including certain mutual funds, institutional investors through private placements, Canadian bank-sponsored securitization trusts, and by issuance and sale of National Housing Act Mortgage Backed Securities (NHA MBS) securities including sales to Canada Housing Trust under the Canada Mortgage Bond Program (CMB Program). Certain subsidiaries of the Company are approved issuers of NHA MBS and are approved sellers into the CMB Program. Capacity for sales under the CMB Program consists of participation in new CMB issues and reinvestment of principal repayments held in the Principal Reinvestment Accounts. The Company maintains committed capacity within certain Canadian bank-sponsored securitization trusts. The Company’s contractual maturities of certain financial liabilities were as follows: AS AT DECEMBER 31, 2019 ($ millions) DEMAND 1 YEAR 1 – 5 YEARS AFTER 5 YEARS TOTAL LESS THAN Derivative financial instruments Deposits and certificates Obligations to securitization entities Leases (1) Long–term debt Pension funding (2) $ $ – 573.0 – – – $ 6.9 6.0 1,473.6 26.2 – 26.1 $ $ 10.1 4.2 5,431.5 54.7 – – 0.2 1.1 8.5 23.5 2,100.0 – 17.2 584.3 6,913.6 104.4 2,100.0 26.1 Total contractual maturities $ 573.0 $ 1,538.8 $ 5,500.5 $ 2,133.3 $ 9,745.6 (1) Includes remaining lease payments related to office space and equipment used in the normal course of business. (2) The next required actuarial valuation will be completed based on a measurement date of December 31, 2020. Pension funding requirements beyond 2020 are subject to significant variability and will be determined based on future actuarial valuations. Pension contribution decisions are subject to change, as contributions are affected by many factors including market performance, regulatory requirements, changes in assumptions and management's ability to change funding policy. 118 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 RISK MANAGEMENT (continued) LIQUIDITY AND FUNDING RISK RELATED TO FINANCIAL INSTRUMENTS (continued) In addition to the Company’s current balance of cash and cash equivalents, liquidity is available through the Company’s lines of credit. The Company’s lines of credit with various Schedule I Canadian chartered banks totalled $825 million at December 31, 2019, unchanged from December 31, 2018. The lines of credit at December 31, 2019 consisted of committed lines of $650 million and uncommitted lines of $175 million, unchanged from December 31, 2018. The Company has accessed its uncommitted lines of credit in the past; however, any advances made by a bank under the uncommitted lines of credit are at the bank’s sole discretion. As at December 31, 2019 and December 31, 2018, the Company was not utilizing its committed lines of credit or its uncommitted lines of credit. The Company’s liquidity position and its management of liquidity and funding risk have not changed materially since December 31, 2018. CREDIT RISK RELATED TO FINANCIAL INSTRUMENTS Credit risk is the potential for financial loss to the Company if a counterparty to a transaction fails to meet its obligations. The Company’s cash and cash equivalents, other investment holdings, mortgage portfolios, and derivatives are subject to credit risk. The Company monitors its credit risk management practices on an ongoing basis to evaluate their effectiveness. At December 31, 2019, cash and cash equivalents of $720.0 million (2018 - $650.2 million) consisted of cash balances of $68.0 million (2018 - $81.8 million) on deposit with Canadian chartered banks and cash equivalents of $652.0 million (2018 - $568.4 million). Cash equivalents are comprised of Government of Canada treasury bills totalling $34.5 million (2018 - $103.5 million), provincial government treasury bills and promissory notes of $206.5 million (2018 - $76.2 million), bankers’ acceptances and other short-term notes issued by Canadian chartered banks of $411.0 million (2018 - $364.3 million). Also included in 2018 were highly rated corporate commercial paper of $24.4 million. The Company manages credit risk related to cash and cash equivalents by adhering to its Investment Policy that outlines credit risk parameters and concentration limits. The Company regularly reviews the credit ratings of its counterparties. The maximum exposure to credit risk on these financial instruments is their carrying value. As at December 31, 2019, residential mortgages, recorded on the Company’s balance sheet, of $7.2 billion (2018 - $7.7 billion) consisted of $6.8 billion sold to securitization programs (2018 - $7.3 billion), $344.5 million held pending sale or securitization (2018 - $363.9 million) and $24.2 million related to the Company’s intermediary operations (2018 - $25.6 million). The Company manages credit risk related to residential mortgages through: • Adhering to its lending policy and underwriting standards; • Its loan servicing capabilities; • Use of client-insured mortgage default insurance and mortgage portfolio default insurance held by the Company; and • Its practice of originating its mortgages exclusively through its own network of Mortgage Planning Specialists and IG Wealth Management Consultants as part of a client’s IG Living Plan™. In certain instances, credit risk is also limited by the terms and nature of securitization transactions as described below: • Under the NHA MBS program totalling $3.9 billion (2018 - $4.2 billion), the Company is obligated to make timely payment of principal and coupons irrespective of whether such payments were received from the mortgage borrower. However, as required by the NHA MBS program, 100% of the loans are insured by an approved insurer. • Credit risk for mortgages securitized by transfer to bank-sponsored securitization trusts totalling $2.9 billion (2018 - $3.1 billion) is limited to amounts held in cash reserve accounts and future net interest income, the fair values of which were $71.9 million (2018 - $74.1 million) and $37.9 million (2018 - $35.6 million), respectively, at December 31, 2019. Cash reserve accounts are reflected on the balance sheet, whereas rights to future net interest income are not reflected on the balance sheet and will be recorded over the life of the mortgages. This risk is further mitigated by insurance with 4.6% of mortgages held in ABCP Trusts insured at December 31, 2019 (2018 - 8.3%). 119 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 21 RISK MANAGEMENT (continued) CREDIT RISK RELATED TO FINANCIAL INSTRUMENTS (continued) At December 31, 2019, residential mortgages recorded on balance sheet were 59.1% insured (2018 - 61.5%). As at December 31, 2019, impaired mortgages on these portfolios were $2.4 million, compared to $3.3 million at December 31, 2018. Uninsured non-performing mortgages over 90 days on these portfolios were $1.6 million at December 31, 2019, compared to $1.8 million at December 31, 2018. The Company also retains certain elements of credit risk on mortgage loans sold to the Investors Mortgage and Short Term Income Fund and to the Investors Canadian Corporate Bond Fund through an agreement to repurchase mortgages in certain circumstances benefiting the funds. These loans are not recorded on the Company’s balance sheet as the Company has transferred substantially all of the risks and rewards of ownership associated with these loans. The Company regularly reviews the credit quality of the mortgages and the adequacy of the allowance for expected credit losses. The Company’s allowance for expected credit losses was $0.7 million at December 31, 2019, compared to $0.8 million at December 31, 2018, and is considered adequate by management to absorb all credit-related losses in the mortgage portfolios based on: i) historical credit performance experience and recent trends, ii) current portfolio credit metrics and other relevant characteristics, and iii) regular stress testing of losses under adverse real estate market conditions. The Company’s exposure to and management of credit risk related to cash and cash equivalents, fixed income securities and mortgage portfolios have not changed materially since December 31, 2018. The Company is exposed to credit risk through derivative contracts it utilizes to hedge interest rate risk, to facilitate securitization transactions and to hedge market risk related to certain stock-based compensation arrangements. These derivatives are discussed more fully under the Market Risk section. To the extent that the fair value of the derivatives is in a gain position, the Company is exposed to credit risk that its counterparties fail to fulfil their obligations under these arrangements. The Company’s derivative activities are managed in accordance with its Investment Policy which includes counterparty limits and other parameters to manage counterparty risk. The aggregate credit risk exposure related to derivatives that are in a gain position of $15.7 million (2018 - $19.4 million) does not give effect to any netting agreements or collateral arrangements. The exposure to credit risk, considering netting agreements and collateral arrangements and including rights to future net interest income, was $0.7 million at December 31, 2019 (2018 - nil). Counterparties are all Canadian Schedule I chartered banks and, as a result, management has determined that the Company’s overall credit risk related to derivatives was not significant at December 31, 2019. Management of credit risk related to derivatives has not changed materially since December 31, 2018. MARKET RISK RELATED TO FINANCIAL INSTRUMENTS Market risk is the potential for loss to the Company from changes in the values of its financial instruments due to changes in foreign exchange rates, interest rates or equity prices. Interest Rate Risk The Company is exposed to interest rate risk on its loan portfolio and on certain of the derivative financial instruments used in the Company’s mortgage banking operations. The Company manages interest rate risk associated with its mortgage banking operations by entering into interest rate swaps with Canadian Schedule I chartered banks as follows: • The Company has in certain instances funded floating rate mortgages with fixed rate Canada Mortgage Bonds as part of the securitization transactions under the CMB Program. As previously discussed, as part of the CMB Program, the Company is party to a swap whereby it is entitled to receive investment returns on reinvested mortgage principal and is obligated to pay Canada Mortgage Bond coupons. This swap had a negative fair value of $0.9 million (2018 - positive $4.9 million) and an outstanding notional amount of $0.8 billion at December 31, 2019 (2018 - $0.9 billion). The Company enters into interest rate swaps with Canadian Schedule I chartered banks to hedge the risk that the interest rates earned on floating rate mortgages and reinvestment returns decline. The 120 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 21 RISK MANAGEMENT (continued) MARKET RISK RELATED TO FINANCIAL INSTRUMENTS (continued) Interest Rate Risk (continued) fair value of these swaps totalled negative $4.9 million (2018 – negative $11.0 million), on an outstanding notional amount of $1.6 billion at December 31, 2019 (2018 – $1.7 billion). The net fair value of these swaps of negative $5.8 million at December 31, 2019 (2018 – negative $6.1 million) is recorded on the balance sheet and has an outstanding notional amount of $2.4 billion (2018 - $2.6 billion). • The Company is exposed to the impact that changes in interest rates may have on the value of mortgages committed to or held pending sale or securitization to long-term funding sources. The Company enters into interest rate swaps to hedge the interest rate risk related to funding costs for mortgages held by the Company pending sale or securitization. Beginning in 2018, hedge accounting is applied to the cost of funds on certain securitization activities. The effective portion of fair value changes of the associated interest rate swaps are initially recognized in Other comprehensive income and subsequently recognized in Net investment income and other over the term of the related Obligations to securitization entities. The fair value of these swaps was $0.6 million (2018 – negative $1.8 million) on an outstanding notional amount of $180.4 million at December 31, 2019 (2018 - $249.9 million). As at December 31, 2019, the impact to annual net earnings of a 100 basis point increase in interest rates would have been a decrease of approximately $2.0 million (2018 - decrease of $0.5 million). The Company’s exposure to and management of interest rate risk have not changed materially since December 31, 2018. Equity Price Risk The Company is exposed to equity price risk on its equity investments (Note 4) which are classified as either fair value through other comprehensive income or fair value through profit or loss. The fair value of the equity investments was $357.4 million at December 31, 2019 (2018 - $459.9 million). The Company sponsors a number of deferred compensation arrangements for employees where payments to participants are deferred and linked to the performance of the common shares of IGM Financial Inc. The Company hedges its exposure to this risk through the use of forward agreements and total return swaps. Foreign Exchange Risk The Company is exposed to foreign exchange risk on its investments in Personal Capital and China AMC. Changes to the carrying value due to changes in foreign exchange rates on these investments are recognized in Other comprehensive income. A 5% appreciation (depreciation) in Canadian currency relative to foreign currencies would decrease (increase) the aggregate carrying value of foreign investments by approximately $40.5 million ($44.8 million). The Company’s proportionate share of China AMC’s and Personal Capital’s earnings (losses), recorded in Proportionate share of associates’ earnings in the Consolidated Statements of Earnings, is also affected by changes in foreign exchange rates. A 5% appreciation (depreciation) in Canadian currency relative to foreign currencies would decrease (increase) the proportionate share of associates’ earnings (losses) by approximately $0.7 million ($0.6 million). RISKS RELATED TO ASSETS UNDER MANAGEMENT Risks related to the performance of the equity markets, changes in interest rates and changes in foreign currencies relative to the Canadian dollar can have a significant impact on the level and mix of assets under management. These changes in assets under management directly impact earnings.  121 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into derivative contracts which are either exchange-traded or negotiated in the over-the-counter market on a diversified basis with Schedule I chartered banks or Canadian bank-sponsored securitization trusts that are counterparties to the Company’s securitization transactions. In all cases, the derivative contracts are used for non-trading purposes. Interest rate swaps are contractual agreements between two parties to exchange the related interest payments based on a specified notional amount and reference rate for a specified period. Total return swaps are contractual agreements to exchange payments based on a specified notional amount and the underlying security for a specific period. Options are contractual agreements which convey the right, but not the obligation, to buy or sell specific financial instruments at a fixed price at a future date. Forward contracts are contractual agreements to buy or sell a financial instrument on a future date at a specified price. Certain of the Company’s derivative financial instruments are subject to master netting arrangements and are presented on a gross basis. The amount subject to credit risk is limited to the current fair value of the instruments which are in a gain position and recorded as assets on the Consolidated Balance Sheets. The total estimated fair value represents the total amount that the Company would receive or pay to terminate all agreements at each year end. However, this would not result in a gain or loss to the Company as the derivative instruments which correlate to certain assets and liabilities provide offsetting gains or losses. The following table summarizes the Company’s derivative financial instruments: 2019 Swaps Hedge accounting No hedge accounting Forward contracts Hedge accounting 2018 Swaps Hedge accounting No hedge accounting Forward contracts Hedge accounting 1 YEAR OR LESS 1–5 YEARS OVER 5 YEARS TOTAL CREDIT RISK ASSET LIABILITY NOTIONAL AMOUNT FAIR VALUE $ – 914,441 $ 59,559 1,466,479 $ 46,504 76,973 $ 106,063 2,457,893 $ 373 12,049 $ 373 12,049 $ 10 17,183 10,175 33,440 – 43,615 2,782 2,782 – $ 924,616 $ 1,559,478 $ 123,477 $ 2,607,571 $ 15,204 $ 15,204 $ 17,193 $ – 907,525 $ 122,186 1,736,413 $ 42,650 36,737 $ 164,836 2,680,675 $ 1 16,034 $ 1 16,034 $ 1,158 23,252 10,310 26,985 – 37,295 329 329 4,580 $ 917,835 $ 1,885,584 $ 79,387 $ 2,882,806 $ 16,364 $ 16,364 $ 28,990 The credit risk related to the Company’s derivative financial instruments after giving effect to any netting agreements was $0.7 million (2018 - nil). The credit risk related to the Company’s derivative financial instruments after giving effect to netting agreements and including rights to future net interest income, was $0.7 million (2018 - nil). Rights to future net interest income are related to the Company’s securitization activities and are not reflected on the Consolidated Balance Sheets. NOTE 23 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values are management’s estimates and are calculated using market conditions at a specific point in time and may not reflect future fair values. The calculations are subjective in nature, involve uncertainties and are matters of significant judgment. All financial instruments measured at fair value and those for which fair value is disclosed are classified into one of three levels that distinguish fair value measurements by the significance of the inputs used for valuation. 122 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in the most advantageous market, utilizing a hierarchy of three different valuation techniques, based on the lowest level input that is significant to the fair value measurement in its entirety. Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - Observable inputs other than Level 1 quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data; and Level 3 - Unobservable inputs that are supported by little or no market activity. Valuation techniques are primarily model-based. Markets are considered inactive when transactions are not occurring with sufficient regularity. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In those instances where traded markets are not considered sufficiently active, fair value is measured using valuation models which may utilize predominantly observable market inputs (Level 2) or may utilize predominantly non-observable market inputs (Level 3). Management considers all reasonably available information including indicative broker quotations, any available pricing for similar instruments, recent arm’s length market transactions, any relevant observable market inputs, and internal model-based estimates. Management exercises judgment in determining the most appropriate inputs and the weighting ascribed to each input as well as in the selection of valuation methodologies. Fair value is determined using the following methods and assumptions: Other investments and other financial assets and financial liabilities are valued using quoted prices from active markets, when available. When a quoted market price is not readily available, valuation techniques are used that require assumptions related to discount rates and the timing and amount of future cash flows. Wherever possible, observable market inputs are used in the valuation techniques. Loans classified as Level 2 are valued using market interest rates for loans with similar credit risk and maturity. Loans classified as Level 3 are valued by discounting the expected future cash flows at prevailing market yields. Obligations to securitization entities are valued by discounting the expected future cash flows at prevailing market yields for securities issued by these securitization entities having similar terms and characteristics. Deposits and certificates are valued by discounting the contractual cash flows using market interest rates currently offered for deposits with similar terms and credit risks. Long-term debt is valued using quoted prices for each debenture available in the market. Derivative financial instruments are valued based on quoted market prices, where available, prevailing market rates for instruments with similar characteristics and maturities, or discounted cash flow analysis. Level 1 financial instruments include exchange-traded equity investments and open-end investment fund units and other financial liabilities in instances where there are quoted prices available from active markets. Level 2 assets and liabilities include fixed income securities, loans, derivative financial instruments, deposits and certificates and long- term debt. The fair value of fixed income securities is determined using quoted market prices or independent dealer price quotes. The fair value of derivative financial instruments and deposits and certificates are determined using valuation models, discounted cash flow methodologies, or similar techniques using primarily observable market inputs. The fair value of long-term debt is determined using indicative broker quotes. Level 3 assets and liabilities include investments with little or no trading activity valued using broker-dealer quotes, loans, other financial assets, obligations to securitization entities and derivative financial instruments. Derivative financial instruments consist of principal reinvestment account swaps which represent the component of a swap entered into under the CMB Program whereby the Company pays coupons on Canada Mortgage Bonds and receives investment returns on the reinvestment of repaid mortgage 123 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) principal. Fair value is determined by discounting the projected cashflows of the swaps. The notional amount, which is an input used to determine the fair value of the swap, is determined using an average unobservable prepayment rate of 15% which is based on historical prepayment patterns. An increase (decrease) in the assumed mortgage prepayment rate increases (decreases) the notional amount of the swap. The following table presents the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. The table distinguishes between those financial instruments recorded at fair value and those recorded at amortized cost. The table also excludes fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. These items include cash and cash equivalents, accounts and other receivables, certain other financial assets, accounts payable and accrued liabilities, and certain other financial liabilities. 2019 CARRYING VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL FAIR VALUE Financial assets recorded at fair value Other investments - FVTOCI - FVTPL Loans - FVTPL Derivative financial instruments Financial assets recorded at amortized cost Loans - Amortized cost Financial liabilities recorded at fair value Derivative financial instruments Other financial liabilities Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt 2018 Financial assets recorded at fair value Other investments - FVTOCI - FVTPL Loans - FVTPL Derivative financial instruments Financial assets recorded at amortized cost Loans $ 301,196 56,166 $ – 55,603 $ – – $ 301,196 563 $ 301,196 56,166 – 15,204 7,198,043 17,193 – 584,331 6,913,636 2,100,000 – – – – – – – – – 10,762 – 4,442 – 15,204 366,020 6,907,743 7,273,763 11,845 – 5,348 – 17,193 – 584,662 – 2,453,564 – 6,996,953 – 584,662 6,996,953 2,453,564 $ 372,396 87,515 $ – 86,963 $ – – $ 372,396 552 $ 372,396 87,515 4,303 16,364 – – – 4,303 7,179 – 9,185 4,303 16,364 380,372 7,405,170 7,785,542 - Amortized cost 7,733,728 Financial liabilities recorded at fair value Derivative financial instruments Other financial liabilities Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt 28,990 8,237 – 8,235 24,704 2 4,286 – 28,990 8,237 568,799 7,370,193 1,850,000 – – – 569,048 – 2,050,299 – 7,436,873 – 569,048 7,436,873 2,050,299 124 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) There were no significant transfers between Level 1 and Level 2 in 2019 and 2018. The following table provides a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis. 2019 Other investments - FVTOCI - FVTPL Derivative financial instruments, net 2018 Other investments - FVTOCI - FVTPL Derivative financial instruments, net GAINS/ (LOSSES) GAINS/(LOSSES) INCLUDED IN OTHER PURCHASES BALANCE JANUARY 1 INCLUDED IN NET EARNINGS(1) COMPREHENSIVE AND TRANSFERS BALANCE INCOME ISSUANCES SETTLEMENTS IN/OUT DECEMBER 31 $ 372,396 552 $ – 11 $ 12,248 – $ 66,693 – $ – – $ (150,141) – $ 301,196 563 4,899 (5,207) – (1,551) (953) – (906) $ 262,825 661 $ – (8) $ 21,002 – $ 88,569 – $ – – $ – (101) $ 372,396 552 4,095 (12,689) – 224 (13,269) – 4,899 (1) Included in Net investment income in the Consolidated Statements of Earnings. NOTE 24 EARNINGS PER COMMON SHARE Earnings Net earnings Perpetual preferred share dividends Net earnings available to common shareholders Number of common shares (in thousands) Weighted average number of common shares outstanding Add: Potential exercise of outstanding stock options (1) Average number of common shares outstanding - Diluted basis Earnings per common share (in dollars) Basic Diluted (1) Excludes 1,591 thousand shares in 2019 related to outstanding stock options that were anti-dilutive (2018 - 1,453 thousand). 2019 2018 $ 748,947 2,213 $ 776,168 8,850 $ 746,734 $ 767,318 239,105 76 240,815 125 239,181 240,940 $ $ 3.12 3.12 $ $ 3.19 3.18 125 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 CONTINGENT LIABILITIES AND GUARANTEES CONTINGENT LIABILITIES The Company is subject to legal actions arising in the normal course of its business. In December 2018, a proposed class action was filed in the Ontario Superior Court against Mackenzie Financial Corporation which alleges that the company should not have paid mutual fund trailing commissions to order execution only dealers. Although it is difficult to predict the outcome of any such legal actions, based on current knowledge and consultation with legal counsel, management does not expect the outcome of any of these matters, individually or in aggregate, to have a material adverse effect on the Company’s consolidated financial position. GUARANTEES In the normal course of operations, the Company executes agreements that provide for indemnifications to third parties in transactions such as business dispositions, business acquisitions, loans and securitization transactions. The Company has also agreed to indemnify its directors and officers. The nature of these agreements precludes the possibility of making a reasonable estimate of the maximum potential amount the Company could be required to pay third parties as the agreements often do not specify a maximum amount and the amounts are dependent on the outcome of future contingent events, the nature and likelihood of which cannot be determined. Historically, the Company has not made any payments under such indemnification agreements. No provisions have been recognized related to these agreements. NOTE 26 RELATED PARTY TRANSACTIONS TRANSACTIONS AND BALANCES WITH RELATED ENTITIES The Company enters into transactions with The Great-West Life Assurance Company (Great-West), London Life Insurance Company (London Life) and The Canada Life Assurance Company (Canada Life), which are all subsidiaries of its affiliate, Lifeco, which is a subsidiary of Power Financial Corporation. Effective as of January 1, 2020, Great-West, London Life and Canada Life amalgamated into a single company, The Canada Life Assurance Company. These transactions are in the normal course of operations and have been recorded at fair value: • During 2019 and 2018, the Company provided to and received from Great-West certain administrative services. The Company distributes insurance products under a distribution agreement with Great-West and Canada Life and received $54.8 million in distribution fees (2018 - $62.6 million). The Company received $17.1 million (2018 - $17.5 million) and paid $26.2 million (2018 - $25.4 million) to Great-West and related subsidiary companies for the provision of sub-advisory services for certain investment funds. The Company paid $78.8 million (2018 - $78.3 million) to London Life related to the distribution of certain investment funds of the Company. • During 2019, the Company sold residential mortgage loans to Great-West and London Life for $10.8 million (2018 - $61.4 million). After obtaining advanced tax rulings in October 2017, the Company agreed to tax loss consolidation transactions with the Power Corporation of Canada group whereby shares of a subsidiary that has generated tax losses may be acquired in each year up to and including 2020. The acquisitions are expected to close in the fourth quarter of each year. The Company will recognize the benefit of the tax losses realized throughout the year. On each of December 31, 2019 and December 31, 2018, the Company acquired shares of such loss companies and recorded the benefit of the tax losses acquired. 126 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 26 RELATED PARTY TRANSACTIONS (continued) KEY MANAGEMENT COMPENSATION The total compensation and other benefits to directors and employees classified as key management, being individuals having authority and responsibility for planning, directing and controlling the activities of the Company, are as follows: Compensation and employee benefits Post-employment benefits Share-based payments $ 2019 4,260 3,988 2,023 $ 2018 4,200 3,007 1,638 $ 10,271 $ 8,845 Share-based payments exclude the fair value remeasurement of the deferred share units associated with changes in the Company’s share price (Note 19). NOTE 27 SEGMENTED INFORMATION The Company's reportable segments are: • IG Wealth Management • Mackenzie • Corporate and Other These segments reflect the Company’s internal financial reporting and performance measurement. In the third quarter of 2018, the Company announced that it had rebranded Investors Group as IG Wealth Management. IG Wealth Management earns fee-based revenues in the conduct of its core business activities which are primarily related to the distribution, management and administration of its investment funds. It also earns fee revenues from the provision of brokerage services and the distribution of insurance and banking products. In addition, IG Wealth Management earns intermediary revenues primarily from mortgage banking and servicing activities and from the assets funded by deposit and certificate products. Mackenzie earns fee-based revenues from services it provides as fund manager to its investment funds and as investment advisor to sub-advisory and institutional accounts. Corporate and Other includes Investment Planning Counsel, equity income from its investments in Lifeco, China AMC and Personal Capital (Note 8), net investment income on unallocated investments, other income, and also includes consolidation elimination entries. 127 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 SEGMENTED INFORMATION (continued) 2019 Revenues Management fees Administration fees Distribution fees Net investment income and other Proportionate share of associates' earnings Expenses Commission Non–commission IG WEALTH MACKENZIE CORPORATE TOTAL MANAGEMENT INVESTMENTS AND OTHER SEGMENT ADJUSTMENTS(1) TOTAL $ 1,487,935 299,631 171,164 56,248 $ 703,538 98,251 5,746 4,236 $ 76,487 16,575 191,126 16,444 $ 2,267,960 414,457 368,036 76,928 $ – – – – $ 2,267,960 414,457 368,036 76,928 – – 122,425 122,425 (17,200) 105,225 2,014,978 811,771 423,057 3,249,806 (17,200) 3,232,606 628,766 615,934 292,896 350,438 179,503 88,017 1,101,165 1,054,389 1,244,700 643,334 267,520 2,155,554 – – – 1,101,165 1,054,389 2,155,554 Earnings before undernoted $ 770,278 $ 168,437 $ 155,537 1,094,252 (17,200) 1,077,052 Interest expense(2) Proportionate share of associate's one–time charges Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends (108,386) (17,200) 968,666 219,719 748,947 2,213 – 17,200 (108,386) – – – – – 968,666 219,719 748,947 2,213 Net earnings available to common shareholders $ 746,734 $ – $ 746,734 Identifiable assets Goodwill Total assets $ 8,508,059 1,347,781 $ 1,140,237 1,168,580 $ 3,082,913 143,906 $ 12,731,209 2,660,267 $ 9,855,840 $ 2,308,817 $ 3,226,819 $ 15,391,476 (1) Proportionate share of Associate’s one time charges is not related to a specific segment and therefore excluded from segment results. These items have been added back to their respective revenue or expense line item to reconcile Total Segment results to the Company’s Consolidated Statements of Earnings. (2) Interest expense includes interest on long-term debt and, beginning January 1, 2019, includes interest on leases of $4.1 million as a result of the Company's adoption of IFRS 16, Leases. 128 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      NOTE 27 SEGMENTED INFORMATION (continued) 2018 Revenues Management fees Administration fees Distribution fees Net investment income and other Proportionate share of associates’ earnings Expenses Commission Non-commission IG WEALTH MACKENZIE CORPORATE TOTAL MANAGEMENT INVESTMENTS AND OTHER SEGMENT ADJUSTMENTS(1) TOTAL $ 1,458,127 310,382 171,531 46,665 $ $ 701,424 98,353 6,713 (1,942) 79,631 18,358 192,662 17,205 $ 2,239,182 427,093 370,906 61,928 $ – – 149,962 149,962 1,986,705 804,548 457,818 3,249,071 – – – – – – $ 2,239,182 427,093 370,906 61,928 149,962 3,249,071 623,421 597,242 291,089 335,105 184,133 88,377 1,098,643 1,020,724 – 22,758 1,098,643 1,043,482 1,220,663 626,194 272,510 2,119,367 22,758 2,142,125 Earnings before undernoted $ 766,042 $ 178,354 $ 185,308 1,129,704 (22,758) 1,106,946 Interest expense Premium paid on early redemption of debentures (Note 16) Restructuring and other charges (Note 3) Earnings before income taxes Income taxes Net earnings Perpetual preferred share dividends (110,179) (10,680) (22,758) 986,087 209,919 776,168 8,850 Net earnings available to common shareholders $ 767,318 $ Identifiable assets Goodwill Total assets $ 8,822,277 1,347,781 $ 1,153,639 1,168,580 $ 2,972,531 143,906 $ 12,948,447 2,660,267 $ 10,170,058 $ 2,322,219 $ 3,116,437 $ 15,608,714 (10,680) 10,680 22,758 – – – – – (120,859) – – 986,087 209,919 776,168 8,850 $ 767,318 (1) Premium paid on early redemption of debentures and Restructuring and other charges are not related to a specific segment and therefore excluded from segment results. These items have been added back to their respective revenue or expense line item to reconcile Total Segment results to the Company’s Consolidated Statements of Earnings. 129 IGM FINANCIAL INC. ANNUAL REPORT 2019 | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    QUARTERLY REVIEW CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 ($ thousands, except per share amounts) Q4 Q3 Q2 2019 Q1 Q4 Q3 Q2 2018 Q1 Revenues Management Administration Distribution Net investment income and other Proportionate share of associates' earnings Expenses Commission Non–commission Interest $ 581,231 104,197 93,452 21,256 23,409 $ 574,083 104,433 91,075 17,580 28,902 $ 567,422 104,128 94,235 17,859 20,264 $ 545,224 101,699 89,274 20,233 32,650 $ 545,975 103,382 94,345 13,168 34,602 $ 573,825 109,054 93,344 15,974 39,793 $ 562,781 107,123 89,897 18,577 37,583 $ 556,601 107,534 93,320 14,209 37,984 823,545 816,073 803,908 789,080 791,472 831,990 815,961 809,648 278,279 266,043 27,758 272,367 254,257 27,764 275,853 259,651 27,648 274,666 274,438 25,216 272,308 269,034 24,122 270,073 268,676 37,703 270,164 252,627 28,770 286,098 253,145 30,264 572,080 554,388 563,152 574,320 565,464 576,452 551,561 569,507 Earnings before income taxes Income taxes 251,465 59,835 261,685 59,208 240,756 55,632 214,760 45,044 226,008 43,874 255,538 55,172 264,400 58,483 Net earnings Perpetual preferred share dividends 191,630 – 202,477 – 185,124 – 169,716 2,213 182,134 2,212 200,366 2,213 205,917 2,212 240,141 52,390 187,751 2,213 Net earnings available to common shareholders Reconciliation of Non–IFRS Financial Measures(1) Adjusted net earnings available to common shareholders – non – IFRS measure Proportionate share of associate's one–time charges Restructuring and other, net of tax Premium paid on early redemption of debentures, net of tax Net earnings available to common $ 191,630 $ 202,477 $ 185,124 $ 167,503 $ 179,922 $ 198,153 $ 203,705 $ 185,538 $ 200,830 $ 202,477 $ 193,124 $ 167,503 $ 179,922 $ 222,672 $ 203,705 $ 185,538 (9,200) – – – – – (8,000) – – – – – – – – – (16,723) (7,796) – – – – – – shareholders – IFRS $ 191,630 $ 202,477 $ 185,124 $ 167,503 $ 179,922 $ 198,153 $ 203,705 $ 185,538 Diluted earnings per share (¢) Net earnings Adjusted net earnings (1) Dividends per share (¢) 80 84 56.25 85 85 56.25 77 81 56.25 70 70 56.25 75 75 56.25 82 92 56.25 85 85 56.25 77 77 56.25 (1) Refer to page 24 of the MD&A for an explanation of the Company's use of non–IFRS financial measures. 130 IGM FINANCIAL INC. ANNUAL REPORT 2019 | QUARTERLY REVIEW QUARTERLY REVIEW STATISTICAL INFORMATION FOR THE YEARS ENDED DECEMBER 31 ($ millions) Investment funds IG Wealth Management (1) Mutual fund sales Mutual fund redemption rate (%) - total Net sales (redemptions) Assets under management - long-term funds Mackenzie Mutual fund sales Mutual fund redemption rate (%) - total - long-term funds Net sales (redemptions) Assets under management Mutual fund ETF Investment fund (2) Investment Planning Counsel (1) Mutual fund sales Mutual fund redemption rate (%) - total - long-term funds Net sales (redemptions) Assets under management Total investment fund assets under management (3) Q4 Q3 Q2 2019 Q1 Q4 Q3 Q2 2018 Q1 $ 2,251 $ 2,077 $ 2,045 $ 2,350 $ 2,118 $ 2,014 $ 2,084 $ 2,859 10.9 10.3 (247) 93,161 10.8 10.2 (291) 90,779 10.5 9.9 (537) 90,176 10.1 9.5 (14) 89,411 9.8 9.2 (125) 83,137 9.5 8.8 (64) 88,992 9.3 8.6 (110) 88,762 9.1 8.4 784 87,103 2,587 2,253 2,541 2,505 2,328 2,252 2,741 2,630 16.1 15.6 265 60,838 4,749 63,991 16.2 15.7 491 59,275 4,051 62,150 16.7 16.2 284 58,864 3,454 61,395 17.5 17.0 376 57,694 3,330 60,126 17.6 17.1 (91) 53,407 2,949 55,508 16.9 16.4 258 57,343 2,963 59,493 15.8 15.3 447 56,842 2,600 58,692 14.2 13.7 768 55,586 2,004 56,994 147 154 174 219 229 219 252 260 19.5 19.3 (114) 5,391 21.1 20.9 (60) 5,365 20.9 20.7 (82) 5,396 20.3 20.1 (16) 5,426 19.4 19.2 (65) 5,125 17.1 16.8 (6) 5,532 17.1 16.9 5 5,562 16.9 16.7 48 5,452 161,763 157,578 156,301 154,335 143,282 153,430 152,477 149,203 Total assets under management (3) 166,808 162,536 162,328 160,467 149,066 159,714 159,129 155,758 Corporate assets 15,391 15,574 15,706 15,970 15,609 15,399 15,672 Consultants - IG Wealth Management 3,381 3,486 3,557 3,642 3,711 3,827 3,945 15,695 4,081 (1) IG Wealth Management and Investment Planning Counsel total assets under management and net sales include separtely managed accounts. (2) Excludes Mackenzie mutual fund investments in ETFs (3) Adjusted for inter-segment assets. 131 IGM FINANCIAL INC. ANNUAL REPORT 2019 | QUARTERLY REVIEW TEN YEAR REVIEW CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 ($ thousands, except per share amounts) 2019 2018 2017 2016 2015 % 2014 2013 2012 2011 2010 % CAGR(1) 5 YEAR CAGR(1) 10 YEAR Fee income 3,050,453 3,037,181 3,005,733 2,856,934 2,833,355 2.0 2,762,578 2,513,186 2,424,574 2,571,076 2,467,813 3.2 Net investment income and other 182,153 211,890 148,277 187,849 194,590 2.0 164,706 176,836 152,582 161,376 140,874 11.2 RESTATED Expenses 2,263,940 2,262,984 2,369,358 2,097,846 2,037,153 2.9 1,962,321 1,708,642 1,618,989 1,635,154 1,600,831 3,232,606 3,249,071 3,154,010 3,044,783 3,027,945 2.0 2,927,284 2,690,022 2,577,156 2,732,452 2,608,687 Income before undernoted 968,666 986,087 784,652 946,937 990,792 Income taxes 219,719 209,919 173,887 167,633 210,250 0.1 1.6 964,963 981,380 958,167 1,097,298 1,007,856 202,862 210,626 190,504 250,497 268,805 Discontinued operations – – – – – – – – – 62,644 1,753 748,947 776,168 610,765 779,304 780,542 (0.3) 762,101 770,754 767,663 846,801 739,051 748,947 776,168 610,765 779,304 780,542 (0.3) 762,101 770,754 767,663 909,445 740,804 3.5 4.1 2.3 0.1 3.0 – 3.0 2,213 8,850 8,850 8,850 8,850 (24.5) 8,850 8,850 8,850 8,850 10,105 N/M 746,734 767,318 601,915 770,454 771,692 (0.2) 753,251 761,904 758,813 900,595 730,699 2.9 Net earnings Perpetual preferred share dividends Net earnings available to common shareholders Adjusted net earnings available to common shareholders (2) 763,934 791,837 727,864 736,454 796,001 (1.6) 826,100 763,510 746,404 832,991 758,943 2.1 Diluted earnings per share ($) Net earnings Adjusted net earnings (2) Dividends per share ($) Return on average common equity (ROE) (%) Net earnings Adjusted net earnings (2) Average shares outstanding (thousands) - Basic - Diluted 3.12 3.19 2.25 16.9 17.2 3.18 3.29 2.25 17.7 18.2 2.50 3.02 2.25 12.9 15.6 3.19 3.05 2.25 17.1 16.3 3.11 3.21 2.25 16.9 17.4 0.9 (0.5) 0.7 2.98 3.27 2.18 16.2 17.8 3.02 3.02 2.15 17.3 17.3 2.97 2.92 2.15 17.6 17.3 3.48 3.22 2.10 21.3 19.7 2.78 2.89 2.05 17.6 18.2 3.9 3.1 0.9 239,105 240,815 240,585 241,300 248,173 252,108 252,013 254,853 258,151 261,855 239,181 240,940 240,921 241,402 248,299 252,778 252,474 255,277 259,075 262,867 Share price (closing $) 37.28 31.03 44.15 38.20 35.34 (4.2) 46.31 56.09 41.60 44.23 43.46 (1.3) (1) Compound annual growth rate. (2) Non-IFRS Financial Measures - Excludes other items as follows: 2019 - After-tax charge of $17.2 million representing the Company's proportionate share in Great-West Lifeco Inc.'s (Lifeco) one-time charges. 2018 - After-tax charge of $16.7 million related to restructuring and other and an after-tax charge of $7.8 million representing a premium paid on the early redemption of the $375 million debentures. 2017 - After-tax charges of $126.8 million and $16.8 million related to restructuring and other charges, an after-tax reduction of $36.8 million in expenses related to the Company's pension plan, after-tax charges of $14.0 million and $5.1 million related to the proportionate share in Lifeco's one-time charges and restructuring provision, respectively. 2016 - A favourable change in income tax provision estimates of $34.0 million related to certain tax filings 2015 - An after-tax charge of $24.3 million related to restructuring and other charges. 2014 - An after-tax charge of $59.2 million related to distributions to clients, as well as other costs and an after-tax charge of $13.6 million related to restructuring and other charges. 2013 - An after-tax charge of $10.6 million related to restructuring and other charges and an after-tax benefit of $9.0 million representing the Company's proportionate share of net changes in Lifeco's litigation provision. 2012 - A favourable change in income tax provision estimates of $24.4 million related to certain tax filings, an after-tax charge of $5.6 million representing the Company's proportionate share of net changes in Lifeco's litigation provisions, and a non-cash income tax charge of $6.4 million resulting from increases in Ontario corporate income tax rates and their effect on the deferred income tax liability related to indefinite life intangible assets arising from prior business acquisitions. 2011 - Net earnings from discontinued operations of $62.6 million and an after-tax benefit of $5.0 million representing the Company's proportionate share of net changes in Lifeco's litigation provisions. 2010 - Net earnings from discontinued operations of $1.8 million, a non-recurring after-tax charge of $21.8 million related to the transition to IFRS, and an after-tax charge of $8.2 million representing the Company's proportionate share of Lifeco's incremental litigation provision. 132 IGM FINANCIAL INC. ANNUAL REPORT 2019 | TEN YEAR REVIEW TEN YEAR REVIEW STATISTICAL INFORMATION FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2019 2018 2017 2016 2015 CAGR(1) 5 YEAR % 2014 2013 2012 2011 CAGR(1) 10 YEAR % 2010 Investment funds IG Wealth Management (2) Mutual fund sales Mutual fund redemption rate (%) 8,723 -total -long-term funds 10.9 10.3 Net sales (redemptions) (1,089) Assets under management 93,161 Mackenzie Mutual fund sales Mutual fund redemption rate (%) 9,886 9,075 9,693 7,760 7,890 3.2 7,461 6,668 5,778 6,021 5,748 5.6 9.8 9.2 485 83,137 9.2 8.4 1,944 88,008 9.6 8.8 366 81,242 9.4 8.7 754 74,897 N/M 4.9 9.5 8.7 651 73,459 10.2 9.4 159 68,255 11.0 10.0 (724) 60,595 9.8 8.8 39 57,735 9.4 8.3 253 61,785 N/M 4.9 9,951 9,124 6,939 6,965 6.9 7,070 6,700 5,490 5,645 5,848 7.3 - total - long-term funds Net sales (redemptions) Assets under management 16.1 15.6 1,416 17.6 17.1 1,382 15.2 14.8 1,780 15.6 15.0 (555) 16.6 16.2 (1,258) N/M 15.1 14.6 (209) 16.7 16.0 (487) 18.7 17.9 (1,974) 16.9 15.8 (1,548) 18.1 16.5 (1,519) N/M Mutual fund ETF Investment fund (3) 60,838 4,749 63,991 53,407 2,949 55,508 55,615 1,296 56,543 51,314 113 51,427 48,445 4.5 48,782 46,024 40,394 39,141 43,452 4.1 48,445 5.6 48,782 46,024 40,394 39,141 43,452 4.6 Investment Planning Counsel (2) Mutual fund sales Mutual fund redemption rate (%) 694 960 889 955 741 0.3 682 485 401 543 499 7.3 - total - long-term funds Net sales (redemptions) Assets under management 19.5 19.3 (272) 5,391 19.4 19.2 (18) 5,125 17.0 16.7 79 5,377 15.9 15.7 293 4,908 13.8 13.6 177 4,452 N/M 7.0 12.9 12.6 207 3,850 13.8 13.2 52 3,406 14.7 14.3 (24) 2,950 11.1 10.9 225 2,811 12.7 12.0 204 2,688 N/M 9.7 161,763 143,282 149,818 137,575 127,791 5.1 126,039 117,649 103,915 99,685 107,925 4.9 Total investment fund assets under management (4) Total assets under management (4) 3.3 5.9 166,808 149,066 156,513 142,688 134,398 3.3 141,919 131,777 120,694 118,713 129,484 Corporate assets 15,391 15,609 16,499 15,625 14,831 1.3 14,417 12,880 11,962 11,144 12,237 Consultants - IG Wealth Management 3,381 3,711 4,146 4,947 5,320 (8.1) 5,145 4,673 4,518 4,608 4,686 (3.1) (1) Compound annual growth rate. (2) IG Wealth Management and Investment Planning Counsel total assets under management and net sales include separately managed accounts. (3) Excludes Mackenzie mutual fund investments in ETFs. (4) Adjusted for inter-segment assets. 133 IGM FINANCIAL INC. ANNUAL REPORT 2019 | TEN YEAR REVIEW SHAREHOLDER INFORMATION HEAD OFFICE 447 Portage Avenue Winnipeg, Manitoba R3B 3H5 Telephone: 204 943 0361 Fax: 204 947 1659 AUDITOR Deloitte llp TRANSFER AGENT AND REGISTRAR Computershare Investor Services Inc. Telephone: 800 564 6253 service@computershare.com 600, 530-8th Avenue S.W. Calgary, Alberta T2P 3S8 1500 Robert-Bourassa Boulevard, 7th Floor Montreal, Quebec H3A 3S8 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 510 Burrard Street, 2nd Floor Vancouver, British Columbia V6C 3B9 STOCK EXCHANGE LISTING Toronto Stock Exchange Shares of IGM Financial Inc. are listed on the Toronto Stock Exchange under the following listings: Common Shares: IGM SHAREHOLDER INFORMATION For additional financial information about the Company, please contact: Investor Relations investor.relations@igmfinancial.com For copies of the annual or quarterly reports, please contact the Corporate Secretary’s office at 204 956 8328 or visit our website at www.igmfinancial.com ANNUAL MEETING The Annual Meeting of IGM Financial Inc. will be held at The Metropolitan Entertainment Centre, 281 Donald Street, Winnipeg, Manitoba, Canada on Friday, May 8, 2020 at 11:00 a.m. Central Time. WEBSITES Visit our websites at www.igmfinancial.com www.investorsgroup.com www.mackenzieinvestments.com www.ipcc.ca ™ Trademarks, including IG Wealth Management, are owned by IGM Financial Inc. and licensed to its subsidiary corporations, except as noted below. Investment Planning Counsel’s trademark is owned by Investment Planning Counsel Inc. and used with permission. Mackenzie Investments’ trademark is owned by Mackenzie Financial Corporation and used with permission. † Banking products and services are distributed through Solutions Banking™. Solutions Banking products and services are provided by National Bank of Canada. Solutions Banking is a trademark of Power Financial Corporation. National Bank of Canada is a licensed user of these trademarks. Morningstar and the Morningstar Ratings are trademarks of Morningstar Inc. Quadrus Group of Funds is a trademark of Quadrus Investment Services Ltd. CFP® and Certified Financial Planner® are certification trademarks owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planning Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB. “IGM Financial Inc. 2019 Annual Report” © Copyright IGM Financial Inc. 2020 A MEMBER OF THE POWER CORPORATION GROUP OF COMPANIES 134 IGM FINANCIAL INC. ANNUAL REPORT 2019 | SHAREHOLDER INFORMATION 

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