IGM Financial
Annual Report 2021

Plain-text annual report

1 2 0 2 t r o p e R l a u n n A l a i c n a n i F M G I Bettering the lives of Canadians TSX: IGM Contents 3 4 6 11 12 13 13 14 16 17 91 Our purpose 2021 highlights Letter to shareholders Corporate structure Wealth management highlights Asset management highlights Strategic investments highlights Our people Our commitment to sustainability Management’s discussion and analysis Consolidated financial statements Readers are referred to the caution regarding Forward-Looking Statements and Non-IFRS Financial Measures and Additional IFRS Measures on page 18 of this report. Unless otherwise noted, all figures mentioned in this report are in Canadian dollars and are as of, or for the year ending, December 31, 2021. 2 From our IGM family to yours IGM maintains the unique strategies of our individual businesses while maximizing the value of shared knowledge and resources. 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 globally. IGM’s family of companies provide a broad range of financial planning and investment management 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, private alternative markets and China • Benefit from financial strength and scale and strong governance as a member of the Power Corporation group of companies • Long-term view to shareholder value creation and demonstrated commitment to corporate sustainability Our purpose IGM Financial’s family of companies are committed to bettering the lives of Canadians, by better planning and managing their money. We are helping people better manage their money so they can live the life they deserve. We strive to do this through the pursuit of: Better experiences Better solutions We bring together the best of both worlds for our people – the accountability and agility of a small player with the scale and impact of a big firm – while offering more room to grow, in a diverse and inclusive work environment. We believe in improving the financial well-being of Canadians by making comprehensive investment and wealth planning solutions more accessible; built on lasting relationships, not transactions. Better communities Better ownership We leverage our local connectivity coast-to-coast and our global voice to better our communities, the environment, and the world around us, creating a collective impact that goes well beyond our company walls. As part of the Power Corporation group of companies, we balance short-term needs with a long-term perspective that is focused on creating enduring value and a sustainable future for generations to come. Building a culture of better, starts with values that make us better We are progressive We think beyond today and challenge conventional thinking to seek new and improved ways of working. We are entrepreneurial We celebrate initiative and encourage everyone to own their actions. We are responsible We hold ourselves to the highest standards and do what’s right for today and sustainable for our future. We are inclusive We embrace and nurture our unique perspectives as an asset to be cultivated. 3 2021 IGM Financial Annual Report2021 highlights Our clients Our people Our community 1 million+ IG Wealth Management clients 30,000+ external advisors serving more than 1 million Mackenzie clients 198,000 Investment Planning Counsel clients 51% >3,800 employees across the IGM family of companies 1,761 IG consultants with more than four years experience and a total network of 3,278 consultants and associates 28% of IG consultants and associates are women of Mackenzie mutual fund assets reside in funds rated 4 or 5 stars by Morningstar 32% $4.32 billion assets under management in Mackenzie-managed Sustainable Solutions,1 up from $1.65B in 2020 IGM has ranked at the leadership level for the past five years for it climate change disclosure of IGM senior leadership roles (VP level and higher) held by women IGM’s hybrid workplace of the future Creating best-in-class workspaces and a hybrid work model to provide employees with flexibility and choice, critical to a inclusive employee experience IGM ranked top capital markets and asset management firm in Corporate Knights’ 2022 Global 100 Most Sustainable Corporations New partnership with National Centre for Truth and Reconciliation’s Imagine a Canada K-12 education program $1.92 million raised through IGM Caring Company Campaign, a 23% increase from 2020 IG streaming series takes Indigenous, newcomer, senior and youth entrepreneurs on a financial education journey to unloc their dreams IG and Mackenzie are committed to the PRI and require all sub-advisors to be signatories IG recognized as one of the Top 100 Employers in Canada Mackenzie and IPC among Greater Toronto’s Top Employers $670,000 in grants given to charities across Canada in 2021 We are proud of our commitments and achievements in working towards a sustainable future 1 All investment boutiques at Mackenzie utilize ESG factors in their investment process. $4.32B includes only “sustainable investment” products where sustainability goals are explicitly outlined in the objectives and strategies of each product by prospectus. 44 From our IGM family to yours Shareholder highlights Record high net earnings2 $978.9 million $4.08 per share up 28 per cent from 2020 Record high assets under management & advisement $277 billion up 15 per cent from 2020 One year total shareholder return 38.8% Dividends declared $537.8 million $2.25 per share per common share 2 available to common shareholders Strong asset growth 2021 IGM Financial assets under management and advisement ($B) 240 8.7 28.4 277 Opening Net flows Investment returns & other Ending Total assets under management and advisement ($B) Opening Net flows Investment returns & other IG Wealth Management Investment Planning Counsel Mackenzie Investments IGM Financial consolidated4 103.3 29.3 110.9 240.0 3.7 0.5 5.1 8.7 12.6 3.3 13.13 28.4 3 Investment returns and other includes the change in sub-advised Canada Life assets under management 4 Consolidated results eliminate double counting where business is reflected within multiple segment Ending 119.6 33.1 129.1 277.1 5 2021 IGM Financial Annual ReportLetter to shareholders A second year of living with the pandemic continued to teach us all lessons in building resilience. While it has been a trying time, many of us are adapting to the new normal and there’s a growing sense of optimism. At IGM, our business is about improving the lives of Canadians through better planning and managing their money. Our clients are more motivated than ever to build their resilience against potential uncertainties and are making the connection between how their money is managed and how it can improve all aspects of their lives, today and down the road. They’re also looking for their investments to have a farther-reaching impact – to help tackle climate change, to promote equity and inclusion, and more. We’re proud to have been there for our clients as they dealt with the challenges of the pandemic and looked to the future. Thanks to the outstanding efforts of our employees and advisors, our clients did very well in 2021 – as did our shareholders – and we have clear business momentum. We ended the year with record high assets under management and advisement (AUM&A) of $277 billion, up 15 per cent from last year. Net inflows for the year of $8.7 billion were also a record high, up from $7.1 billion in 2020. Annual net earnings of $978.9 million or $4.08 per share are an all-time record high and up 28 per cent from 2020. Growing momentum For Canadians, IGM’s ability to demystify the growing complexity of financial markets – to provide clear holistic guidance across all aspects of our clients’ financial lives, while also bringing institutional-style solutions to retail investors – has set us apart in our sector. As a result, the two big engines that drive our business, wealth management and asset management, delivered strong performance and are on clear paths to continued growth. What’s more, our strategic investments continued to help us enhance growth profiles and expand capabilities. Wealth management With the pandemic persisting and inflation concerns rising, it was essential for IG Wealth Management and Investment Planning Counsel to stay close to clients and help them navigate evolving market conditions that directly affected their investment portfolios. Under Damon Murchison’s leadership, IG Wealth Management continued to experience strong and sustainable growth. Client assets under advisement grew to a record high $119.6 billion, an increase of 16 per cent from 2020, while full year net inflows were a record high $3.7 billion, up from $795 million last year. We’re proud to have been there for our clients as they dealt with the challenges of the pandemic and looked to the future. 6 From our IGM family to yours its leadership team with Chris Reynolds moving into the newly created position of Executive Chair, and Blaine Shewchuk, who was previously IGM’s Chief Strategy and Corporate Development Officer, assuming the role of President and Chief Executive Officer. IPC continued to grow its corporate branch office model and is well positioned as a generation of independent advisors look to retire and transition their business to a strategic partner. Results were enhanced by IPC’s reputation with its financial advisors; the firm received stellar ratings – 9.1 out of 10 – in the Dealers’ Report Card. To build on the momentum, IG solidified its leadership team, adding recognized investment and client experience expertise. IG’s Private Wealth Management offering continued to support the affluent mass-market and high-net-worth (HNW) segments. In 2021, investment product sales to households with more than $500k invested at IG was up 46 per cent from 2020, with this segment representing 59 per cent of our sales, up from 54 per cent in 2020. Client relationships were enhanced with the rollout of the Conquest financial planning software, which uses artificial intelligence, advanced analytics and allows both real-time and remote collaboration to provide an increasingly sophisticated level of planning. The technology enables advisors to create and stress test different scenarios, complex situations and adapt plans quickly to reflect changes in clients’ lives. Investments like this no doubt contributed to IG improving its scores in 26 of the 27 business categories in the Investment Executive 2021 Dealers’ Report Card, more than any company in the study. These scores are based on feedback from advisors about their firms. The launch of IG’s Climate Action Portfolio was another significant step forward in our commitment to being a leader in sustainable initiatives, providing clients with a new way to support the world’s transition to net zero carbon emissions and take advantage of the growth opportunities therein. Launched in late October 2021, the suite of four diversified managed solutions has been very well received. Investment Planning Counsel (IPC) delivered strong financial results in 2021. With net earnings up 34 per cent and at an all-time record high level, they are poised for even greater success in the future. To take advantage of emerging opportunities, IPC strengthened James O’Sullivan President and Chief Executive Officer IGM Financial Asset management Strategic investments Mackenzie Investments, led by Barry McInerney, rolled out innovative, forward-thinking products and solutions, while delivering a second consecutive year of record results. Total AUM hit new highs of $210.3 billion, up 14 per cent from $185.1 billion at the end of 2020. Mackenzie saw record-high investment fund net sales of $5.4 billion and total net sales (including institutional) of $5.1 billion in 2021. Sustainable investing is one of Mackenzie’s main growth drivers as institutional and retail investors alike look to achieve better risk-adjusted returns, while contributing to positive social and environmental change. The firm continues to build its capabilities and solutions – and make a name for itself – in this growing space. Having acquired Greenchip Financial, which specializes in environmental thematic investing, in late 2020, Mackenzie added the Mackenzie Betterworld sustainability-focused boutique and launched its two inaugural funds in 2021. Alternative investments are expected to account for about 50 per cent of the global asset management revenue pool by 2024.1 In an effort to make this asset class more accessible to retail investors, Mackenzie launched the Mackenzie Northleaf Private Credit Fund and the Mackenzie Northleaf Private Infrastructure Fund in 2021. In January 2022 we launched an industry- first interval fund, which gives retail investors a new way to access illiquid private credit investment strategies. Exchange-traded funds (ETFs) continue to be a core part of Mackenzie’s business and grew by nearly 50 per cent in one year. What’s more, the firm continued to roll out industry-leading innovations including two first- of-their-kind-in-Canada funds that expand Canadians’ access to growth opportunities in China, and a balanced fund with cryptocurrency exposure. 1 BCG Global Asset Management 2020 88 From our IGM family to yours Our strategic investments give us access to new sectors, enhance the capabilities of our core business operations and, as we’re finding, open doors to opportunities across the various companies. These investments include, for example, Wealthsimple, where we are the largest shareholder, and Portag3 Ventures, a global fintech- focused venture capital investor. Following an equity fundraising in 2021, IGM’s investment in Wealthsimple is valued at $1.15 billion which, including distributions of $294 million, represents an approximate eight-fold increase in the value of IGM’s cumulative investment of $187 million. Solidifying our position in the Chinese asset management industry – one of the largest and fastest growing markets in the world – we announced an agreement in January 2022 to increase our investment in China Asset Management Co. Ltd (ChinaAMC). By acquiring Power Corporation of Canada’s 13.9 per cent equity interest in the company, we’ll have a 27.8 per cent stake in one of the top three asset managers in China. We see our continued partnership as the best opportunity to accelerate growth and diversify our business. Accelerating change for the better While technological, social and environmental changes were already reshaping the way the world lives and works, the pandemic has accelerated many of these trends. IGM was particularly well positioned to succeed over the past two years thanks to an ongoing strategic business initiative to modernize our employee, consultant, advisor and client experience. When COVID-19 emerged, our digital transformation enabled us to move quickly to an online business model. Since then, we have continued to adopt sophisticated digital We continued to promote diversity, equity and inclusion in our workplace and our communities. tools and new processes working with industry leaders such as IBM and Google, and a new partner, CapIntel, whose digital application will improve IG advisors’ ability to deliver advice and tailored know-your-product proposals to clients quickly, simply and transparently. In our workplace, we increased our focus on health and wellness, leadership communications and regularly surveying our people to ensure we were meeting their needs in a timely manner. Many of the programs and practices introduced in 2020 have since become the new normal at IGM. We were most pleased that our attention to our people was recognized, both by them and externally – all three IGM companies were ranked as Top 100 Employers, nationally for IG Wealth Management and in the Greater Toronto Area for Mackenzie and IPC. Social issues have taken centre stage in the last couple of years – in part because of the pandemic, but also because of the troubling instances of racial injustice that have come to light. We recognize our responsibility to meet the moment. In 2021, IG Wealth Management and Power Corporation announced a partnership with the National Centre for Truth and Reconciliation in an effort to be part of the Indigenous reconciliation process. This was also the second year of our IG Empower Your Tomorrow Indigenous Commitment, which will deliver $5 million over five years to Indigenous communities across Canada in the form of financial empowerment tools, resources and partnerships. More broadly, we continued to promote diversity, equity and inclusion in our workplace and our communities, through performance targets, hiring initiatives, training and community investments. Mackenzie Together is a prime example of our efforts to build a more equitable economy and a fairer world; this community platform is dedicated to creating a more inclusive investment world by advancing women through education, financial security and career opportunities. While social issues demanded attention in 2021, the growing threat posed by climate change could not be ignored. Canadians witnessed the real impact of climate change in the extreme weather events in British Columbia and around the world. In November we released our first Climate Position Statement, declaring our support for a stronger global response to climate change. Through our wealth and asset management businesses, we aspire to play a significant role in the transition to a low-carbon economy. Our position statement outlines our three climate commitments, which are to invest in a greener, climate-resilient economy, to collaborate and engage to help shape the global transition, and to demonstrate alignment through corporate actions such as achieving carbon neutrality in our own operations by 2022. 9 2021 IGM Financial Annual Report2022 and beyond Everything we do today is designed to create better tomorrows, whether it be securing the financial future of our clients, advancing careers for our employees and advisors, contributing to the communities where we live and work, or using our position as a large financial services company to fight climate change. That’s why we were so proud to be recognized as one of Corporate Knights’ Global 100 Most Sustainable Corporations for the third consecutive year. IGM was ranked the top-rated capital markets and asset management company globally and the top financial services firm in North America. The study evaluates the sustainability performance of more than 6,900 publicly traded companies worldwide. Looking ahead, our primary growth strategy will be to continue attracting great employees, advisors and clients. But with surplus capital and significant senior debt capacity available, the leadership team is also actively looking for M&A options that are strategically aligned, solid businesses – focusing on companies that would help us advance our HNW and ultra HNW strategies in Canada or grow our presence in the global asset management space. Everything we do today is designed to create better tomorrows. We’re excited by the prospect of 2022 being the year that the world moves past the pandemic. We believe we have the right strategy, the right team and the right culture to better the lives of Canadians and to help us achieve higher and more sustainable returns for our shareholders. Thank you for your continued confidence in us. On behalf of the Board of Directors, James O’Sullivan R. Jeffrey Orr President and Chief Executive Officer IGM Financial Chair of the Board IGM Financial R. Jeffrey Orr Chair of the Board IGM Financial We believe we have the right strategy, team and culture to better the lives of Canadians and to help us achieve higher and more sustainable returns for our shareholders. 10 From our IGM family to yours Corporate structure Strength and scale as part of Power Corporation group of companies. Power Corporation is an international management and holding company that focuses on financial services in North America, Europe and Asia. Wealth management Asset management Strategic investments Our business is about improving the lives of Canadians through better planning and managing their money. 2021 IGM Financial Annual Report 11 Wealth management IGM Financial is committed to improving the financial well-being of Canadians. IG Wealth Management and Investment Planning Counsel continued to focus on delivering holistic financial planning and promoting a culture that places the financial well-being of Canadians at the centre of everything we do. Damon Murchison President and Chief Executive Officer IG Wealth Management $119.6 billion $13.4 billion Record high total assets under advisement Record high gross client inflow $3.7 billion Record high net client inflow Won 5 FundGrade® A+ Awards for Performance New IG Climate Action Portfolios aligned with net zero by 2050 76% mutual fund assets rated 3 stars or better by Morningstar Continued support for The Alzheimer Society of Canada with $5.2 million raised nationally by more than 9,500 virtual walkers and 38,000 donors through the IG Wealth Management Walk for Alzheimer’s Blaine Shewchuk President and Chief Executive Officer Investment Planning Counsel $33.1 billion Record high total assets under advisement $5.6 billion Record high total assets under management Record high net client inflows of $0.9 billion Discretionary Portfolio Management platform launched for PM Advisors, reaching $1.1 billion $38,500 raised to support both local and international initiatives 1212 From our IGM family to yours Asset management IGM Financial is committed to providing innovative, high-quality investments. Mackenzie Investments continued to help advisors and investors build strong portfolios that meet today’s needs while anticipating future economic and capital market conditions. Barry McInerney President and Chief Executive Officer Mackenzie Investments $210.3 billion Record high total assets under management* $5.4 billion $12.0 billion Record high investment fund net sales Record high mutual fund gross sales Investment management team earned 8 Refinitiv Lipper Awards Crowned Mont Ste-Marie ski community the first winner of annual Mackenzie Top Peak Won 13 FundGrade® A+ Awards for outstanding investment performance Mackenzie Greenchip Global Environmental All Cap Fund Rated five star and approaching $2 billion in assets Ranked 6th largest ETF provider in Canada Strategic investments IGM Financial’s portfolio of strategic investments had another exceptional year, deriving value from previous investments and integrating them in ways that generate new benefits to investors and clients. ChinaAMC is one of the leading asset managers in China Global private markets solutions provider & OTHER Fintech investments provide innovative capabilities and access to markets with significant growth potential Publicly traded, international financial services holding company 13.9% ownership interest 56% economic interest $1.3 billion fair value 4% ownership interest * Includes $81.2 billion in advisory fee mandates to wealth management. 13 2021 IGM Financial Annual ReportOur people We aim to build a strong, inclusive and progressive culture, where people want to grow their careers and do their best for clients, communities and one another. For the second year in a row, the vast majority of our employees worked from home, and we thank our leaders and their teams for being open and innovative in how they approached work, stayed connected and remained productive. Throughout the pandemic, employee feedback has led to the development of helpful resources and wellness initiatives, and the decision to adopt a hybrid work model in the future. Emotional Financial Social Physical Wellness at work Caring for our peoples’ emotional, financial, physical and social wellness was a strong focus for us again in 2021. We’ve adapted our wellness programs to fit our work-from-home world with fitness sessions, counselling services, financial seminars and social activities delivered online. Our focus on wellness was a big reason why our operating companies were recognized as top employers in Canada and the Greater Toronto Area. Survey results In our 2021 engagement survey, employees told us they’re proud to work for IGM: 84% see their people leader as effective 83% feel they get the training needed to do their job 85% are proud to work for IGM 82% would gladly recommend IGM as a place to work 79% overall engagement score, higher than Canadian and global benchmarks IGM employees lend a hand to prepare Trails Youth Initiatives’ camp for its youth participants. 1414 From our IGM family to yours Diversity, equity and inclusion We are committed to being a leading voice for advancing DE&I across the financial services industry. More than 150 people are involved in our executive and business councils, DE&I Centre of Excellence and business resource groups representing women, Black, 2SLGBTQIA+ and Indigenous communities – helping us execute our three-pillar strategy. Together, we held events and observances to increase awareness and foster learning and engagement. In addition, our people leaders are required to develop plans that advance DE&I within their teams. 70% of our people completed inclusive behaviours training Broadened our recruiting strategy to source, attract and hire a more diverse workforce Addressed unconscious bias in the recruitment process Implemented a targeted approach for recruiting more female financial advisors Increased our connections with community groups, including new partnerships with Onyx Initiative and Accelerate Her Future™ Inclusive workplace Nurture a culture of allyship and inclusive leadership Diverse talent Attract, develop, retain and accelerate Clients and brand Leverage DE&I in the marketplace IGM’s Institutional Sales and Service team support Breaking Down Barriers in Collingwood. IGM employees prepare holiday packages for Hospice Toronto’s Young Carers Program. 15 2021 IGM Financial Annual ReportOur commitment to sustainability We are motivated by the role we can play in building a better tomorrow for Canadians. Our sustainability strategy keeps us focused on what matters most to our business and our stakeholders, and seeks to accelerate positive change in areas where we – as wealth and asset managers – can make the greatest impact. Strategic priorities Advancing sustainable investing Building financial confidence Accelerating diversity, equity and inclusion (DE&I) in finance Everything we do today is designed to create better tomorrows. In 2021 we declared our support for a stronger global response to climate change, and our commitment to climate action in three areas: We will invest toward a greener, climate- resilient economy We will collaborate and engage to help shape the global transition We will demonstrate alignment through our corporate actions Using our investment processes and products to manage climate risks and create solutions to climate issues. Bringing investment advice and solutions to clients, helping companies adapt to a net-zero economy, and participating in industry and policy advancements. Holding ourselves to the high standards we expect from the companies we invest in and achieving carbon neutrality in our corporate offices and travel by 2022. 1616 From our IGM family to yours Financial section MANAGEMENT’S DISCUSSION AND ANALYSIS IGM Financial Inc. Summary of Consolidated Operating Results Wealth Management Review of the Business Review of Segment Operating Results Asset Management Review of the Business Review of Segment Operating Results Strategic Investments and Other Review of Segment Operating Results IGM Financial Inc. Consolidated Financial Position Consolidated Liquidity and Capital Resources Risk Management The Financial Services Environment 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 19 33 42 47 56 60 62 66 70 85 87 89 89 90 92 93 96 101 136 138 | 17 2021 IGM Financial Inc. Annual Report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, 2021 and 2020 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, 2021 is as of February 10, 2022. 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, 2021, Power Corporation of Canada (Power) and Great-West Lifeco Inc. (Lifeco), a subsidiary of Power, held directly or indirectly 61.7% and 3.8%, 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 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), “adjusted earnings before interest and taxes” (Adjusted 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, Adjusted EBIT, EBITDA before 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, outbreaks of disease or pandemics (such as COVID-19), 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. 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. EBITDA before sales commissions excludes all sales commissions. 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. 18 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisIGM Financial Inc. Summary of Consolidated Operating Results IGM Financial Inc. (TSX:IGM) is a leading wealth and asset per share for the comparative period in 2020, an increase of management company supporting financial advisors and 15.6% in earnings per share. the clients they serve in Canada, and institutional investors throughout North America, Europe and Asia. The Company operates through a number of operating subsidiaries and also holds a number of strategic investments that provide benefits to these subsidiaries while furthering the Company’s growth prospects. The Company’s principle operating subsidiaries are wealth manager IG Wealth Management (IG) and asset manager Mackenzie Investments (Mackenzie). The Company also operates through wealth manager Investment Planning Counsel (IPC) and has strategic investments in Great-West Lifeco Inc. (Lifeco), China Asset Management Co., Ltd. (ChinaAMC), Northleaf Capital Group Ltd. (Northleaf), and Wealthsimple Financial Corp. (Wealthsimple) as described more fully later in this MD&A. In the third quarter of 2020, the Company realigned its financial reporting and related disclosures to reflect its current reportable segments of Wealth Management, Asset Management and Strategic Investments and Other. In the first quarter of 2021, the Company further expanded its reportable segment disclosures to report to Net Earnings. These segments are described later in this MD&A. IGM Financial’s assets under management and advisement were $277.1 billion as at December 31, 2021, the highest level in the history of the Company, compared with $240.0 billion at December 31, 2020, as detailed in Table 6. Average total assets under management and advisement for the year ended December 31, 2021 were $259.7 billion compared to $191.2 billion in 2020. Average total assets under management and advisement for the fourth quarter of 2021 were $272.0 billion compared to $202.2 billion in the fourth quarter of 2020. Total assets under management were $245.3 billion at December 31, 2021, the highest level in the history of the Company, compared with $214.0 billion at December 31, 2020. Average total assets under management for the year ended December 31, 2021 were $231.4 billion compared to $168.5 billion in 2020. Average total assets under management for the fourth quarter of 2021 were $241.9 billion compared to $177.6 billion in the fourth quarter of 2020. Net earnings available to common shareholders for the year ended December 31, 2021 were at a record high of $978.9 million or $4.08 per share compared to net earnings available to common shareholders of $764.4 million or $3.21 per share in 2020, representing an increase of 27.1% in earnings per share. Net earnings available to common shareholders for the three months ended December 31, 2021 were $268.5 million or $1.11 per share compared to net earnings available to common shareholders of $229.1 million or $0.96 Adjusted net earnings available to common shareholders, excluding other items outlined below, for the year ended December 31, 2021 were at a record high of $971.2 million or $4.05 per share compared to adjusted net earnings available to common shareholders of $762.9 million or $3.20 per share in 2020, representing an increase of 26.6% in earnings per share. Adjusted net earnings available to common shareholders, excluding other items outlined below, for the three months ended December 31, 2021 were $260.8 million or $1.08 per share compared to adjusted net earnings available to common shareholders of $204.3 million or $0.86 per share for the comparative period in 2020, an increase of 25.6% in earnings per share. Other items for the quarter ended December 31, 2021 consisted of additional consideration receivable of $10.6 million ($7.7 million after-tax) related to the sale of the Company’s equity interest in Personal Capital Corporation (Personal Capital) in 2020. Adjusted Net Earnings and Adjusted Net Earnings per Share For the financial year ($ millions, except per share amounts) Adjusted net earnings and adjusted net earnings per share excluded the following after-tax amounts: 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. 2020 – the gain on sale of Personal Capital, gain on sale of Quadrus Group of Funds net of acqusition costs, the Company’s proportionate share of associate’s adjustments and restructuring and other. 2021 – additional consideration receivable related to the sale of Personal Capital in 2020. | 19 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportOther items for the year ended December 31, 2020 consisted of: CHINA ASSET MANAGEMENT CO. LTD. (ChinaAMC) • A gain on the sale of the Quadrus Group of Funds net of acquisition costs, of $21.4 million after-tax ($25.2 million pre-tax), recorded in the fourth quarter. • The Company’s proportionate share in Great-West Lifeco Inc.’s after-tax adjustments related to the revaluation of a deferred tax asset less certain restructuring and transaction costs, of $3.4 million, recorded in the fourth quarter. • A gain on the sale of the investment in Personal Capital of $31.4 million after-tax ($37.2 million pre-tax), recorded in the third quarter. On January 5, 2022, the Company entered into an agreement to acquire an additional 13.9% interest in ChinaAMC for cash consideration of $1.15 billion from Power Corporation of Canada (Power), which will increase the Company’s equity interest in ChinaAMC from 13.9% to 27.8%. To partially fund the transaction, IGM Financial will sell 15,200,662 common shares of Lifeco to Power for cash consideration of $575 million, which will reduce the Company’s equity interest in Lifeco from 4% to 2.4%. These transactions are expected to close in the first half of 2022, subject to customary closing conditions, including Chinese regulatory approvals. The sale of Lifeco is conditional on IGM • Restructuring and other charges of $54.7 million after-tax Financial’s purchase of the ChinaAMC shares. ($74.5 million pre-tax), recorded in the third quarter, resulting from our ongoing multi-year transformation initiatives and Benefits of the ChinaAMC acquisition include: efforts to enhance our operational effectiveness and also from the acquisition of GLC Asset Management Group Ltd. • Enhancing participation in the rapidly growing Chinese asset management industry, through a meaningful ownership (GLC) and other changes to our investment management position in one of the leading asset managers in China. teams. This included activities to improve efficiency and capabilities by leveraging the scale and expertise of scaled providers through outsourcing partnerships, as well as process automation initiatives relating to key internal processes. The Company also incurred severance and other charges relating to the acquisition of GLC as well as other personnel changes. • Reinforcing relationships and business opportunities between Mackenzie and ChinaAMC as Mackenzie builds global, fully diversified and differentiated solutions for its clients and strengthens distribution opportunities in China. • Simplifying the IGM Financial and Power organization structure by consolidating the ChinaAMC ownership position Shareholders’ equity was $6.5 billion at December 31, 2021, at Mackenzie. compared to $5.0 billion at December 31, 2020. Return on • Providing a financially attractive outcome that is expected average common equity based on adjusted net earnings for to be accretive to IGM Financial’s earnings in the first year the year ended December 31, 2021 was 16.4%, compared with of increased ownership. 16.1% for the comparative period in 2020. Excluding the impact of fair value through other comprehensive income investments COVID-19 net of tax, return on average common equity for the year ended December 31, 2021 is 19.0%. The quarterly dividend per common share was 56.25 cents in 2021, unchanged from the end of 2020. 2021 DEVELOPMENTS WEALTHSIMPLE FINANCIAL CORP. (WEALTHSIMPLE) Governments worldwide have enacted emergency measures to combat the spread of a novel strain of coronavirus (COVID-19). These measures, which include the implementation of travel bans, closing of non-essential businesses, self-imposed quarantine periods and social distancing, have caused significant volatility in global equity markets and material disruption to global businesses. Governments and central banks have reacted with significant monetary and fiscal interventions designed to Wealthsimple is an online investment manager that provides stabilize economic conditions. financial investment guidance. The distribution of vaccines has resulted in the easing of On May 3, 2021, Wealthsimple announced a $750 million equity restrictions in many economies and has contributed to strong fundraising, valuing IGM Financial’s investment in Wealthsimple gains in certain economic sectors during 2021. However, at $1,448 million. As part of the transaction, IGM Financial there is uncertainty regarding the effectiveness of vaccines disposed of a portion of its investment for proceeds of against new variants of the virus, and this contributes towards $294 million ($258 million after-tax). The Company continues to be the largest shareholder in Wealthsimple with an interest of 23% and fair value of $1,153 million. uncertainty of the timing of a full economic recovery. As a result, it is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. 20 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisCOVID-19 has the current and ongoing potential to expose MARKET OVERVIEW the Company to a number of risks inherent in our business activities. These include: liquidity risk; credit risk; business risk and risks related to assets under management and advisement; operational risk; governance, oversight and strategic risk; regulatory developments; and people risk. These risks are Returns in financial markets have remained strong in 2021 with a continued upward trend since the first quarter of 2020: • The S&P TSX Composite total return index increased by 6.5% in the fourth quarter of 2021 and 25.1% for the year. discussed in further detail in the Risk Management section • U.S. equity markets, as measured by the S&P 500 total return of this MD&A. index, increased by 11.0% in the fourth quarter of 2021 and 28.7% for the year. TABLE 1: RECONCILIATION OF NON-IFRS FINANCIAL MEASURES ($ millions) Adjusted net earnings available to common shareholders – Non-IFRS measure Gain on sale of Personal Capital, net of tax Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax THREE MONTHS ENDED TWELVE MONTHS ENDED 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 $ 260.8 $ 270.8 $ 204.3 $ 971.2 $ 762.9 7.7 – – – – – – – – 21.4 3.4 – 7.7 – – – 31.4 21.4 3.4 (54.7) Net earnings available to common shareholders – IFRS $ 268.5 $ 270.8 $ 229.1 $ 978.9 $ 764.4 Adjusted net earnings per share(1) available to common shareholders – Non-IFRS measure Gain on sale of Personal Capital, net of tax Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax Net earnings per share(1) available to common shareholders – IFRS $ 1.08 0.03 – – – $ 1.13 $ 0.86 $ – – – – – 0.09 0.01 – 4.05 0.03 $ 3.20 0.13 – – – 0.09 0.02 (0.23) $ 1.11 $ 1.13 $ 0.96 $ 4.08 $ 3.21 Average outstanding shares – Diluted (thousands) 241,443 240,575 238,308 240,019 238,307 EBITDA before sales commissions – Non-IFRS measure $ 411.8 $ 422.3 $ 326.4 $ 1,547.0 $ 1,226.4 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 Adjusted earnings before interest and income taxes – Non-IFRS measure Interest expense(2) Adjusted earnings before income taxes – Non-IFRS measure Income taxes Adjusted net earnings – Non-IFRS measure Gain on sale of Personal Capital, net of tax Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax (42.9) 368.9 39.3 (16.2) (25.4) 366.6 28.6 338.0 76.5 261.5 7.7 – – – (37.8) 384.5 33.8 (14.8) (24.9) 378.6 28.7 349.9 78.4 271.5 – – – – (41.3) 285.1 36.1 (10.6) (21.5) 289.1 27.9 261.2 56.7 204.5 – 21.4 3.4 – (170.5) (139.5) 1,376.5 1,086.9 151.0 (56.7) (99.8) 117.6 (36.4) (83.5) 1,371.0 1,084.6 113.9 1,257.1 283.9 973.2 7.7 – – – 110.6 974.0 210.9 763.1 31.4 21.4 3.4 (54.7) Net earnings – IFRS $ 269.2 $ 271.5 $ 229.3 $ 980.9 $ 764.6 (1) Diluted earnings per share. (2) Interest expense includes interest on long-term debt and leases. | 21 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report • European equity markets, as measured by the MSCI Europe, planning and related services to Canadian households. This net total return index increased by 7.7% in the fourth quarter segment includes the activities of IG Wealth Management of 2021 and 25.1% for the year. • Asian equity markets, as measured by the MSCI AC Asia Pacific net total return index, decreased by 1.8% in the fourth quarter of 2021 and decreased by 1.5% for the year. • The FTSE TMX Canada Universe Bond total return Index increased by 1.5% in the fourth quarter of 2021 and decreased by 2.5% for the year. • Our clients experienced an average investment return of 4.3% in the fourth quarter of 2021 and 11.9% for the year. and Investment Planning Counsel. These firms are retail distribution organizations who serve Canadian households through their securities dealers, mutual fund dealers and other subsidiaries licensed to distribute financial products and services. A majority of the revenues of this segment are derived from providing financial advice and distributing financial products and services to Canadian households. This segment also includes the investment management activities of these organizations, including mutual fund management and discretionary portfolio management services. IGM Financial’s assets under management and advisement • Asset Management – reflects the activities of operating increased by 15.5% from $240.0 billion at December 31, 2020 to $277.1 billion at December 31, 2021. See Table 29 for the composition of IGM Financial’s assets under management by asset class. REPORTING CHANGES Effective January 1, 2021, the Company expanded its reportable segment disclosures to report to Net earnings, whereas previously it reported to Earnings before interest and taxes. These changes further build on the disclosure enhancements announced by the Company in the third quarter of 2020, which were introduced to improve transparency into key drivers of each business line and help stakeholders understand and assess components of value. The Company’s reportable segments are Wealth Management, Asset Management and Strategic Investments & Other. Prior period comparative information has been restated to reflect these changes. These changes have no impact on the reported earnings of the Company. These changes are intended to: companies primarily focused on providing investment management services, and represents the operations of Mackenzie Investments. Investment management services are provided to a suite of investment funds that are distributed through third party dealers and financial advisors, and through institutional advisory mandates to financial institutions, pensions and other institutional investors. • Strategic Investments and Other – primarily represents the key strategic investments made by the Company, including China Asset Management Co., Ltd., Great-West Lifeco Inc., Northleaf Capital Group Ltd., Wealthsimple Financial Corp., and Portag3 Ventures LPs, as well as unallocated capital. Investments are classified in this segment (as opposed to the Wealth Management or Asset Management segment) when warranted due to different market segments, growth profiles or other unique characteristics. Assets under Management and Advisement (AUM&A) represents the consolidated AUM and AUA of IGM Financial. In the Wealth Management segment, AUM is a component part of AUA. All instances where the asset management segment is providing investment management services or distributing its products through the Wealth Management segment are eliminated in our reporting such that there is no double- • Better reflect the business performance of underlying segments counting of the same client savings held at IGM Financial’s • Reflect the capacity for financial leverage within the segments operating companies. • Encourage sum-of-parts approach to value assessment To calculate segment Net earnings, debt and interest is allocated to each segment based on management’s assessment of: i) capacity to service the debt, and ii) where the debt is being serviced. Income tax expense is calculated based on revenue and expenses included in each segment. REPORTABLE SEGMENTS The segments as described below reflect the Company’s internal financial reporting and performance measurement (Tables 2 to 4): • Wealth Management – reflects the activities of operating companies that are principally focused on providing financial Assets under Advisement (AUA) are the key driver of the Wealth Management segment. AUA are savings and investment products held within client accounts of our Wealth Management segment operating companies. Assets under Management (AUM) are the key driver of the Asset Management segment. AUM are a secondary driver of revenues and expenses within the Wealth Management segment in relation to its investment management activities. AUM are client assets where we provide investment management services, and include investment funds where we are the fund manager, investment advisory mandates to institutions, and other client accounts where we have discretionary portfolio management responsibilities. 22 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisFINANCIAL PRESENTATION The financial presentation includes revenues and expenses to Income taxes are reported in each segment. IGM Financial consolidated changes in the effective tax rates are detailed align with the key drivers of business activity and to reflect our in Table 5. emphasis on business growth and operational efficiency. The categories are as follows: • Wealth management revenue – revenues earned by the Wealth Management segment for providing financial planning, investment advisory and related financial services. Revenues include financial advisory fees, investment management and related administration fees, distribution revenue associated with insurance and banking products and Tax planning may result in the Company recording lower levels of income taxes. Management monitors the status of its income tax filings and regularly assesses the overall adequacy of its provision for income taxes and, as a result, income taxes recorded in prior years may be adjusted in the current year. The effect of changes in management’s best estimates reported in adjusted net earnings is reflected in Other, which also includes, but is not limited to, the effect of lower effective income tax services, and revenue relating to mortgage lending activities. rates on foreign operations. • Asset management revenue – revenues earned by the Asset Management segment related to investment management advisory and administrative services. • Dealer compensation – asset-based and sales-based Other items, as reflected in Tables 2, 3 and 4, 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 compensation paid to dealers by the Asset Management meaningful and are not allocated to segments. Other items segment. • Advisory and business development expenses – expenses incurred on activities directly associated with providing financial planning services to clients of the Wealth Management segment. Expenses include compensation, recognition and other support provided to our financial advisors, field management, product & planning specialists; expenses associated with facilities, technology and training relating to our financial advisors and specialists; other business development activities including direct marketing and advertising; and wholesale distribution activities performed by the Asset Management segment. A significant component of these expenses varies directly with levels in 2021 and 2020 included: • Gain on sale of Personal Capital – 2021 – $10.6 million ($7.7 million after-tax), recorded in the fourth quarter, resulting from additional consideration receivable related to the sale of the Company’s equity interest in Personal Capital in 2020. – 2020 – $37.2 million ($31.4 million after-tax), recorded in the third quarter, resulting from the sale of the Company’s investment in Personal Capital. • 2020 Gain on sale of the Quadrus Group of Funds net of acquisition costs – $25.2 million ($21.4 million after-tax), recorded in the fourth quarter. of assets under management or advisement, business • 2020 Proportionate share of associate’s adjustments – $3.4 million development measures including sales and client acquisition, which represented the Company’s proportionate share in and the number of advisor and client relationships. GreatWest Lifeco Inc.’s after-tax adjustments, recorded in • Operations and support expenses – expenses associated with business operations, including technology and business the fourth quarter, related to the revaluation of a deferred tax asset less certain restructuring and transaction costs. processes; in-house investment management and product • 2020 Restructuring and other – $74.5 million ($54.7 million shelf management; corporate management and support after-tax), recorded in the third quarter, resulting from functions. These expenses primarily reflect compensation, our ongoing multi-year transformation initiatives and technology and other service provider expenses. efforts to enhance our operational effectiveness and also • Sub-advisory expenses – reflects fees relating to investment management services provided by third party or related party investment management organizations. These fees typically are variable with the level of assets under management. These fees include investment advisory services performed for the Wealth Management segment by the Asset Management segment. Interest expense represents interest expense on long-term debt and leases. Interest expense is allocated to each segment based on management’s assessment of: i) capacity to service the debt, and ii) where the debt is being serviced. from the acquisition of GLC and other changes to our investment management teams. This included activities to improve efficiency and capabilities by leveraging the scale and expertise of scaled providers through outsourcing partnerships, as well as process automation initiatives relating to key internal processes. The Company also incurred severance and other charges relating to the acquisition of GLC as well as other personnel changes. | 23 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportAsset management Dealer compensation expense Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes(1) Interest expense(2) Adjusted earnings before income taxes Income taxes TABLE 2: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q4 2021 VS. Q4 2020 WEALTH MANAGEMENT ASSET MANAGEMENT STRATEGIC INVESTMENTS & OTHER INTERSEGMENT ELIMINATIONS THREE MONTHS ENDED ($ millions) 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 TOTAL 2020 DEC. 31 Revenues Wealth management $ 672.5 $ 598.5 $ – $ – $ – – – – 296.8 242.1 – – (91.7) (78.6) 205.1 163.5 – – – – $ – $ (5.0) $ (4.3) $ 667.5 $ 594.2 – – – (30.0) (25.8) 266.8 216.3 5.0 4.3 (86.7) (74.3) (25.0) (21.5) 180.1 142.0 1.4 1.0 1.3 1.0 1.1 1.1 – – – – 673.9 599.5 206.4 164.5 50.7 51.8 40.1 41.2 – – – 50.7 (30.0) (25.7) 902.1 0.1 3.8 3.2 284.8 115.9 49.5 450.2 254.8 113.3 42.7 410.8 24.1 88.3 1.6 28.3 74.6 1.5 114.0 104.4 223.7 22.7 188.7 22.7 201.0 53.8 166.0 44.2 92.4 5.9 86.5 21.2 65.3 – 60.1 5.2 54.9 14.2 40.7 – – 1.3 – 1.3 50.5 – 50.5 1.5 49.0 0.7 – 0.9 – 0.9 40.3 – 40.3 (1.7) 42.0 0.2 – – (30.0) (30.0) – 0.2 (25.9) (25.7) – – – – – – – – – – – – 308.9 205.5 21.1 535.5 366.6 28.6 338.0 76.5 261.5 0.7 Adjusted net earnings(1) 147.2 121.8 Non-controlling interest – – Adjusted net earnings available to common shareholders(1) Other items, net of tax Gain on sale of Personal Capital Gain on sale of Quadrus Group of Funds net of acquisition costs Proportionate share of associate’s adjustments Net earnings available to common shareholders $ 147.2 $ 121.8 $ 65.3 $ 40.7 $ 48.3 $ 41.8 $ – $ – 260.8 204.3 7.7 – – – 21.4 3.4 $ 268.5 $ 229.1 (1) 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. (2) Interest expense includes interest on long-term debt and leases. 24 | 40.1 779.5 283.1 189.0 18.3 490.4 289.1 27.9 261.2 56.7 204.5 0.2 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 3: CONSOLIDATED OPERATING RESULTS BY SEGMENT – TWELVE MONTHS ENDED WEALTH MANAGEMENT ASSET MANAGEMENT STRATEGIC INVESTMENTS & OTHER INTERSEGMENT ELIMINATIONS TWELVE MONTHS ENDED ($ millions) 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 TOTAL 2020 DEC. 31 Revenues Wealth management $ 2,572.9 $ 2,276.0 $ $ – $ – – 1,126.1 913.5 – – – (355.3) (299.5) – 770.8 614.0 – $ – – – – $ (19.3) $ (16.4) $ 2,553.6 $ 2,259.6 – (114.6) (100.6) 1,011.5 812.9 – 19.3 16.4 (336.0) (283.1) – (95.3) (84.2) 675.5 529.8 3.6 2.3 5.8 2.9 2.7 6.0 (0.2) (0.2) 11.9 11.0 – – – – 196.4 147.0 – – 196.4 147.0 2,576.5 2,278.3 776.6 616.9 199.1 153.0 (114.8) (100.8) 3,437.4 2,947.4 Asset management Dealer compensation expense Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development 1,089.3 960.0 88.7 80.2 Operations and support 466.1 453.7 335.6 293.7 Sub-advisory 189.7 163.2 6.9 8.7 1,745.1 1,576.9 431.2 382.6 – 4.9 – 4.9 – – – 1,178.0 1,040.2 4.1 – 4.1 (0.2) (114.6) (114.8) (0.1) 806.4 751.4 (100.7) 82.0 71.2 (100.8) 2,066.4 1,862.8 Adjusted earnings before interest and taxes(1) 831.4 701.4 345.4 234.3 194.2 148.9 Interest expense(2) 90.3 89.9 23.6 20.7 – – Adjusted earnings before income taxes 741.1 611.5 321.8 213.6 194.2 148.9 Income taxes 198.0 162.6 81.0 55.7 4.9 (7.4) Adjusted net earnings(1) 543.1 448.9 240.8 157.9 189.3 156.3 Non-controlling interest – – – – 2.0 0.2 – – – – – – – 1,371.0 1,084.6 – 113.9 110.6 – 1,257.1 283.9 974.0 210.9 973.2 763.1 2.0 0.2 – – – Adjusted net earnings available to common shareholders(1) Other items, net of tax Gain on sale of Personal Capital Gain on sale of Quadrus Group of Funds net of acquisition costs Proportionate share of associate’s adjustments Restructuring and other Net earnings available to common shareholders $ 543.1 $ 448.9 $ 240.8 $ 157.9 $ 187.3 $ 156.1 $ – $ – 971.2 762.9 7.7 31.4 – 21.4 – – 3.4 (54.7) $ 978.9 $ 764.4 (1) 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. (2) Interest expense includes interest on long-term debt and leases. | 25 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 4: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q4 2021 VS. Q3 2021 WEALTH MANAGEMENT ASSET MANAGEMENT STRATEGIC INVESTMENTS & OTHER INTERSEGMENT ELIMINATIONS THREE MONTHS ENDED ($ millions) 2021 DEC. 31 2021 SEP. 30 2021 DEC. 31 2021 SEP. 30 2021 DEC. 31 2021 SEP. 30 2021 DEC. 31 2021 SEP. 30 2021 DEC. 31 TOTAL 2021 SEP. 30 Revenues Wealth management $ 672.5 $ 660.0 $ – $ – $ Asset management Dealer compensation expense Net asset management Net investment income and other Proportionate share of associates’ earnings – – 296.8 293.1 – – – (91.7) (90.9) – 205.1 202.2 – $ – – – – $ (5.0) $ (5.0) $ 667.5 $ 655.0 – (30.0) (29.7) 266.8 263.4 – – 5.0 5.0 (86.7) (85.9) (25.0) (24.7) 180.1 177.5 1.4 (0.2) 1.3 2.2 1.1 0.6 – (0.1) 3.8 2.5 – – – – 673.9 659.8 206.4 204.4 50.7 51.8 55.9 56.5 – – 50.7 55.9 (30.0) (29.8) 902.1 890.9 Expenses Advisory and business development 284.8 274.8 Operations and support 115.9 113.2 24.1 88.3 19.2 83.3 Sub-advisory 49.5 48.7 1.6 1.7 450.2 436.7 114.0 104.2 – 1.3 – 1.3 – 1.2 – 1.2 – – – 308.9 (0.1) 205.5 294.0 197.6 (30.0) (30.0) (29.7) 21.1 20.7 (29.8) 535.5 512.3 Adjusted earnings before interest and taxes(1) 223.7 223.1 92.4 100.2 50.5 55.3 Interest expense(2) 22.7 22.8 5.9 5.9 – – Adjusted earnings before income taxes Income taxes 201.0 200.3 53.8 53.5 Adjusted net earnings(1) 147.2 146.8 – – 86.5 21.2 65.3 – 94.3 23.3 71.0 50.5 55.3 1.5 1.6 49.0 53.7 – 0.7 0.7 – – – – – – – – – – – – 366.6 378.6 28.6 28.7 338.0 349.9 76.5 78.4 261.5 271.5 0.7 0.7 Non-controlling interest Adjusted net earnings available to common shareholders(1) Other items, net of tax Gain on sale of Personal Capital Net earnings available to common shareholders $ 147.2 $ 146.8 $ 65.3 $ 71.0 $ 48.3 $ 53.0 $ – $ – 260.8 270.8 7.7 – $ 268.5 $ 270.8 (1) 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. (2) Interest expense includes interest on long-term debt and leases. 26 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis 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 Effective income tax rate – adjusted net earnings Disposition of assets net of acquisition costs Proportionate share of associate’s adjustments THREE MONTHS ENDED TWELVE MONTHS ENDED 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 26.64 % 26.65 % 26.60 % 26.63 % 26.68 % (3.39) – (0.48) 22.77 – – (3.78) – (0.47) 22.40 – – (3.29) (0.96) (0.19) 22.16 (0.98) (0.31) (3.65) – (0.36) 22.62 – – (3.71) (1.15) (0.11) 21.71 (0.82) (0.09) Effective income tax rate – net earnings 22.77 % 22.40 % 20.87 % 22.62 % 20.80 % (1) See Note 27 – Related Party Transactions of the Consolidated Financial Statements included in the 2021 IGM Financial Inc. Annual Report (Consolidated Financial Statements). The benefits from the tax loss consolidation arrangements ended at December 31, 2020. TOTAL ASSETS UNDER MANAGEMENT AND ADVISEMENT Assets under management and advisement were $277.1 billion at December 31, 2021 compared to $240.0 billion at December 31, 2020, an increase of 15.5%, as detailed in Table 6. Total assets under management were $245.3 billion at December 31, 2021 compared to $214.0 billion at December 31, 2020, an increase of 14.6%. Full year net inflows of $8.7 billion are a record high and up from $7.1 billion in 2020. Full year investment fund net sales of $7.0 billion are a record high and up from net sales of $3.4 billion in 2020. Total net inflows were $1.2 billion in the fourth quarter of 2021 down from $2.2 billion in the fourth quarter of 2020. Investment fund net sales of $1.1 billion in the fourth quarter of 2021 were down from $1.7 billion in the fourth quarter of 2020. Net flows and net sales are based on assets under management and advisement excluding sub-advisory assets to Canada Life and to the Wealth Management segment. Changes in assets under management for the Wealth Management and Asset Management segments are discussed further in each of their respective Review of the Business sections in the MD&A. | 27 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 6: ASSETS UNDER MANAGEMENT AND ADVISEMENT WEALTH MANAGEMENT ASSET MANAGEMENT(1) IG WEALTH MANAGEMENT INVESTMENT PLANNING COUNSEL MACKENZIE INVESTMENTS INTERCOMPANY ELIMINATIONS(2) CONSOLIDATED 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 ($ millions) THREE MONTHS ENDED Gross flows Mutual fund gross sales(3)(4) $ 2,959 $ 2,572 $ 174 $ 177 $ 2,592 $ 4,501 $ Dealer gross inflows 3,437 2,938 1,509 1,487 – – Net flows Mutual fund net sales(3)(4) ETF net creations(5) Investment fund net sales Institutional SMA net sales(6) Mackenzie net sales through Wealth Management IGM product net sales Other dealer net flows Total net flows TWELVE MONTHS ENDED Gross flows 457 – 457 – 36 493 492 985 (9) – (9) – 130 121 364 485 (129) – (129) – 20 (109) 232 123 (89) – (89) – 59 (30) 279 249 512 245 757 (576) 1,376 372 1,748 (75) – – 181 1,673 – – 181 1,673 Mutual fund gross sales(3)(4) $ 11,845 $ 8,987 $ 774 $ 577 $ 12,022 $ 13,565 $ Dealer gross inflows 13,434 9,977 5,366 4,760 – – Net flows Mutual fund net sales(3)(4) 1,813 (451) (288) ETF Net creations(5) – – – Investment fund net sales 1,813 (451) (288) Institutional SMA net sales(6) – – – Mackenzie net sales through Wealth Management IGM product net sales Other dealer net flows Total net flows 431 2,244 1,440 3,684 211 (240) 1,035 795 180 (108) 596 488 (307) – (307) – 113 (194) 567 373 3,908 1,532 5,440 (306) 2,956 1,232 4,188 2,062 – – 5,134 6,250 – – 5,134 6,250 (611) (611) 6 (605) – – – – – – (56) (56) 1 (55) – – – – – – $ – $ 5,725 $ 7,250 – 4,946 4,425 – – – – (189) (189) 3 840 245 1,085 (576) – 509 725 (186) 1,234 1,278 372 1,650 (75) – 1,575 646 2,221 $ – $ 24,641 $ 23,129 – 18,800 14,737 – – – – (324) (324) 5 (319) 5,433 1,532 6,965 (306) – 6,659 2,042 8,701 2,198 1,232 3,430 2,062 – 5,492 1,607 7,099 (1) Asset Management flows activity excludes sub-advisory to Canada Life and the Wealth Management segment. In the fourth quarter of 2020, Mackenzie Investments sold fund management contracts relating to private label Quadrus Group of Funds (QGOF) to Lifeco and, as a result, gross and net mutual fund flows in 2021 are not directly comparable with 2020. (2) Consolidated results eliminate double counting where business is reflected within multiple segments. (3) IG Wealth Management and Investment Planning Counsel AUM and net sales include separately managed accounts. (4) During the fourth quarter and the twelve month period, institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes which resulted in: 2021 YTD – net redemptions of $361 million. 2020 YTD – sales of $1.4 billion and net sales of $612 million. 2020 Q4 – sales of $625 million and net sales of $32 million. (5) ETFs – During the second and third quarters of 2020, Wealthsimple made allocation changes which resulted in $370 million in purchases in Mackenzie ETFs and $325 million of redemptions from Mackenzie’s ETFs, respectively. (6) Sub-advisory, institutional and other accounts: 2021 Q2 – Mackenzie was awarded $680 million of sub-advisory wins. Q4 – an institutional client re-assigned sub-advisory responsibilities on mandates advised by Mackenzie totalling $667 million. 2020 Q2 – Mackenzie was awarded $2.6 billion of sub-advisory wins. 28 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 6: ASSETS UNDER MANAGEMENT AND ADVISEMENT (CONTINUED) WEALTH MANAGEMENT ASSET MANAGEMENT IG WEALTH MANAGEMENT INVESTMENT PLANNING COUNSEL MACKENZIE INVESTMENTS INTERCOMPANY ELIMINATIONS(1) CONSOLIDATED 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 2021 DEC. 31 2020 DEC. 31 ($ millions) Assets under Management and Advisement Wealth Management AUM $ 110,541 $ 97,713 $ 5,629 $ 5,320 $ – $ – $ 116,170 $ 103,033 Mackenzie assets sold through Wealth Management Other AUA AUA Asset Management Mutual funds ETFs Investment funds 957 438 3,640 3,133 8,059 5,122 23,808 20,865 119,557 103,273 33,077 29,318 Institutional SMA Sub-Advisory to Canada Life Total Institutional SMA Total ex sub-advisory to Wealth Management Sub-advisory to Wealth Management Total AUM ETFs Distributed to third parties Held within IGM managed products Total ETFs – – 4,597 3,571 (11) (11) (8) 31,856 25,979 (8) 152,623 132,583 $ 62,969 $ 52,682 5,393 3,788 68,362 56,470 62,969 52,682 5,393 3,788 68,362 56,470 7,948 7,293 7,948 7,293 52,805 47,175 60,753 54,468 52,805 47,175 60,753 54,468 129,115 110,938 129,115 110,938 81,228 74,210 210,343 185,148 81,228 74,210 210,343 185,148 5,393 3,788 5,393 3,788 7,281 12,674 4,663 8,451 (7,281) (7,281) (4,663) – – (4,663) 5,393 3,788 Consolidated AUM 110,541 97,713 5,629 5,320 210,343 185,148 (81,228) (74,210) 245,285 213,971 Mackenzie assets sold through Wealth Management Other AUA AUM&A 957 438 3,640 3,133 8,059 5,122 23,808 20,865 – – – – (4,597) (3,571) – – (11) (8) 31,856 25,979 119,557 103,273 33,077 29,318 210,343 185,148 (85,836) (77,789) 277,141 239,950 (1) Consolidated results eliminate double counting where business is reflected within multiple segments. | 29 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report SELECTED ANNUAL INFORMATION SUMMARY OF QUARTERLY RESULTS Financial information for the three most recently completed The Summary of Quarterly Results in Table 8 includes the years is included in Table 7. Net Earnings and Earnings per Share – Except as noted in the eight most recent quarters and the reconciliation of non-IFRS financial measures to net earnings in accordance with IFRS. reconciliation in Table 7, variations in net earnings and total Changes in average daily investment fund assets under revenues result primarily from changes in average assets under management over the eight most recent quarters, as shown in management and advisement. Assets under management Table 8, largely reflect the impact of changes in domestic and and advisement were $190.0 billion in 2019, increased to foreign markets and net sales of the Company. $240.0 billion in 2020 and to $277.1 billion in 2021. Increases were driven largely by changes in financial markets during the periods, and in 2020 were primarily due to net business acquisitions of $30.3 billion. Average total assets under management and advisement for the year ended December 31, 2021 were $259.7 billion compared to $191.2 billion in 2020. The impact on earnings and revenues of changes in average total assets under management and advisement and other pertinent items are discussed in the Review of Segment Operating Results sections of the MD&A for both IG Wealth Management and Mackenzie. Net earnings in future periods will largely be determined by the level of assets under management and advisement which will continue to be influenced by global market conditions. Dividends per Common Share – Annual dividends per common share were $2.25 in 2021, unchanged from 2020 and 2019. 30 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisTABLE 7: SELECTED ANNUAL INFORMATION Consolidated statements of earnings ($ millions) Revenues Wealth management Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Gain on sale of Personal Capital Gain on sale of Quadrus Group of Funds net of acquisition costs Proportionate share of associate’s adjustments Restructuring and other Proportionate share of associate’s one-time charges Earnings before income taxes Income taxes Net earnings Non-controlling interest Perpetual preferred share dividends Net earnings available to common shareholders Reconciliation of Non-IFRS financial measures(1) ($ millions) 2021 2020 2019 $ 2,553.6 $ 2,259.6 $ 2,299.0 675.5 11.9 196.4 3,437.4 2,180.3 1,257.1 10.6 – – – – 1,267.7 286.8 980.9 (2.0) – 529.8 11.0 147.0 2,947.4 1,973.4 974.0 37.2 25.2 3.4 (74.5) – 965.3 200.7 764.6 (0.2) – 515.3 24.8 122.4 2,961.5 1,975.7 985.8 – – – – (17.2) 968.6 219.7 748.9 – (2.2) $ 978.9 $ 764.4 $ 746.7 Adjusted net earnings available to common shareholders – non-IFRS measure $ 971.2 $ 762.9 $ 763.9 Other items: Gain on sale of Personal Capital, net of tax Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax Proportionate share of associate’s one-time charges Net earnings available to common shareholders – IFRS Earnings per share ($) Adjusted net earnings available to common shareholders(1) – Basic – Diluted Net earnings available to common shareholders – Basic – Diluted Dividends per share ($) Common Preferred, Series B Average assets under management and advisement ($ billions) Investment fund assets under management Total assets under management Total assets under management and advisement Ending assets under management and advisement ($ billions) Investment fund assets under management Total assets under management Total assets under management and advisement Total corporate assets ($ millions) Total long-term debt ($ millions) Outstanding common shares (thousands) Average outstanding shares – Diluted (thousands) 7.7 – – – – 31.4 21.4 3.4 (54.7) – – – – – (17.2) $ 978.9 $ 764.4 $ 746.7 $ 4.07 4.05 4.10 4.08 $ 3.20 3.20 3.21 3.21 $ 2.25 $ 2.25 – – $ 173.4 $ 161.7 231.4 259.7 168.5 191.2 $ $ $ $ 184.5 $ 159.5 $ 245.3 277.1 214.0 240.0 3.19 3.19 3.12 3.12 2.25 0.37 155.5 161.1 183.5 161.8 166.8 190.0 $ 17,661 $ 16,062 $ 15,391 $ 2,100 $ 2,100 $ 2,100 239,679 238,308 238,294 240,019 238,307 239,181 (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. | 31 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 8: SUMMARY OF QUARTERLY RESULTS Consolidated statements of earnings ($ millions) Revenues Wealth management Asset management Dealer compensation expense Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development Operations and support Sub-advisory Interest(1) Earnings before undernoted Gain on sale of Personal Capital Gain on sale of Quadrus Group of Funds net of acquisition costs Proportionate share of associate’s adjustments Restructuring and other Earnings before income taxes Income taxes Net earnings Non-controlling interest 2021 Q4 2021 Q3 2021 Q2 2021 Q1 2020 Q4 2020 Q3 2020 Q2 2020 Q1 $ 667.5 $ 655.0 $ 627.6 $ 603.5 $ 594.2 $ 571.6 $ 531.1 $ 562.7 266.8 (86.7) 180.1 3.8 50.7 263.4 (85.9) 177.5 2.5 55.9 248.3 (82.7) 165.6 2.5 48.2 233.0 (80.7) 152.3 3.1 41.6 216.3 (74.3) 142.0 3.2 40.1 207.4 (71.3) 136.1 2.2 43.5 902.1 890.9 843.9 800.5 779.5 753.4 308.9 205.5 21.1 28.6 564.1 338.0 10.6 – – – 348.6 79.4 269.2 0.7 294.0 197.6 20.7 28.7 541.0 349.9 – – – – 349.9 78.4 271.5 0.7 291.1 196.8 20.4 28.5 536.8 307.1 – – – – 307.1 69.3 237.8 0.4 284.0 206.5 19.8 28.1 538.4 262.1 – – – – 262.1 59.7 202.4 0.2 283.1 189.0 18.3 27.9 518.3 261.2 – 25.2 3.4 – 289.8 60.5 229.3 0.2 252.6 181.9 18.5 27.9 480.9 272.5 37.2 – – (74.5) 235.2 44.3 190.9 – 190.7 (66.1) 124.6 7.6 43.3 706.6 245.4 185.4 16.9 27.5 475.2 231.4 – – – – 231.4 47.9 183.5 – 198.5 (71.4) 127.1 (2.0) 20.1 707.9 259.1 195.1 17.5 27.3 499.0 208.9 – – – – 208.9 48.0 160.9 – Net earnings available to common shareholders $ 268.5 $ 270.8 $ 237.4 $ 202.2 $ 229.1 $ 190.9 $ 183.5 $ 160.9 Reconciliation of Non-IFRS financial measures(2) ($ millions) Adjusted net earnings available to common shareholders – non-IFRS measure $ 260.8 $ 270.8 $ 237.4 $ 202.2 $ 204.3 $ 214.2 $ 183.5 $ 160.9 Other items: Gain on sale of Personal Capital, net of tax Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax 7.7 – – – – – – – – – – – – – – – – 31.4 21.4 3.4 – – – (54.7) – – – – – – – – Net earnings available to common shareholders – IFRS $ 268.5 $ 270.8 $ 237.4 $ 202.2 $ 229.1 $ 190.9 $ 183.5 $ 160.9 Earnings per Share ($) Adjusted net earnings available to common shareholders(2) – Basic – Diluted $ 1.09 $ 1.13 $ 0.99 $ 0.85 $ 0.86 $ 0.90 $ 0.77 $ 1.08 1.13 0.99 0.85 0.86 0.90 0.77 Net earnings available to common shareholders – Basic – Diluted 1.12 1.11 1.13 1.13 0.99 0.99 0.85 0.85 0.96 0.96 0.80 0.80 0.77 0.77 0.68 0.68 0.68 0.68 Average outstanding shares – Diluted (thousands) 241,443 240,575 239,821 238,474 238,308 238,308 238,308 238,316 Average assets under management and advisement ($ billions) Investment fund assets under management $ 181.9 $ 178.6 $ 170.2 $ 162.7 $ 169.8 $ 163.7 $ 152.6 $ 158.5 Total assets under management Assets under management and advisement 241.9 272.0 238.3 267.4 227.8 255.4 217.6 243.9 177.6 202.2 171.4 194.9 159.2 181.5 163.3 186.0 Ending assets under management and advisement ($ billions) Investment fund assets under management $ 184.5 $ 176.8 $ 174.4 $ 165.5 $ 159.5 $ 164.9 $ 157.8 $ 143.2 Total assets under management Assets under management and advisement 245.3 277.1 236.2 265.2 233.6 262.0 221.6 248.5 214.0 240.0 172.6 196.4 165.4 188.3 147.5 168.4 (1) Interest expense includes interest on long-term debt and leases. (2) 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. 32 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis Wealth Management The Wealth Management segment consists of both IG Wealth Sub-advisory fees are paid between segments and to third Management (IG) and Investment Planning Counsel, Inc. (IPC). parties for investment management services provided to our Wealth Management revenue consists of: investment products. Wealth Management is considered a client of the Asset Management segment and transfer pricing is based • Advisory fees are related to providing financial advice to on values for similar sized asset management mandates. clients including fees related to the distribution of products. • Product and program fees are related to the management of investment products and include management, administration and other related fees. Effective January 1, 2021, each segment now reflects their results to adjusted net earnings. Debt and interest expense is allocated to segment based on management’s assessment of: i) capacity to service the debt, and ii) where the debt is being • Other financial planning revenues are fees related to serviced. Income taxes are also reported in each segment. providing clients other financial products including mortgages, insurance and banking products. Review of the Business IG Wealth Management, founded in 1926, provides opportunities associated with climate change and the transition comprehensive personal financial planning and wealth to a net zero emission global economy. management services to Canadians through our exclusive network of 3,278 Consultants. IG Wealth Management clients are more than one million individuals, families and business owners. IG Wealth Management entered into a partnership with CapIntel that provides IG advisors access to a powerful investment analysis and proposal tool. Portfolio comparisons and product information is integrated with our Advisor Portal (Salesforce) Investment Planning Counsel, founded in 1996, is an to quickly and transparently deliver on demand analysis and independent distributor of financial products, services and generate compliant & compelling investment proposals to advice in Canada, with 675 financial advisors. our clients. CapIntel also monitors daily investment funds and The Wealth Management segment provides a comprehensive planning approach, through IG Wealth Management Consultants and IPC Advisors, by offering a broad range of financial products and services. The review of the business in the Wealth Management section primarily relates to IG Wealth Management as it represents 96% of adjusted net earnings of the total segment. 2021 DEVELOPMENTS equities and notifies our advisors (through advisor portal) of any significant changes to investments that should be reviewed (for example, but not inclusive – material change reports, change in risk category, fund merger, corporate action, etc.) IG WEALTH MANAGEMENT STRATEGY IG Wealth Management’s promise is to inspire financial confidence. Our strategic mandate is to be Canada’s financial partner of choice. In the fourth quarter, IG Wealth Management launched Canadians hold $5.6 trillion in discretionary financial assets with IG Climate Action Portfolios, a suite of four diversified financial institutions at December 31, 2020, based on the most managed solutions: • IG Climate Action Portfolio – Global Fixed Income Balanced • IG Climate Action Portfolio – Global Neutral Balanced • IG Climate Action Portfolio – Global Equity Balanced recent report from Investor Economics, and we view these savings as IG Wealth Management’s addressable market. 76% of these savings are held by households with over $1 million, which are referred to as high net worth, and another 20% reside with households with between $100,000 and $1 million, which • IG Climate Action Portfolio – Global Equity are referred to as mass affluent. These segments tend to have These portfolios were developed with leading global asset managers and provide clients with a new way to support the world’s transition to net zero emissions. The portfolios more complicated financial needs, and IG Wealth Management’s focus on providing comprehensive financial planning solutions positions it well to compete and grow in these segments. invest in both equity and fixed income securities that are Our value proposition is to deliver better Gamma, better Beta believed to reduce the risks or are expected to benefit from the and better Alpha. | 33 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportWe seek to deliver our value proposition through: practices is a key measurement of our business as they serve • 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 clientele representing approximately 96% of AUM. • 380 New Consultants (445 at December 31, 2020), which are those Consultants with less than four years of experience. • 1,137 Associates and Regional Directors (1,044 at December 31, 2020). Associates are licensed team members of Consultant practices who provide financial planning services and advice to the clientele served by the team. • IG Wealth Management had a total Consultant network of 3,278 (3,304 at December 31, 2020). and competitively priced solutions. IG Wealth Management’s recruiting standards increase the • 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. • A high-performing and diverse culture. DELIVERING 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, Superior Advice Our financial advisors provide value to clients by developing insight into their specific needs, creating and implementing well-constructed financial plans and offering superior advice. IG Wealth Management has a national distribution network of more than 3,000 highly qualified financial advisors (called Consultants) in communities throughout Canada. Our advisory services are most suited to individuals with complicated financial needs. IG Wealth Management Consultant practices are industry leaders in holding a credentialed financial planning designation. These designations are nationally recognized financial planning likelihood of success while also enhancing our culture and brand. Our training curriculum is reviewed and refreshed each year 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. We also support Consultants and clients through our network of product and planning specialists, who assist in the areas of advanced financial planning, mortgages and banking, insurance, and securities. These specialists help to ensure that we are providing comprehensive financial planning across all elements of a client’s financial life. Clients are served by our Mutual Fund Dealers Association of Canada (MFDA) and Investment Industry Regulatory Organization of Canada (IIROC) licensed Consultants or specialists. Segmented Client Experiences IG Wealth Management distinguishes itself from our competition by offering comprehensive planning to our clients within the context of long-term relationships. A primary focus is on advising and attracting high net worth and mass affluent clients. For the distinct needs of the high net worth market, we offer IG Private Wealth Management which includes investment management, retirement, tax and estate planning services. qualifications that require an individual to demonstrate IG Living Plan™ is our holistic, client-centric approach to financial planning competence through education, standardized financial planning that reflects the evolving needs, goals and examinations, continuing education requirements, and aspirations of Canadian families and individuals. The IG Living accountability to ethical standards. The following provides a breakdown of the IG Wealth Management Consultant network into its significant components at December 31, 2021: • 1,761 Consultant practices (1,815 at December 31, 2020), which reflect Consultants with more than four years of experience. These practices may include Associates as Plan Portal, which is based on Conquest Planning, provides a single, integrated view of a client’s entire financial picture and uses predictive tools to determine planning strategies customized to the individual. The IG Living Plan leverages the expertise of IG Wealth Management’s Consultants who serve approximately one million clients located in communities throughout Canada. described below. The level and productivity of Consultant IG Wealth Management has a full range of products that allow us to provide a tailored IG Living Plan that evolves over time. 34 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis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 policy types from the leading insurers in Canada. • Mortgage and banking solutions that are offered as part of a comprehensive financial plan. IG Wealth Management’s dealer platform provides increased automation and supports both MFDA and IIROC licensed advisors as well as new products on our investment dealer platform designed to support the high net worth segment of our client base. A high-performing and diverse culture It is essential that we offer competitive compensation and benefits to attract and retain outstanding people. Our training • Charitable Giving Program, a donor-advised giving program and development approach, along with our use of feedback which enables Canadians to make donations and build an from periodic employee and advisor surveys, positions our enduring charitable giving legacy with considerably less employees and advisors to better serve our clients. expense and complexity than setting up and administering their own private foundation. DELIVERING BETA AND ALPHA IG Wealth Management’s National Service Centre is focused on supporting more than 200,000 clients with less complex requirements while allowing our Consultant practices to focus on those clients with more complex needs. IG Wealth Management Consultants are focused on the high net worth and mass affluent segments of the market, which we define as households with over $1 million and between $100 thousand and $1 million, respectively. Assets under advisement for clients with household assets greater than $1 million (defined as “high net worth”) totalled $43.5 billion at December 31, 2021, an increase of 40.8% from one year ago, and represented 36% of total assets under advisement. Assets under advisement for clients with household assets between $100 thousand and $1 million (defined as “mass affluent”) totalled $66.5 billion at December 31, 2021, an increase of 7.2% from one year ago, and represented 56% of total assets under advisement. Assets under advisement for clients with household assets less than $100 thousand (defined as “mass market”) totalled $9.6 billion at December 31, 2021, a decrease of 7.8% from one year ago, and represented 8.0% of total assets under advisement. Business processes 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 achieve expected investment returns for the lowest possible risk through well-constructed investment portfolios (Beta), and to create value for clients through active management (Alpha). To do this, we select and engage high-quality sub-advisors so our clients have access to a diverse range of investment products and solutions. Each asset manager is selected through a proven and rigorous process. We oversee all sub-advisors to ensure that their activities are consistent with their investment philosophies and with the investment objectives and strategies of the products they advise. IG Wealth Management’s relationships include Mackenzie Investments and other world class investment firms such as BlackRock, T. Rowe Price, PIMCO, ChinaAMC, Putnam and JP Morgan Asset Management. Powerful Financial Solutions We provide clients with an extensive suite of well-constructed and competitively priced financial solutions. We regularly enhance the scope and diversity of our investment offering with new funds and product changes that enable clients to achieve IG Wealth Management continually seeks to enhance our their goals. systems and business processes so our Consultants can serve clients more effectively. We look to enhance client and advisor interactions on an ongoing basis to simplify processes, reduce errors, and digitize the experience with an appropriate cost structure. The IG Wealth Management Advisor Portal is a customer relationship management platform based on Salesforce. It enables our Consultants to manage client relationships, improve their efficiency through digitized workflows, and access data-driven reporting to help better run their practices. Our solutions include: • A deep and broad selection of mutual funds, diversified by manager, asset category, investment style, geography, market capitalization and sector. • Managed portfolios that rebalance investments to ensure that a chosen mix of risk and return is maintained. These solutions include IG Core Portfolios, IG Managed Payout Portfolios, Investors Portfolios, and IG Managed Risk Portfolios. | 35 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report• IG Advisory Account (IGAA) and unbundled fee structures – The In support of the global goal to reach net zero by 2050, IG IGAA is a fee-based account that improves client experience Wealth Management is a founding Signatory to Responsible by offering the ability to simplify and consolidate selected Investment Association’s Canadian Investor Statement on investments into a single account while providing all of Climate Change. To support this initiative, in the fourth quarter our clients with a transparent advisory fee. IGAA accounts IG Wealth Management launched the IG Climate Action increase fee transparency and can hold most securities Portfolios, a suite of four diversified managed solutions. and investment products available in the marketplace to individual investors. • iProfile™ Portfolios – iProfile Portfolios are a suite of four managed solutions that provide comprehensive diversification and are designed to suit personal preferences for risk tolerance and investment goals. These portfolios provide exposure similar to the investments of the iProfile Private Pools. These portfolios are offered in both the IGAA and iProfile account structures. • iProfile™ Private Portfolios – iProfile Private Portfolios are model portfolios comprised of iProfile Private Pools, available for households with investments held at IG Wealth Management in excess of $250,000. iProfile Private Portfolios have been designed to deliver strong risk-adjusted returns by diversifying across asset classes, management styles and geographic regions. Recent enhancements include the launch of new discretionary model portfolios and six new iProfile Private Pools to support the new models: three iProfile Active Allocation Private Pools, iProfile Alternatives Private Pool with mandates including long-short, global macro and global equity hedge strategies, iProfile ETF Private Pool providing exposure through exchange traded funds (ETF) and iProfile Low Volatility Private Pool with Canadian, U.S., International and Emerging Market geographic coverage. In addition, we have incorporated investments in private assets with the introduction of a Private Credit Mandate in the iProfile Fixed Income Private Pool. The pool has committed to three Northleaf Capital Partners’ private credit investments that focus on loans to middle market companies in North America and Europe, as well as to BlackRock, PIMCO and Sagard. We have also introduced Private Investment Mandates into both the iProfile Canadian Equity Private Pool and the iProfile U.S. Equity Private Pool. Both of these mandates intend to provide investors with enhanced diversification and long-term capital appreciation through exposure to investments in privately held companies. The iProfile Canadian Equity Private Pool has currently made a commitment to the Northleaf Growth Fund and the iProfile U.S. Equity Private Pool has made a commitment to the Northleaf Capital Opportunities Fund. • Segregated funds that provide for long-term investment growth potential combined with risk management, benefit guarantee features and estate planning efficiencies. • Separately managed accounts (discretionary dealer-managed accounts). A growing portion of IG Wealth Management’s client assets are in unbundled fee structures. Unbundled fee products separate the advisory fee that is charged directly to a client’s account from the fees charged to the underlying investment funds. This separation provides clients with greater transparency into the fees they pay, and allows IG Wealth Management to differentiate pricing by client segment to ensure that it is competitive. We have discontinued offering the bundled purchase option of mutual funds and substantially all of our investment account types. 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, 2021, 75.8% of IG Wealth Management mutual fund assets had a rating of three stars or better from Morningstar† fund ranking service and 39.0% had a rating of four or five stars. This compared to the Morningstar† universe of 86.4% for three stars or better and 54.9% for four and five star funds at December 31, 2021. Morningstar Ratings† are an objective, quantitative measure of a fund’s three, five and ten year risk-adjusted performance relative to comparable funds. WEALTH MANAGEMENT ASSETS UNDER MANAGEMENT AND ADVISEMENT Assets under management and advisement are key performance indicators for the Wealth Management segment. Wealth Management’s assets under advisement were at a record high level of $152.6 billion at December 31, 2021, an increase of 15.1% from December 31, 2020. The level of assets under advisement are influenced by three factors: client inflows, client outflows and investment returns. Wealth Management’s assets under management were also at a record high level of $116.2 billion, an increase of 12.8% from December 31, 2020. The level of assets under management are influenced by sales, redemptions and investment returns. Changes in Wealth Management assets under advisement and assets under management for the periods under review are reflected in Tables 9 and 10. 36 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisTABLE 9: CHANGE IN ASSETS UNDER ADVISEMENT – WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Gross client inflows Gross client outflows Net flows Investment returns Net change in assets Beginning assets 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 4,946 $ 4,278 $ 4,425 15.6 % 11.8 % 3,837 1,109 6,052 7,161 3,003 1,275 842 2,117 3,688 737 6,831 7,568 145,462 143,345 125,015 27.8 (13.0) N/M 238.3 1.5 4.0 50.5 (11.4) (5.4) 16.4 Ending assets under advisement $ 152,623 $ 145,462 $ 132,583 4.9 % 15.1 % IG Wealth Management Investment Planning Counsel 119,557 113,958 103,273 33,077 31,515 29,318 4.9 5.0 15.8 12.8 Average assets under advisement $ 149,702 $ 146,531 $ 128,342 2.2 % 16.6 % IG Wealth Management Investment Planning Counsel 117,379 114,820 100,295 32,334 31,721 28,054 2.2 1.9 17.0 15.3 TWELVE MONTHS ENDED ($ millions) Gross client inflows Gross client outflows Net flows Investment returns Net change in assets Beginning assets Ending assets under advisement IG Wealth Management Investment Planning Counsel Average assets under advisement IG Wealth Management Investment Planning Counsel 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 18,800 $ 14,737 27.6 % 14,622 4,178 15,862 20,040 13,564 1,173 6,590 7,763 132,583 124,820 $ 152,623 $ 132,583 119,557 33,077 103,273 29,318 $ 142,867 $ 122,919 111,880 30,997 95,870 27,056 7.8 256.2 140.7 158.1 6.2 15.1 % 15.8 12.8 16.2 % 16.7 14.6 | 37 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 10: CHANGE IN ASSETS UNDER MANAGEMENT – WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 3,133 $ 2,929 $ 2,749 7.0 % 14.0 % 2,805 328 3,788 4,116 2,343 586 765 1,351 2,847 (98) 5,118 5,020 112,054 110,703 98,013 19.7 (44.0) N/M 204.7 1.2 (1.5) N/M (26.0) (18.0) 14.3 Ending assets under management $ 116,170 $ 112,054 $ 103,033 3.7 % 12.8 % IG Wealth Management Investment Planning Counsel 110,541 106,551 5,629 5,503 97,713 5,320 3.7 2.3 13.1 5.8 Daily average mutual fund assets $ 115,115 $ 113,145 $ 100,419 1.7 % 14.6 % IG Wealth Management Investment Planning Counsel 109,521 107,557 5,594 5,588 TWELVE MONTHS ENDED ($ millions) Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets under management IG Wealth Management Investment Planning Counsel Daily average mutual fund assets IG Wealth Management Investment Planning Counsel 95,194 5,225 2021 DEC. 31 1.8 0.1 15.1 7.1 2020 DEC. 31 % CHANGE $ 12,619 $ 9,564 31.9 % 11,094 1,525 11,612 13,137 103,033 10,322 (758) 5,239 4,481 98,552 $ 116,170 $ 103,033 110,541 5,629 97,713 5,320 $ 110,445 $ 97,062 104,962 5,483 91,929 5,133 7.5 N/M 121.6 193.2 4.5 12.8 % 13.1 5.8 13.8 % 14.2 6.8 IG WEALTH MANAGEMENT ASSETS UNDER MANAGEMENT AND ADVISEMENT Changes in IG Wealth Management assets under advisement and management for the periods under review are reflected in Assets under advisement (AUA) are a key performance indicator Tables 11 and 12. for IG Wealth Management. AUA represents savings and investment products, including Assets Under Management where we provide investment management services, that are held within our clients’ accounts. Advisory fees are charged based on an annual percentage of substantially all AUA, through the IG Advisory Account fee, and represent the majority of the fees earned from our clients. Our Consultants’ compensation is also based on AUA and net assets contributed by our clients. IG Wealth Management’s assets under advisement and mutual fund assets under management were at record high levels at December 31, 2021. Assets under advisement were $119.6 billion at December 31, 2021, an increase of 15.8% from December 31, 2020, and mutual fund assets under management were $110.5 billion, an increase of 13.1%. For the quarter ended December 31, 2021, gross client inflows of IG Wealth Management assets under advisement were $3.4 billion, an increase of 17.0% from $2.9 billion in the comparable period in 2020. Net client inflows were $1.0 billion, an improvement of $500 million from net client inflows of $485 million in the comparable period in 2020. During the fourth quarter, investment returns resulted in an increase of $4.6 billion in assets under advisement compared to an increase of $5.3 billion in the fourth quarter of 2020. For the twelve months ended December 31, 2021, gross client inflows of IG Wealth Management assets under advisement were $13.4 billion, the highest annual result in the history of the company, and represented an increase of 34.6% from $10.0 billion in the comparable period in 2020. Net client inflows 38 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 11: CHANGE IN ASSETS UNDER ADVISEMENT – IG WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Gross client inflows Gross client outflows Net flows Investment returns Net change in assets Beginning assets Ending assets 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 3,437 $ 3,141 $ 2,938 9.4 % 17.0 % 2,452 985 4,614 5,599 2,127 1,014 759 1,773 2,453 485 5,250 5,735 113,958 112,185 97,538 $ 119,557 $ 113,958 $ 103,273 15.3 (2.9) N/M 215.8 1.6 – 103.1 (12.1) (2.4) 16.8 4.9 % 2.2 % 15.8 % 17.0 % Average assets under advisement $ 117,379 $ 114,820 $ 100,295 TWELVE MONTHS ENDED ($ millions) Gross client inflows Gross client outflows Net flows Investment returns Net change in assets Beginning assets Ending assets Average assets under advisement 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 13,434 $ 9,977 34.6 % 9,750 3,684 12,600 16,284 9,182 795 5,378 6,173 103,273 97,100 $ 119,557 $ 103,273 $ 111,880 $ 95,870 6.2 N/M 134.3 163.8 6.4 15.8 % 16.7 % were at an all-time high level of $3.7 billion in the twelve month CHANGE IN ASSETS UNDER MANAGEMENT period, an improvement of $2.9 billion from net client inflows AND ADVISEMENT – 2021 VS. 2020 of $795 million in the comparable period in 2020. During 2021, IG Wealth Management’s assets under advisement were investment returns resulted in an increase of $12.6 billion in $119.6 billion at December 31, 2021, an increase of 15.8% from assets under advisement compared to an increase of $5.4 billion $103.3 billion at December 31, 2020. IG Wealth Management’s in 2020. Changes in mutual fund assets under management for the periods under review are reflected in Table 12. mutual fund assets under management were $110.5 billion at December 31, 2021, representing an increase of 13.1% from $97.7 billion at December 31, 2020. Average daily mutual fund assets were $109.5 billion in the fourth quarter of 2021, up In addition to net sales of $457 million in the fourth quarter 15.1% from $95.2 billion in the fourth quarter of 2020. Average of 2021 to IG Wealth Management fund products, there were daily mutual fund assets were $105.0 billion for the twelve net sales to Mackenzie fund products of $36 million for a total months ended December 31, 2021, up 14.2% from $91.9 billion of $493 million in net sales to IGM Financial’s products. For in 2020. the twelve month period, net sales to IG Wealth Management fund products were $1.8 billion and net sales to Mackenzie fund products were $0.4 billion for a total of $2.2 billion in net sales to IGM Financial’s products. For the quarter ended December 31, 2021, sales of IG Wealth Management mutual funds through its Consultant network were $3.0 billion, an increase of 15.0% from the comparable period in 2020. Mutual fund redemptions totalled $2.5 billion, At December 31, 2021, $77.8 billion, or 70% of IG Wealth a decrease of 3.1% from 2020. IG Wealth Management mutual Management’s mutual fund assets under management, were fund net sales for the fourth quarter of 2021 were $457 million in products with unbundled fee structures, up 50.6% from compared with net redemptions of $9 million in 2020. During $51.7 billion at December 31, 2020 which represented 53% the fourth quarter, investment returns resulted in an increase of assets under management. of $3.5 billion in mutual fund assets compared to an increase of $4.8 billion in the fourth quarter of 2020. | 39 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 12: CHANGE IN ASSETS UNDER MANAGEMENT – IG WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 2,959 $ 2,741 $ 2,572 8.0 % 15.0 % 2,502 457 3,533 3,990 2,165 576 757 1,333 106,551 105,218 $ 110,541 $ 106,551 Daily average assets under management $ 109,521 $ 107,557 Managed asset net sales Investment fund net sales Mackenzie net sales through Wealth Management $ $ 457 36 493 $ $ 576 65 641 TWELVE MONTHS ENDED ($ millions) Sales Redemptions Net sales (redemptions) Investment returns Net change in assets Beginning assets Ending assets Daily average assets under management Managed asset net sales Investment fund net sales Mackenzie net sales through Wealth Management 2,581 (9) 4,848 4,839 92,874 97,713 95,194 (9) 130 121 $ $ $ $ 15.6 (20.7) N/M 199.3 1.3 (3.1) N/M (27.1) (17.5) 14.7 3.7 % 1.8 % 13.1 % 15.1 % (20.7) % N/M % (44.6) (72.3) (23.1) % N/M % 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 11,845 $ 8,987 31.8 % 10,032 1,813 11,015 12,828 97,713 $ 110,541 $ 104,962 $ 1,813 431 $ 2,244 9,438 (451) 5,003 4,552 93,161 97,713 91,929 (451) 211 (240) $ $ $ $ 6.3 N/M 120.2 181.8 4.9 13.1 % 14.2 % N/M % 104.3 N/M % IG Wealth Management’s annualized quarterly redemption in an increase of $11.0 billion in mutual fund assets compared rate for long-term funds was 8.8% in the fourth quarter of to an increase of $5.0 million in 2020. 2021, compared to 10.3% in the fourth quarter of 2020. IG Wealth Management’s twelve month trailing redemption CHANGE IN ASSETS UNDER MANAGEMENT rate for long-term funds was 9.2% at December 31, 2021, AND ADVISEMENT – Q4 2021 VS. Q3 2021 compared to 9.8% at December 31, 2020, and remains well IG Wealth Management’s assets under advisement were below the corresponding average redemption rate for all other $119.6 billion at December 31, 2021, an increase of 4.9% from members of the Investment Funds Institute of Canada (IFIC) $114.0 billion at September 30, 2021. IG Wealth Management’s of approximately 13.5% at December 31, 2021. IG Wealth mutual fund assets under management were $110.5 billion at Management’s redemption rate has been very stable compared December 31, 2021, an increase of 3.7% from $106.6 billion to the overall mutual fund industry, reflecting our focus on at September 30, 2021. Average daily mutual fund assets financial planning. For the twelve months ended December 31, 2021, sales of were $109.5 billion in the fourth quarter of 2021 compared to $107.6 billion in the third quarter of 2021, an increase of 1.8%. IG Wealth Management mutual funds through its Consultant For the quarter ended December 31, 2021, sales of IG Wealth network were $11.8 billion, an increase of 31.8% from 2020. Mutual fund redemptions totalled $10.0 billion, an increase of Management mutual funds through its Consultant network were $3.0 billion, an increase of 8.0% from the third quarter of 6.3% from 2020. Net sales of IG Wealth Management mutual 2021. Mutual fund redemptions, which totalled $2.5 billion for funds were $1.8 billion compared with net redemptions of the fourth quarter, increased 15.6% from the previous quarter, $451 million in 2020. During 2021, investment returns resulted and the annualized quarterly redemption rate was 8.8% in 40 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis the fourth quarter compared to 7.7% in the third quarter of MORTGAGE AND BANKING OPERATIONS 2021. IG Wealth Management mutual fund net sales were IG Wealth Management Mortgage Planning Specialists are $457 million for the current quarter compared to net sales of located throughout each province in Canada, and work with our $576 million in the previous quarter. IG WEALTH MANAGEMENT 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, 2021, total segregated fund assets were $1.5 billion, compared to $1.6 billion at December 31, 2020. 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 average number of policies sold by each insurance-licensed Consultant was 2.3 for the quarter ended December 31, 2021, compared to 2.6 in 2020. For the twelve months ended December 31, 2021, the average number of policies sold by each insurance-licensed Consultant was 9.5 compared to 9.0 in 2020. Distribution of insurance products is enhanced through IG Wealth Management’s Insurance Planning Specialists, located throughout Canada, who assist Consultants with advanced estate planning solutions for high net worth clients. 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. 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†. Mortgage fundings offered through IG Wealth Management and through Solutions Banking† for the three and twelve months ended December 31, 2021 were $221 million and $1.08 billion compared to $297 million and $1.12 billion in 2020, a decrease of 25.6% and 3.3%, respectively. At December 31, 2021, mortgages offered through both sources totalled $8.4 billion, compared to $9.5 billion at December 31, 2020, a decrease of 11.3%. Available credit associated with Solutions Banking† All-in-One accounts originated for the three and twelve month periods ended December 31, 2021 were $276 million and $1.3 billion, respectively, compared to $411 million and $1.2 billion in 2020. At December 31, 2021, the balance outstanding of Solutions Banking† All-in-One products was $3.9 billion, compared to $3.4 billion one year ago, and represented approximately 52% 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 labelled 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 outstanding lending products of IG Wealth Management clients in the Solutions Banking† offering, including Solutions Banking† mortgages totalled $5.7 billion at December 31, 2021, compared to $5.1 billion at December 31, 2020. | 41 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportReview of Segment Operating Results The increase in product and program fees in both the three and twelve month periods of 2021 was primarily due to the The Wealth Management segment’s adjusted net earnings are increase in average assets under management of 15.1% and presented in Table 13 and include the operations of IG Wealth 14.2%, respectively, as shown in Table 12. The average product Management and Investment Planning Counsel. IG WEALTH MANAGEMENT IG Wealth Management adjusted net earnings are presented in Table 14. Adjusted net earnings for the fourth quarter of 2021 were $141.1 million, an increase of 20.2% from the fourth and program fee rate for the fourth quarter was 86.3 basis points of average assets under management compared to 85.8 basis points in 2020, and the rate for the twelve month period was 86.0 basis points of average assets under management compared to 85.8 basis points in 2020, reflecting changes in product mix and price in both periods. quarter in 2020 and an increase of 0.1% from the prior quarter. Other financial planning revenues are primarily earned from: Adjusted net earnings for the year ended December 31, 2021 were $522.9 million, an increase of 20.5% from 2020. • Mortgage banking operations • Distribution of insurance products through I.G. Insurance Adjusted earnings before interest and taxes for the fourth Services Inc. quarter of 2021 were $215.0 million, an increase of 17.9% from the fourth quarter in 2020 and an increase of 0.1% from the prior quarter. Adjusted earnings before interest and taxes for the year ended December 31, 2021 were $802.8 million, an increase of 18.1% from 2020. 2021 VS. 2020 FEE INCOME Advisory fees include fees for providing financial advice to clients including fees related to the distribution of products, and depend largely on the level and composition of assets under advisement. Advisory fees were $301.1 million in the fourth quarter of 2021, an increase of $35.6 million or 13.4% from $265.5 million in 2020. For the twelve months ended December 31, 2021, advisory fees were $1,154.3 million, an increase of $135.2 million • Securities trading services provided through Investors Group Securities Inc. • Banking services provided through Solutions Banking† Other financial planning revenues of $41.7 million for the fourth quarter of 2021 decreased by $3.6 million from $45.3 million in 2020, primarily due to lower earnings from the mortgage banking operations partly offset by higher distribution fee income from insurance products. For the twelve month period, other financial planning revenues of $163.4 million increased by $13.9 million from $149.5 million in 2020, due to higher distribution fee income from insurance products partly offset by lower earnings from the mortgage banking operations. A summary of mortgage banking operations for the three and twelve month periods under review is presented in Table 15. or 13.3% from $1,019.1 million in 2020. NET INVESTMENT INCOME AND OTHER The increase in advisory fees in the three and twelve month periods ending December 31, 2021 was primarily due to the increase in average assets under advisement of 17.0% and 16.7%, respectively, as shown in Table 11. In both periods, the increase in average assets was offset in part by a decrease in the advisory fee rate. The average advisory fee rate for the fourth quarter was 101.8 basis points of average assets under advisement compared to 105.3 basis points in 2020, and for the twelve month period, the rate was 103.2 basis points compared to 106.3 basis points in 2020. The decrease in rates reflects changes in product and client mix as we have more high net worth clients who are eligible for lower rates. Product and program fees depend largely on the level and composition of mutual fund assets under management. Product and program fees totalled $238.1 million in the current quarter, up 15.7% from $205.8 million a year ago. Product and program fees were $903.5 million for the twelve month period ended December 31, 2021 compared to $790.6 million in 2020, an increase of 14.3%. Net investment income and other is primarily related to investment income earned on our cash and cash equivalents and securities and other income not related to our core business. It also includes a charge from the Strategic Investments and Other segment for the use of unallocated capital. EXPENSES IG Wealth Management incurs advisory and business development expenses that include compensation paid to our Consultants. The majority of these costs vary directly with asset or sales levels. Also included are other distribution and business development activities which do not vary directly with asset or sales levels, such as direct marketing and advertising, financial planning specialist support and other costs incurred to support our adviser networks. These expenses tend to be discretionary or vary based upon the number of consultants or clients. Asset-based compensation fluctuates with the value of assets under advisement. Asset-based compensation increased by $25.2 million and $90.5 million for the three and twelve month 42 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisTABLE 13: OPERATING RESULTS – WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Revenues Wealth Management Advisory fees Product and program fees Redemption fees Other financial planning revenues Total Wealth Management Net investment income and other Expenses Advisory and business development Asset-based compensation Sales-based compensation Other Other product commissions Business development Total advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings TWELVE MONTHS ENDED ($ millions) Revenues Wealth Management Advisory fees Product and program fees Redemption fees Other financial planning revenues Total Wealth Management Net investment income and other Expenses Advisory and business development Asset-based compensation Sales-based compensation Other Other product commissions Business development Total advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 370.6 $ 364.5 $ 325.5 1.7 % 13.9 % 252.8 623.4 1.7 47.4 672.5 1.4 673.9 195.2 15.9 21.3 52.4 73.7 284.8 115.9 49.5 450.2 223.7 22.7 201.0 53.8 248.4 612.9 1.8 45.3 660.0 (0.2) 659.8 191.6 14.7 16.5 52.0 68.5 274.8 113.2 48.7 436.7 223.1 22.8 200.3 53.5 219.8 545.3 3.2 50.0 598.5 1.0 599.5 164.3 10.6 20.1 59.8 79.9 254.8 113.3 42.7 410.8 188.7 22.7 166.0 44.2 1.8 1.7 (5.6) 4.6 1.9 N/M 2.1 1.9 8.2 29.1 0.8 7.6 3.6 2.4 1.6 3.1 0.3 (0.4) 0.3 0.6 15.0 14.3 (46.9) (5.2) 12.4 40.0 12.4 18.8 50.0 6.0 (12.4) (7.8) 11.8 2.3 15.9 9.6 18.5 – 21.1 21.7 $ 147.2 $ 146.8 $ 121.8 0.3 % 20.9 % 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 1,417.2 $ 1,245.7 13.8 % 961.1 2,378.3 10.0 184.6 2,572.9 3.6 2,576.5 740.1 56.1 75.5 217.6 293.1 1,089.3 466.1 189.7 1,745.1 831.4 90.3 741.1 198.0 846.3 2,092.0 16.0 168.0 2,276.0 2.3 2,278.3 625.9 36.4 69.8 227.9 297.7 960.0 453.7 163.2 1,576.9 701.4 89.9 611.5 162.6 13.6 13.7 (37.5) 9.9 13.0 56.5 13.1 18.2 54.1 8.2 (4.5) (1.5) 13.5 2.7 16.2 10.7 18.5 0.4 21.2 21.8 $ 543.1 $ 448.9 21.0 % | 43 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 14: OPERATING RESULTS – IG WEALTH MANAGEMENT THREE MONTHS ENDED ($ millions) Revenues Wealth Management Advisory fees Product and program fees Redemption fees Other financial planning revenues Total Wealth Management Net investment income and other Expenses Advisory and business development Asset-based compensation Sales-based compensation Other Other product commissions Business development Total advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings TWELVE MONTHS ENDED ($ millions) Revenues Wealth Management Advisory fees Product and program fees Redemption fees Other financial planning revenues Total Wealth Management Net investment income and other Expenses Advisory and business development Asset-based compensation Sales-based compensation Other Other product commissions Business development Total advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings 44 | 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 301.1 $ 296.9 $ 265.5 1.4 % 13.4 % 238.1 539.2 1.7 41.7 582.6 1.3 583.9 142.0 15.9 18.0 43.8 61.8 219.7 103.6 45.6 368.9 215.0 22.5 192.5 51.4 233.5 530.4 1.8 39.8 572.0 (0.5) 571.5 138.4 14.7 13.3 43.8 57.1 210.2 101.8 44.7 356.7 214.8 22.6 192.2 51.3 205.8 471.3 3.0 45.3 519.6 0.8 520.4 116.8 10.6 17.3 52.3 69.6 197.0 101.8 39.2 338.0 182.4 22.5 159.9 42.5 2.0 1.7 (5.6) 4.8 1.9 N/M 2.2 2.6 8.2 35.3 – 8.2 4.5 1.8 2.0 3.4 0.1 (0.4) 0.2 0.2 15.7 14.4 (43.3) (7.9) 12.1 62.5 12.2 21.6 50.0 4.0 (16.3) (11.2) 11.5 1.8 16.3 9.1 17.9 – 20.4 20.9 $ 141.1 $ 140.9 $ 117.4 0.1 % 20.2 % 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 1,154.3 $ 1,019.1 13.3 % 903.5 2,057.8 9.9 163.4 2,231.1 2.6 2,233.7 536.0 56.1 62.8 184.6 247.4 839.5 416.9 174.5 790.6 1,809.7 15.7 149.5 1,974.9 1.3 1,976.2 445.5 36.4 58.6 199.1 257.7 739.6 407.1 149.7 1,430.9 1,296.4 802.8 89.6 713.2 190.3 679.8 89.3 590.5 156.7 14.3 13.7 (36.9) 9.3 13.0 100.0 13.0 20.3 54.1 7.2 (7.3) (4.0) 13.5 2.4 16.6 10.4 18.1 0.3 20.8 21.4 $ 522.9 $ 433.8 20.5 % 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 15: MORTGAGE BANKING OPERATIONS – IG WEALTH MANAGEMENT 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 THREE 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) 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) $ $ 33.1 25.5 7.6 0.5 – 0.7 8.8 $ 35.6 27.3 8.3 1.8 1.3 0.2 $ 11.6 $ 5,111 $ 5,338 2,411 2,454 $ $ $ 44.1 33.5 10.6 3.7 (1.0) 1.8 15.1 6,126 2,670 $ 7,522 $ 7,792 $ 8,796 $ $ 297 176 473 $ $ 333 222 555 $ $ 434 246 680 % CHANGE 2020 DEC. 31 (24.9) % (23.9) (28.3) (86.5) 100.0 (61.1) (7.0) % (6.6) (8.4) (72.2) (100.0) 250.0 (24.1) % (41.7) % (4.3) % (1.8) (3.5) % (10.8) % (20.7) (14.8) % (16.6) % (9.7) (14.5) % (31.6) % (28.5) (30.4) % 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 147.0 $ 111.4 35.6 3.9 1.4 3.5 $ 44.4 $ 5,431 2,503 $ 7,934 $ $ $ 181.1 148.5 32.6 9.8 (5.1) 8.5 45.8 6,465 2,748 9,213 $ 1,506 $ 1,605 872 760 $ 2,378 $ 2,365 (18.8) % (25.0) 9.2 (60.2) N/M (58.8) (3.1) % (16.0) % (8.9) (13.9) % (6.2) % 14.7 0.5 % (1) Represents sales to institutional investors through private placements, to IG Mackenzie Mortgage and Short Term Income Fund, and to IG Mackenzie Canadian Corporate Bond Fund as well as gains realized on those sales. (2) Represents principal amounts sold. | 45 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report periods ended December 31, 2021 to $142.0 million and Q4 2021 VS. Q3 2021 $536.0 million, respectively, compared to 2020. The increase was primarily due to increased average assets under advisement FEE INCOME and Consultant performance. IG Wealth Management sales-based compensation is based upon the level of new assets contributed to client accounts at IG Wealth Management (subject to eligibility requirements). All sales-based compensation payments are capitalized and amortized as they reflect incremental costs to obtain a client contract. Advisory fee income increased by $4.2 million or 1.4% to $301.1 million in the fourth quarter of 2021 compared with the third quarter of 2021. The increase in advisory fees in the fourth quarter was primarily due to the increase in average assets under advisement of 2.2% for the quarter, as shown in Table 11. The average advisory fee rate for the fourth quarter was 101.8 basis points of average assets under management, a decrease from 102.6 basis points in the third quarter primarily due to Sales-based compensation was $15.9 million for the fourth changes in client mix. quarter of 2021, an increase of $5.3 million from $10.6 million in 2020. For the twelve month period, sales-based compensation expense was $56.1 million, an increase of $19.7 million from $36.4 million in 2020. The increase in expense is due to additional sales-based commission being capitalized and amortized throughout 2020 and 2021. Other advisory and business development expenses were $61.8 million in the fourth quarter of 2021, compared to $69.6 million in 2020. Other advisory and business development expenses were $247.4 million in the twelve months ended December 31, 2021, compared to $257.7 million in 2020. Product and program fees were $238.1 million in the fourth quarter of 2021, an increase of $4.6 million from $233.5 million in the third quarter of 2021. The increase in product and program fees was due to higher assets under management. The average product and program fee rate was 86.3 basis points in the current quarter, compared to 86.1 basis points in the third quarter. Other financial planning revenues of $41.7 million in the fourth quarter of 2021 increased by $1.9 million from $39.8 million in the third quarter, due to higher insurance sales partly offset by lower mortgage income. Operations and support includes costs that support our wealth NET INVESTMENT INCOME AND OTHER management and other general and administrative functions Net investment income and other was $1.3 million in the fourth such as product management, technology and operations, as quarter of 2021, an increase of $1.8 million from the third quarter. well as other functional business units and corporate expenses. Operations and support expenses were $103.6 million for the EXPENSES fourth quarter of 2021 compared to $101.8 million in 2020, an Advisory and business development expenses in the current increase of $1.8 million or 1.8%. For the twelve month period, quarter were $219.7 million, an increase of $9.5 million from operations and support expenses were $416.9 million in 2021 $210.2 million in the previous quarter primarily due to higher compared to $407.1 million in 2020, an increase of $9.8 million assets under advisement, higher sales based compensation and or 2.4%. higher insurance sales. Sub-advisory expenses were $45.6 million for the fourth Operations and support expenses were $103.6 million for quarter of 2021 compared to $39.2 million in 2020, an the fourth quarter of 2021 compared to $101.8 million in the increase of $6.4 million or 16.3%. For the twelve month period, previous quarter, an increase of $1.8 million or 1.8%. sub-advisory expenses were $174.5 million in 2021 compared to $149.7 million in 2020, an increase of $24.8 million or 16.6%. The increase in both periods is primarily due to higher assets under management. INTEREST EXPENSE Interest expense, which includes allocated interest expense on long-term debt and interest expense on leases, totalled $22.5 million in the fourth quarter of 2021, unchanged from 2020. For the twelve month period, interest expense totalled $89.6 million compared to $89.3 million in 2020. Long-term debt interest expense is calculated based on a long-term debt allocation of $1.7 billion to IG Wealth Management. INVESTMENT PLANNING COUNSEL 2021 VS. 2020 Adjusted net earnings related to Investment Planning Counsel were $1.7 million and $5.1 million higher in the three and twelve month periods ended December 31, 2021 than the comparable periods in 2020. Q4 2021 VS. Q3 2021 Adjusted net earnings related to Investment Planning Counsel were $0.2 million higher in the fourth quarter of 2021 compared to the prior quarter. 46 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisAsset Management The Asset Management segment includes Mackenzie Management is considered a client of the Asset Management Investments (Mackenzie). segment and transfer pricing is based on values for similar Asset Management revenue reflects: • Net asset management fees – third party includes fees received from our mutual funds and fees from third parties sized asset management mandates. Assets managed for IG Wealth Management are included in the Asset Management segment’s assets under management. for investment management services. Compensation paid to Effective January 1, 2021, each segment now reflects their dealers offsets the fees earned. • Asset management fees – Wealth Management includes fees received from the Wealth Management segment. Wealth results to adjusted net earnings. Debt and interest expense is allocated to a segment based on management’s assessment of: i) capacity to service the debt, and ii) where the debt is being serviced. Income taxes are also reported in each segment. Review of the Business Mackenzie Investments is a diversified asset management • Business processes that are simple, easy and digitized solutions provider founded in 1967. We provide investment management and related services with a wide range of investment mandates through a boutique structure and using multiple distribution channels. We are committed to delivering strong investment performance for our clients by drawing on more than 50 years of investment management experience. • Continue to foster a high performance and diverse culture These strategies impact our strategic priorities and drive future business growth. We aim to achieve this 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 Mackenzie earns asset management fees primarily from: institutional quality in everything we do. • Management fees earned from its investment funds, sub-advised accounts and institutional clients. Mackenzie seeks to maximize returns on business investment by focusing our resources in areas that directly impact the success • Fees earned from its mutual funds for administrative services. of our strategic focus: investment management, distribution and • Redemption fees on deferred sales charge and low load units. client experience. 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 account type of the underlying assets under management. Equity based mandates have higher management fee rates than fixed income mandates and retail mutual fund accounts have higher management fee rates than sub-advised and institutional accounts. Our investment management capabilities are delivered through a boutique structure, with separate in-house teams having distinct focuses and diverse styles. Our research and portfolio management teams are located in Toronto, Montreal, Winnipeg, Vancouver, Boston, Dublin and Hong Kong. In addition to our own investment teams, we supplement our investment capabilities with strategic partners (third party sub-advisors) in selected areas. The development of a broad range of investment capabilities and products is a key strength in supporting the evolving financial needs of investors. ASSET MANAGEMENT STRATEGY Mackenzie’s mission is to create a more invested world, together. Our business focuses on three key distribution channels: retail, strategic alliances and institutional. Mackenzie’s objective is to become Canada’s preferred global asset management solutions provider and business partner. Mackenzie’s focus is based on five key strategies: • Win in retail in a segmented way • Build a global institutional business with a targeted approach • Deliver innovative investment solutions and performance Mackenzie primarily distributes its retail investment products through third-party financial advisors. Our sales teams work with many of the more than 30,000 independent financial advisors and their firms across Canada. Our innovative, comprehensive lineup of investment solutions covers all asset classes and parts of the globe. We offer a range of relevant products and investment solutions designed to help advisors meet the evolving needs of their clients. We regularly introduce | 47 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Reportnew funds and we may merge or streamline our fund offerings institutions. We attract new institutional business through our to provide enhanced investment solutions. relationships with pension and management consultants. In addition to our retail distribution team, Mackenzie also Gross sales and redemption activity in strategic alliance and has specialty teams focused on strategic alliances and the institutional accounts can be more pronounced than in the retail institutional marketplace. Within the strategic alliance channel, Mackenzie offers certain series of our mutual funds and provides sub-advisory services to third-party and related party investment programs offered by channel, given the relative size and the nature of the distribution relationships of these accounts. These accounts are also subject to ongoing reviews and rebalance activities which may result in a significant change in the level of assets under management. banks, insurance companies and other investment companies. Mackenzie continues to be positioned to continue to build Strategic alliances with related parties include providing advisory and enhance our distribution relationships given our team services to IG Wealth Management, Investment Planning of experienced investment professionals, strength of our Counsel and Great-West Lifeco Inc. (Lifeco) subsidiaries. distribution network, broad product shelf, competitively Mackenzie partners with Wealthsimple to distribute ETFs priced products and our focus on client experience and through their product shelf. Within the strategic alliance investment excellence. channel, Mackenzie’s primary distribution relationship is with the head office of the respective bank, insurance company or ACQUISITIONS investment company. In the institutional channel, Mackenzie provides investment management services to pension plans, foundations and other GLC Asset Management Group Ltd. (GLC) On December 31, 2020, Mackenzie acquired GLC, a Canadian investment management firm with $37 billion in assets under management, from Great-West Lifeco Inc. (Lifeco). TABLE 16: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – ASSET MANAGEMENT(1) THREE MONTHS ENDED ($ millions) 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 Assets under management excluding sub-advisory to Canada Life and the Wealth Management Segment Net sales (redemptions) Mutual funds(1) ETF net creations(2) Investment funds(3) Sub-advisory, institutional and other accounts(4) Total net sales (redemptions) Change due to GLC(5) Investment returns Net change in assets Beginning assets Ending assets Consolidated assets under management(5) Mutual funds ETFs Investment funds(3) Sub-advisory, institutional and other accounts Sub-advisory to Canada Life $ 512 245 757 (576) 181 – 3,162 3,343 72,967 $ 799 320 1,119 (27) 1,092 – 54 1,146 71,821 $ 1,376 (35.9) % (62.8) % 372 1,748 (75) 1,673 (16,875) 4,365 (10,837) 74,600 (23.4) (32.4) N/M (83.4) – N/M 191.7 1.6 (34.1) (56.7) N/M (89.2) 100.0 (27.6) N/M (2.2) $ 76,310 $ 72,967 $ 63,763 4.6 % 19.7 % $ 62,969 $ 59,721 $ 52,682 5.4 % 19.5 % 5,393 68,362 7,948 76,310 52,805 5,068 64,789 8,178 72,967 51,131 3,788 56,470 7,293 63,763 47,175 110,938 74,210 6.4 5.5 (2.8) 4.6 3.3 4.0 2.5 42.4 21.1 9.0 19.7 11.9 16.4 9.5 Total excluding sub-advisory to Wealth Management 129,115 124,098 Sub-advisory to Wealth Management 81,228 79,242 Consolidated assets under management $ 210,343 $ 203,340 $ 185,148 3.4 % 13.6 % Average total assets(6) Excluding sub-advisory to Wealth Management $ 126,759 $ 125,181 $ 77,186 1.3 % 64.2 % Consolidated 207,143 204,850 149,491 1.1 38.6 48 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 16: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – ASSET MANAGEMENT(1) TWELVE MONTHS ENDED ($ millions) Assets under management excluding sub-advisory to Canada Life and the Wealth Management Segment Net sales (redemptions) Mutual funds(1) ETF net creations(2) Investment funds(3) Sub-advisory, institutional and other accounts(4) Total net sales (redemptions) Change due to GLC(5) Investment returns Net change in assets Beginning assets Ending assets Average total assets(6) Excluding sub-advisory to Wealth Management Consolidated 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 3,908 $ 2,956 32.2 % 1,532 5,440 (306) 5,134 – 7,413 12,547 63,763 1,232 4,188 2,062 6,250 (16,875) 6,131 (4,494) 68,257 24.4 29.9 N/M (17.9) 100.0 20.9 N/M (6.6) $ 76,310 $ 63,763 19.7 % $ 120,988 $ 71,402 198,946 141,985 69.4 % 40.1 (1) Mutual funds – Institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: 2021 YTD – resulted in redemptions and net redemptions of $361 million. 2020 YTD – resulted in sales of $1.4 billion, redemptions of $785 million and net sales of $612 million. 2020 Q4 – resulted in sales of $625 million, redemptions of $593 million and net sales of $32 million. Q3 – resulted in sales and net sales of $290 million. (2) ETFs – During the second and third quarters of 2020, Wealthsimple made allocation changes which resulted in $370 million in purchases in Mackenzie ETFs and $325 million of redemptions from Mackenzie’s ETFs, respectively. (3) Investment fund assets under management and net sales exclude investments into Mackenzie mutual funds and ETFs by IGM Financial’s investment funds. (4) Sub-advisory, institutional and other accounts: 2021 Q2 – Mackenzie was awarded $680 million of sub-advisory wins. Q4 – an institutional client re-assigned sub-advisory responsibilities on mandates advised by Mackenzie totalling $667 million. 2020 Q2 – Mackenzie was awarded $2.6 billion of sub-advisory wins. (5) In the fourth quarter of 2020 Mackenzie Investments: – Sold $16.2 billion of fund management contracts relating to private label Quadrus Group of Funds (QGOF) to Lifeco. – Acquired $183 million in mutual fund assets under management related to the acquisition of Greenchip Financial Corp. – Acquired $46.3 billion in institutional accounts as part of the transaction with Lifeco. (6) Based on daily average investment fund assets and month-end average sub-advisory, institutional and other assets. Separately, Lifeco’s subsidiary, The Canada Life Assurance The acquisition also includes a distribution agreement with Company (Canada Life) acquired the fund management Canada Life, positioning Mackenzie as the core investment contracts relating to private label Quadrus Group of Funds advisor to its individual and group product offerings and (QGOF). Mackenzie was previously the manager and trustee enhancing Canada Life’s capabilities and competitiveness. of the QGOF. Subsequent to the sale, Mackenzie continues to provide investment and administration services to the QGOF. Greenchip Financial Corp. (Greenchip) Benefits of the deal to Mackenzie include the following: • The net addition of $30.1 billion in assets under management solidifying Mackenzie as one of Canada’s largest asset managers. On December 22, 2020, Mackenzie acquired Greenchip, a leading Canadian firm focused exclusively on the environmental economy since 2007. The acquisition added $618 million in assets under management, of which $435 million was sub-advisory mandates to the Mackenzie Global Environmental • Expands Mackenzie’s distribution reach to the fast-growing Equity Fund. Mackenzie has been a leader in bringing group retirement business channel and establishes Mackenzie sustainable investing to Canadians, with an evolving suite of as one of the top three providers in Canada of investment solutions to defined contribution plans and other group retirement offerings. • Enhances Mackenzie’s investment capabilities with the addition of a new Canadian Equity boutique. funds focused on environmental leadership, gender diversity and sustainability. The acquisition of Greenchip is a natural evolution reflecting the success of Greenchip’s sub-advisory relationship to the Mackenzie Global Environmental Equity Fund. | 49 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report ASSETS UNDER MANAGEMENT The changes in total assets under management are summarized in Table 16 and the changes in investment fund assets under management are summarized in Table 17. Assets managed for the Wealth Management segment are included in total assets under management. Prior to the third quarter of 2020, assets managed by Mackenzie for IG Wealth Management were excluded from the Mackenzie reportable segment. Comparative periods have been retroactively restated. At December 31, 2021, Mackenzie’s total assets under management were $210.3 billion, an all-time high, and an increase of 13.6% from $185.1 billion last year. Mackenzie’s total assets under management (excluding sub-advisory to Wealth Management) were $129.1 billion, an all-time high, and an increase of 16.4% from $110.9 billion last year. The change in Mackenzie’s assets under management is determined by investment returns generated for our clients and net contributions from our clients. CHANGE IN ASSETS UNDER MANAGEMENT – 2021 VS. 2020 Mackenzie’s total assets under management at December 31, 2021 were $210.3 billion, an all-time high and an increase of 13.6% from $185.1 billion at December 31, 2020. Assets under management excluding sub-advisory to the Wealth Management segment were $129.1 billion, an all-time high and an increase of 16.4% from $110.9 billion at December 31, 2020. Investment fund assets under management were $68.4 billion at December 31, 2021, compared to $56.5 billion at December 31, 2020, an increase of 21.1%. Mackenzie’s mutual fund assets under management of $63.0 billion increased by 19.5% from $52.7 billion at December 31, 2020. Mackenzie’s ETF assets excluding ETFs held within IGM Financial’s managed products were $5.4 billion at December 31, 2021, an increase of 42.4% from $3.8 billion at December 31, 2020. ETF assets inclusive of IGM Financial’s managed products were $12.7 billion at December 31, 2021 compared to $8.5 billion at December 31, 2020. In the three months ended December 31, 2021, Mackenzie’s mutual fund gross sales were $2.6 billion a decrease of 42.4% from $4.5 billion in 2020. Mutual fund redemptions in the current quarter were $2.1 billion, a decrease of 33.4% from last year. Mutual fund net sales for the three months ended December 31, 2021 were $512 million, as compared to net sales of $1.4 billion last year. In the three months ended December 31, 2021, ETF net creations were $245 million compared to $372 million last year. Investment fund net sales in the current quarter were $757 million compared to net sales of $1.7 billion last year. During the current quarter, investment returns resulted in investment fund assets increasing by $2.8 billion compared to an increase of $3.8 billion last year. During the fourth quarter of 2020, certain third party programs, which include Mackenzie mutual funds, made fund allocation changes resulting in gross sales of $625 million, redemptions of $593 million and net sales of $32 million. Excluding these transactions in 2020, mutual fund gross sales decreased by 33.1% in the three months ended December 31, 2021 compared to last year, mutual fund redemptions decreased by 17.9% and mutual fund net sales of $512 million in 2021 compared to mutual fund net sales of $1.3 billion last year. Total net sales excluding sub-advisory to Canada Life and to the Wealth Management segment for the three months ended December 31, 2021 were $181 million compared to net sales of $1.7 billion last year. During the fourth quarter of 2021, an institutional client re-assigned sub-advisory responsibilities on mandates advised by Mackenzie totalling $667 million. Excluding this transaction and the mutual fund transactions discussed above, net sales were $848 million for the three months ended December 31, 2021 compared to net sales of $1.6 billion last year. During the current quarter, investment returns resulted in assets increasing by $3.2 billion compared to an increase of $4.4 billion last year. In the twelve months ended December 31, 2021, Mackenzie’s mutual fund gross sales were $12.0 billion, a decrease of 11.4% from $13.6 billion in 2020. Mutual fund redemptions in the current period were $8.1 billion, a decrease of 23.5% from last year. Mutual fund net sales for the year ended December 31, 2021 were $3.9 billion, as compared to net sales of $3.0 billion last year. In the year ended December 31, 2021, ETF net creations were $1.5 billion compared to $1.2 billion last year. Investment fund net sales in the current period were $5.4 billion compared to net sales of $4.2 billion last year. During the current period, investment returns resulted in investment fund assets increasing by $6.5 billion compared to an increase of $5.1 billion last year. During the twelve months ended December 31, 2021, certain third party programs, which include Mackenzie mutual funds made fund allocation changes resulting in redemptions and net redemptions of $361 million. During the twelve months ended December 31, 2020, certain third party programs, which include Mackenzie mutual funds made fund allocation changes resulting in gross sales of $1.4 billion, redemptions of $785 million and net sales of $612 million. Excluding these transactions in 2021 and 2020, mutual fund gross sales decreased 1.2% and mutual fund redemptions decreased 21.1% in the twelve months ended December 31, 2021 compared to last year, and mutual fund net sales were $4.3 billion in the current year compared to $2.3 billion last year. 50 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisTABLE 17: CHANGE IN INVESTMENT FUND ASSETS UNDER MANAGEMENT – ASSET MANAGEMENT(1) THREE MONTHS ENDED ($ millions) Sales Redemptions Mutual fund net sales (redemptions)(2) ETF net creations(3) Investment fund net sales (redemptions)(4) Change due to divestiture of Quadrus Group of Funds and Greenchip acquisition(5) Investment returns Net change in assets Beginning assets Ending assets Consists of: Mutual funds ETFs Investment funds Daily average investment fund assets TWELVE MONTHS ENDED ($ millions) Sales Redemptions Mutual fund net sales (redemptions)(2) ETF net creations(3) Investment fund net sales (redemptions)(4) Change due to divestiture of Quadrus Group of Funds and Greenchip acquisition(5) Investment returns Net change in assets Beginning assets Ending assets Daily average investment fund assets 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 $ 2,592 $ 2,476 $ 4,501 4.7 % (42.4) % 2,080 512 245 757 – 2,816 3,573 64,789 1,677 799 320 1,119 – 16 1,135 63,654 3,125 1,376 372 1,748 (15,996) 3,789 (10,459) 66,929 24.0 (35.9) (23.4) (32.4) – N/M 214.8 1.8 (33.4) (62.8) (34.1) (56.7) 100.0 (25.7) N/M (3.2) $ 68,362 $ 64,789 $ 56,470 5.5 % 21.1 % $ 62,969 $ 59,721 $ 52,682 5.4 % 19.5 % 5,393 5,068 3,788 6.4 42.4 $ 68,362 $ 66,833 $ $ 64,789 65,460 $ $ 56,470 69,343 5.5 % 21.1 % 2.1 % (3.6) % 2021 DEC. 31 2020 DEC. 31 $ 12,022 $ 13,565 8,114 3,908 1,532 5,440 – 6,452 11,892 56,470 $ 68,362 $ 63,003 $ $ 10,609 2,956 1,232 4,188 (15,996) 5,067 (6,741) 63,211 56,470 64,617 % CHANGE (11.4) % (23.5) 32.2 24.4 29.9 100 27.3 N/M (10.7) 21.1 % (2.5) % (1) Investment fund assets under management and net sales excludes investments into Mackenzie mutual funds and ETFs by IGM Financial’s investment funds. (2) Mutual funds – Institutional clients, which include Mackenzie mutual funds within their investment offerings, made fund allocation changes: 2021 YTD – resulted in redemptions and net redemptions of $361 million. 2020 YTD – resulted in sales of $1.4 billion, redemptions of $785 million and net sales of $612 million. 2020 Q4 – resulted in sales of $625 million, redemptions of $593 million and net sales of $32 million. Q3 – resulted in sales and net sales of $290 million. In the fourth quarter of 2020, Mackenzie Investments sold fund management contracts relating to private label Quadrus Group of Funds (QGOF) to Lifeco and, as a result, gross and net mutual fund flows in 2021 are not directly comparable with 2020. (3) ETFs – During the second and third quarters of 2020, Wealthsimple made allocation changes which resulted in $370 million in purchases in Mackenzie ETFs and $325 million of redemptions from Mackenzie’s ETFs, respectively. (4) Total investment fund net sales and assets under management exclude Mackenzie mutual fund investments in ETFs. (5) In the fourth quarter of 2020 Mackenzie Investments: – Sold $16.2 billion of fund management contracts relating to private label Quadrus Group of Funds (QGOF) to Lifeco. – Acquired $183 million in mutual fund assets under management related to the acquisition of Greenchip Financial Corp. | 51 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report Redemptions of long-term mutual funds in the three and As at December 31, 2021, Mackenzie’s sub-advisory to the twelve months ended December 31, 2021, were $2.0 billion and Wealth Management segment were $81.2 billion or 69.9% of $8.0 billion, respectively, compared to $3.0 billion and $10.1 billion total Wealth Management assets under management compared last year. Redemptions of long-term mutual funds excluding to $74.2 billion or 72.0% of total Wealth Management assets mutual fund allocation changes made by third party programs under management at December 31, 2020. were $7.6 billion in the twelve months ended December 31, 2021 compared to $9.3 billion in the comparative period last year. CHANGE IN ASSETS UNDER Mackenzie’s annualized quarterly redemption rate for long-term MANAGEMENT – Q4 2021 VS. Q3 2021 mutual funds was 13.3% in the fourth quarter of 2021, compared Mackenzie’s total assets under management at December 31, to 18.2% in the fourth quarter of 2020. Mackenzie’s annualized 2021 were $210.3 billion, an increase of 3.4% from $203.3 billion quarterly redemption rate for long-term mutual funds excluding at September 30, 2021. Assets under management excluding rebalance transactions was 14.5% in the fourth quarter of 2020. sub-advisory to the Wealth Management segment were Mackenzie’s twelve-month trailing redemption rate for long-term $129.1 billion, an increase of 4.0% from $124.1 billion at mutual funds was 13.6% at December 31, 2021, compared to September 30, 2021. 16.6% last year. Mackenzie’s twelve month trailing redemption rate for long-term funds, excluding rebalance transactions, was 12.9% at December 31, 2021, compared to 15.3% at December 31, 2020. The corresponding average twelve-month trailing redemption rate for long-term mutual funds for all other members of IFIC was approximately 13.1% at December 31, 2021. Mackenzie’s twelve-month trailing redemption rate is comprised of the weighted average 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 Investment fund assets under management were $68.4 billion at December 31, 2021, an increase of 5.5% from $64.8 billion at September 30, 2021. Mackenzie’s mutual fund assets under management were $63.0 billion at December 31, 2021, an increase of 5.4% from $59.7 billion at September 30, 2021. Mackenzie’s ETF assets were $5.4 billion at December 31, 2021 compared to $5.1 billion at September 30, 2021. ETF assets inclusive of IGM Financial’s managed products were $12.7 billion at December 31, 2021 compared to $11.9 billion at September 30, 2021. for front-end load assets and matured assets are higher than the For the quarter ended December 31, 2021, Mackenzie mutual redemption rates for deferred sales charge and low load assets fund gross sales were $2.6 billion, an increase of 4.7% from with redemption fees. ETF net creations were $1.5 billion in the twelve months ended December 31, 2021, compared to $1.2 billion last year. During the twelve months ended December 31, 2020, Wealthsimple purchased $370 million and redeemed $325 million of the third quarter of 2021. Mutual fund redemptions were $2.1 billion, an increase of 24.0% from the third quarter of 2021. Net sales of Mackenzie mutual funds for the current quarter were $512 million compared with net sales of $799 million in the previous quarter. Mackenzie ETFs. Excluding these transactions in 2020, ETF Redemptions of long-term mutual fund assets in the current net creations were $1.5 billion in the current year compared quarter were $2.0 billion, compared to $1.7 billion in the third to $1.2 billion last year. Total net sales excluding sub-advisory to Canada Life and to the Wealth Management segment for the year ended December 31, quarter. Mackenzie’s annualized quarterly redemption rate for long-term mutual funds for the current quarter was 13.3% compared to 11.0% in the third quarter. 2021 were $5.1 billion, compared to net sales of $6.3 billion For the quarter ended December 31, 2021, Mackenzie ETF net last year. During the second quarter of 2021, Mackenzie was creations were $245 million compared to $320 million in the awarded $680 million of sub-advisory mandates through our third quarter. strategic partnership with ChinaAMC. During the second quarter of 2020, Mackenzie was awarded $2.6 billion of sub-advisory mandates from various clients. Excluding these transactions and the 2021 and 2020 transactions previously discussed, net sales Investment fund net sales in the current quarter were $757 million compared to net sales of $1.1 billion in the third quarter. were $5.5 billion for the twelve months ended December 31, As at December 31, 2021, Mackenzie’s sub-advisory to Canada 2021 compared to net sales of $3.0 billion last year. During the Life were $52.8 billion compared to $51.1 at September 30, 2021. twelve months ended December 31, 2021, investment returns resulted in assets increasing by $7.4 billion compared to an increase of $6.1 billion last year. As at December 31, 2021, Mackenzie’s sub-advisory to the Wealth Management segment were $81.2 billion or 69.9% of total Wealth Management assets under management compared As at December 31, 2021, Mackenzie’s sub-advisory to Canada to $79.2 billion or 70.7% of total Wealth Management assets Life were $52.8 billion compared to $47.2 at December 31, 2020. under management at September 30, 2021. 52 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisINVESTMENT MANAGEMENT Mackenzie has $210.3 billion in assets under management at December 31, 2021, an all-time high, including $81.2 billion of sub-advisory mandates to the Wealth Management segment. It has teams located in Toronto, Montreal, Winnipeg, Vancouver, Boston, Dublin and Hong Kong. We continue to deliver our 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 oversight process focuses on i) identifying and encouraging each team’s performance edge, ii) promoting best practices in portfolio construction, and iii) emphasizing risk management. Our investment team currently consists of seventeen boutiques, including the following additions during 2021: • Addition of a new Canadian Equity boutique with the acquisition of GLC. • Addition of a new boutique, Greenchip, that focuses on thematic investing to combat climate change, through the acquisition of Greenchip Financial Corp. • Launch of a new sustainability-focused boutique “Betterworld” during the second quarter of 2021. This boutique invests exclusively in companies exemplifying leadership in environmental, social and governance (ESG) behaviours and practices. the three year time frame and 59.5% 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 ranking service. At December 31, 2021, 85.8% of Mackenzie mutual fund assets measured by Morningstar† had a rating of three stars or better and 50.6% had a rating of four or five stars. This compared to the Morningstar† universe of 86.4% for three stars or better and 54.9% for four and five star funds at December 31, 2021. Mackenzie was once again recognized for industry leading performance, winning eight 2021 Refinitiv Lipper Awards across its mutual funds and ETFs. The awards honour funds that lead in delivering strong, risk-adjusted performance relative to their peers: • Mackenzie Canadian Growth Balanced Series F – Best ten- year performance in the Canadian Equity Balanced category. This fund is co-managed by Mackenzie’s Bluewater, Fixed Income and Multi-Asset Strategies Teams. • Mackenzie Canadian Growth Series F – Best ten-year performance in the Canadian Focused Equity category. This fund is managed by Mackenzie’s Bluewater Team. • Mackenzie Floating Rate Income Series F5 – Best five-year performance in the Floating Rate Loan category. This fund is managed by Mackenzie’s Fixed Income Team. • Mackenzie Global Resource Fund F U$ – Best ten-year performance in the Nature Resources Equity category. This fund is managed by Mackenzie’s Resource Team. • Mackenzie Precious Metals Fund F U$ – Best ten-year performance in the Precious Metals Equity category. This fund Mackenzie’s 56% ownership interest in Northleaf enhances its is managed by Mackenzie’s Resource Team. investment capabilities by offering global private equity, private credit and infrastructure investment solutions to our clients. In addition to our own investment teams, Mackenzie supplements investment capabilities through the use of third • Mackenzie Core Plus Canadian Fixed Income ETF – Best three-year and five-year performance in the ETF Canadian Fixed Income category. This ETF is managed by Mackenzie’s Fixed Income Team. party sub-advisors and strategic beta index providers in selected • Mackenzie US TIPS Index ETF (CAD-Hedged) – Best three- areas. These include Putnam Investments, TOBAM, ChinaAMC, year performance in the ETF Global Fixed Income category. Impax Asset Management and Rockefeller Capital Management. In addition, thirteen of Mackenzie’s mutual funds and ETFs were During 2021, Mackenzie undertook a number of initiatives on recognized for industry leading performance at the Fundata climate change in support of the global goal to reach net zero FundGrade A+ awards. by 2050. This builds upon Mackenzie’s sustainability strategy, and these items included the following: PRODUCTS • Signatory to the global Net Zero Asset Managers Initiative Mackenzie continues to evolve its product shelf by providing • Founding participant to Climate Engagement Canada enhanced investment solutions for financial advisors to offer • Founding Signatory to Responsible Investment Association’s Canadian Investor Statement on Climate Change. Long-term investment performance is a key measure of Mackenzie’s ongoing success. At December 31, 2021, 34.3% of Mackenzie mutual fund assets were rated in the top two performance quartiles for the one year time frame, 58.8% for their clients. In 2021, Mackenzie launched a number of new products and merged mutual funds to streamline and strengthen its product shelf. During 2021, Mackenzie launched ten mutual funds, two ETFs, and two alternative funds, including five mutual funds and one alternative fund during the fourth quarter. In January 2022, Mackenzie launched an additional two mutual funds, two ETFs and one alternative fund. | 53 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportMUTUAL FUNDS Mackenzie manages its product shelf through new fund solutions offered in partnership with sub-advisor TOBAM. The unique feature of the Fund is its exposure to cryptocurrency launches and fund mergers to streamline fund offerings for through an allocation to Bitcoin and Ethereum ETFs up to advisors and investors. 10%. The Fund also has exposures to global equity and fixed During the first three quarters of 2021, Mackenzie launched five income securities. mutual funds: In January 2022, Mackenzie launched two mutual funds: • Mackenzie Greenchip Global Balanced Fund • Mackenzie Global Sustainable Bond Fund • Mackenzie Tax-Managed Global Equity Fund • Mackenzie Betterworld Canadian Equity Fund • Mackenzie Betterworld Global Equity Fund • Mackenzie North American Equity Fund invests primarily in US and Canadian companies, diversified across sectors and industries. The portfolio managers seek to identify leading businesses with above average growth rates and apply a strong valuation discipline when investing. The Fund is managed by the Mackenzie Bluewater Team. During the fourth quarter of 2021, Mackenzie launched five • Mackenzie North American Balanced Fund invests with a mutual funds: • Furthering its commitment to offer Canadian investors expanded access to the strong growth taking place in China, Mackenzie launched the Mackenzie ChinaAMC All China Bond Fund and Mackenzie ChinaAMC Multi-Asset Fund. These Funds are sub-advised by ChinaAMC. ‒ Mackenzie ChinaAMC All China Bond Fund seeks to generate above average income for investors with the potential for long-term capital growth by investing in China’s fixed income markets, primarily in a diversified portfolio of Chinese fixed-income securities of any size, issued by companies and governments. ‒ Mackenzie ChinaAMC Multi Asset Fund is an all-in-one solution for those seeking exposure to China. By investing in both fixed income and equity markets, the Fund offers the potential for favourable long term asset growth with high yield potential and the diversification benefits of low correlation to other markets. • To address the needs of investors approaching retirement, Mackenzie added to the suite of Monthly Income Portfolios with the launch of the Mackenzie Monthly Income Growth Portfolio. This Fund is Mackenzie’s first monthly income fund in the global equity balanced category. It seeks to provide balanced approach with value added from asset allocation and equity and fixed income selections. The Fund is in the global neutral balanced category, and as such will generally maintain between 40-60% equities and 40-60% fixed income, with a neutral target asset mix of 50% equity and 50% fixed income. The Fund is co-managed by the Mackenzie Bluewater Team, Mackenzie Fixed Team and Mackenzie Multi-Asset Strategies Team. On July 30, 2021, Mackenzie wound-up the Mackenzie Financial Capital Corporation on a tax-deferred basis by merging each of the 34 corporate class funds into their corresponding trust fund equivalent. Changes to tax legislation and evolving market trends have eliminated many of the benefits that were available to corporate class funds. The continuing trust funds have a substantially similar investment objective. 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 when building long-term diversified portfolios. investors with a diversified portfolio designed to provide a During 2021, Mackenzie launched two new ETFs. These ETFs steady stream of income with long-term capital appreciation further broadened our diverse offerings of ETFs: and reduced volatility. The Fund offers a fixed 4% distribution and is managed by Mackenzie’s Multi-Asset Strategies Team. • Mackenzie Global Green Bond Fund seeks to generate income • Wealthsimple Shariah World Equity Index ETF • Mackenzie Global Sustainable Bond ETF with the potential for long-term capital appreciation by Mackenzie’s current line-up consists of 43 ETFs: 24 active and investing primarily in fixed income securities of global issuers strategic beta ETFs and 19 traditional index ETFs. ETF assets of sustainable and responsible debt. The Fund focusses on under management ended the quarter at $12.7 billion, inclusive labelled green bonds and other debt instruments that are of $7.3 billion in investments from IGM Financial’s mutual funds. used to finance a greener future. The Fund is managed by the Mackenzie Fixed Income Team. This ranks Mackenzie in sixth place in the Canadian ETF industry for assets under management. • Mackenzie Maximum Diversification Global Multi-Asset Fund further expands the suite of Maximum Diversification portfolio 54 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisIn early 2022, Mackenzie launched two ETFs: appreciation and income generation primarily through investments in private infrastructure assets. • Mackenzie Northleaf Private Credit Interval Fund was launched during January 2022 and is managed by Mackenzie’s Fixed Income Team in partnership with Northleaf. The Fund, a first-of-its-kind retail offering in Canada, uses an interval fund structure which allows for limited redemptions at quarterly intervals. This provides retail investors with a new way to access illiquid private credit investment strategies that have traditionally been reserved for accredited and institutional investors. • Wealthsimple Green Bond Index ETF seeks to replicate the performance of the Solactive Green Bond Index by investing primarily in investment-grade green, social and sustainable bonds, with its foreign currency exposure hedged back to the Canadian dollar. The Index will generally invest in issuers of green bonds that promote climate or other environmentally sustainable initiatives. • Mackenzie Emerging Markets Equity Index ETF captures large and mid-cap representation across 20 emerging markets countries. It tracks the Solactive GBS Emerging Markets Large & Mid Cap CAD Index which is designed to track the performance of equity securities in emerging markets. ALTERNATIVE FUNDS During 2021 and early 2022, Mackenzie launched three products in collaboration with Northleaf Capital Partners (Northleaf) as part of its ongoing commitment to expand retail investor access to private market investment solutions. • Mackenzie Northleaf Private Credit Fund was launched during the first quarter and is managed by Mackenzie’s Fixed Income Team in partnership with Northleaf. It targets to invest a majority of its capital in Northleaf’s senior secured private lending program for institutional investors. This enables the Fund to provide accredited retail investors with the opportunity to achieve higher income with enhanced lender protections as compared to investments in the public debt markets. • Mackenzie Northleaf Private Infrastructure Fund was launched during the second quarter and is managed by Mackenzie’s Multi-Asset Strategies Team in partnership with Northleaf. The Fund seeks to achieve long-term capital | 55 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportReview of Segment Operating Results The Asset Management segment includes revenue earned on • Net asset management fees – third party is comprised of advisory mandates to the Wealth Management segment and the following: investments into Mackenzie mutual funds and ETFs by the ‒ Asset management fees – third party consists of Wealth Management segment. The Asset Management segment adjusted net earnings are presented in Table 18. Adjusted net earnings for the fourth quarter of 2021 were $65.3 million, an increase of 60.4% from the fourth quarter in 2020 and a decrease of 8.0% from the prior quarter. Adjusted earnings before interest and taxes for the fourth quarter of 2021 were $92.4 million, an increase of 53.7% from the fourth quarter in 2020 and a decrease of 7.8% from the prior quarter. 2021 VS. 2020 REVENUES management and administration fees earned from our investment funds and management fees from our third party sub-advisory, institutional and other accounts. The largest component is management fees from our investment funds. The amount of management fees depends on the level and composition of assets under management. Management fee rates vary depending on the investment objective and the account type of the underlying assets under management. For example, equity- based mandates have higher management fee rates than fixed income mandates and retail mutual fund accounts have higher management fee rates than sub-advised and institutional accounts. The majority of Mackenzie’s mutual fund assets are retail and sold through third party financial advisors. Asset management fees are classified as either Asset management fees – third party or Asset management fees – Wealth Management. ‒ Redemption fees – consists of fees earned from the redemptions of mutual fund assets sold on a deferred sales charge purchase option and on a low load purchase option. TABLE 18: OPERATING RESULTS – ASSET MANAGEMENT THREE MONTHS ENDED ($ millions) Revenues Asset management 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 Asset management fees – third party $ 265.4 $ 262.5 $ 215.1 1.1 % 23.4 % Redemption fees Dealer compensation expenses Asset-based compensation Sales-based compensation Net asset management fees – third party Asset management fees – Wealth Management Net asset management Net investment income and other Expenses Advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings 1.4 266.8 (88.1) (3.6) (91.7) 175.1 30.0 205.1 1.3 206.4 24.1 88.3 1.6 114.0 92.4 5.9 86.5 21.2 65.3 $ 0.9 263.4 (86.9) (4.0) (90.9) 172.5 29.7 202.2 2.2 204.4 19.2 83.3 1.7 104.2 100.2 5.9 94.3 23.3 71.0 $ 1.2 216.3 (73.5) (5.1) (78.6) 137.7 25.8 163.5 1.0 164.5 28.3 74.6 1.5 104.4 60.1 5.2 54.9 14.2 40.7 $ 55.6 1.3 1.4 (10.0) 0.9 1.5 1.0 1.4 (40.9) 1.0 25.5 6.0 (5.9) 9.4 (7.8) – (8.3) (9.0) 16.7 23.3 19.9 (29.4) 16.7 27.2 16.3 25.4 30.0 25.5 (14.8) 18.4 6.7 9.2 53.7 13.5 57.6 49.3 (8.0) % 60.4 % 56 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 18: OPERATING RESULTS – ASSET MANAGEMENT TWELVE MONTHS ENDED ($ millions) Revenues Asset management Asset management fees – third party Redemption fees Dealer compensation expenses Asset-based compensation Sales-based compensation Net asset management fees – third party Asset management fees – Wealth Management Net asset management Net investment income and other Expenses Advisory and business development Operations and support Sub-advisory Adjusted earnings before interest and taxes Interest expense Adjusted earnings before taxes Income taxes Adjusted net earnings 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 1,007.0 $ 808.4 4.5 1,011.5 (335.8) (19.5) (355.3) 656.2 114.6 770.8 5.8 776.6 88.7 335.6 6.9 431.2 345.4 23.6 321.8 81.0 4.5 812.9 (277.7) (21.8) (299.5) 513.4 100.6 614.0 2.9 616.9 80.2 293.7 8.7 382.6 234.3 20.7 213.6 55.7 24.6 % – 24.4 20.9 (10.6) 18.6 27.8 13.9 25.5 100.0 25.9 10.6 14.3 (20.7) 12.7 47.4 14.0 50.7 45.4 $ 240.8 $ 157.9 52.5 % Redemption fees charged for deferred sales charge assets increase in net asset management fees – third party was range from 5.5% in the first year and decrease to zero after primarily due to a 64.2% increase in average assets under seven years. Redemption fees for low load assets range management, as shown in Table 16, partially offset by a decline from 2.0% to 3.0% in the first year and decrease to zero in the effective net asset management fee rate. Mackenzie’s net after two or three years, depending on the purchase option. asset management fee rate was 54.8 basis points for the three ‒ Dealer compensation expenses – consists of asset- based and sales-based compensation. Asset-based compensation represents trailing commissions paid to dealers on certain classes of retail mutual funds and are calculated as a percentage of mutual fund assets under management. These fees vary depending on the fund type and the purchase option upon which the fund was sold: front-end, deferred sales charge or low load. Sales based compensation are paid to dealers on the sale of mutual funds under the deferred sales charge purchase option and on a low load purchase option. • Asset management fees – Wealth Management consists of sub-advisory fees earned from the Wealth Management segment. Net asset management fees – third party were $175.1 million for the three months ended December 31, 2021, an increase of $37.4 million or 27.2% from $137.7 million last year. The months ended December 31, 2021 compared to 70.8 basis points in the comparative period in 2020. The decline in the net management fee rate was primarily due to the increase in sub-advisory assets from the GLC acquisition, which have lower effective rates. Net asset management fees – third party were $656.2 million for the twelve months ended December 31, 2021, an increase of $142.8 million or 27.8% from $513.4 million last year. The increase in net asset management fees – third party was primarily due to a 69.4% increase in average assets under management, as shown in Table 16, partially offset by a decline in the effective net asset management fee rate. Mackenzie’s net asset management fee rate was 54.2 basis points for the twelve months ended December 31, 2021 compared to 72.0 basis points in the comparative period in 2020. The decline in the net management fee rate was primarily due to the increase in sub-advisory assets from the GLC acquisition, which | 57 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report have lower effective rates. Other factors include a change in Operations and support includes costs associated with the composition of assets under management, including the business operations, including technology and business impact of having a greater share in non-retail priced products. processes, in-house investment management and product Contributing to the increase in non-retail assets was the shelf management, corporate management and support onboarding of $2.6 billion of sub-advisory and institutional wins functions. These expenses primarily reflect compensation, during the second quarter of 2020. Management fees – Wealth Management were $30.0 million for the three months ended December 31, 2021, an increase of $4.2 million or 16.3% from $25.8 million last year. The increase in management fees was due to an increase in the effective management fee rate and a 11.2% increase in average assets under management. Mackenzie’s management fee rate was 14.8 basis points for the three months ended December 31, 2021 compared to 14.2 basis points in the comparative period in 2020. The increase in the management fee rate was due to a technology and other service provider expenses. Operations and support expenses were $88.3 million for the three months ended December 31, 2021, an increase of $13.7 million or 18.4% from $74.6 million in 2020. Expenses for the twelve months ended December 31, 2021 were $335.6 million, an increase of $41.9 million or 14.3% from $293.7 million last year. The increase in the three and twelve month periods ended December 31, 2021 compared to the prior year is due to strategic initiatives including the acquisitions during the fourth quarter of 2020. change in the composition of assets under management. Sub-advisory expenses were $1.6 million for the three months Management fees – Wealth Management were $114.6 million for the twelve months ended December 31, 2021, an increase of $14.0 million or 13.9% from $100.6 million last year. The increase in management fees was due to an increase in the effective management fee rate and a 10.5% increase in average assets under management. Mackenzie’s management fee rate was 14.7 basis points for the twelve months ended December 31, 2021 compared to 14.3 basis points in the comparative period in 2020. The increase in the management fee rate was due to a change in the composition of assets under management. ended December 31, 2021, compared to $1.5 million in 2020. Expenses for the twelve months ended December 31, 2021 were $6.9 million, compared to $8.7 million last year. INTEREST EXPENSE Interest expense, which includes allocated interest expense on long-term debt and interest expense on leases, totalled $5.9 million in the fourth quarter of 2021 compared to $5.2 million in the fourth quarter of 2020. Interest expense for the twelve month period was $23.6 million compared to $20.7 million in 2020. Long-term debt interest expense is calculated based on a long-term debt allocation of $0.4 billion Net investment income and other primarily includes investment to Mackenzie. returns related to Mackenzie’s investments in proprietary funds. These investments are generally made in the process of launching a fund and are sold as third party investors subscribe. Q4 2021 VS. Q3 2021 Net investment income and other was $1.3 million for the three REVENUES months ended December 31, 2021 compared to $1.0 million last year, and was $5.8 million for the twelve months ended December 31, 2021 compared to $2.9 million last year. EXPENSES Mackenzie incurs advisory and business development expenses that primarily include wholesale distribution activities and these costs vary directly with assets or sales levels. Advisory and business development expenses were $24.1 million for the three months ended December 31, 2021, a decrease of $4.2 million or 14.8% from $28.3 million in 2020. The decline in expenses in the current quarter is due to lower wholesaler commissions attributed to lower sales in the fourth quarter of 2021 compared to the fourth quarter of 2020. Expenses for the twelve months ended December 31, 2021 were $88.7 million, an increase of $8.5 million or 10.6% from $80.2 million last year. The increase in the twelve months ended December 31, 2021 compared to the prior year is due to higher wholesaler commissions attributed to record high level of sales during 2021. Net asset management fees – third party were $175.1 million for the current quarter, an increase of $2.6 million or 1.5% from $172.5 million in the third quarter. The increase in Net asset management fees – third party was primarily due to a 1.3% increase in average assets under management, as shown in Table 16, and an increase in the effective net asset management fee rate. Mackenzie’s net asset management fee rate was 54.8 basis points for the current quarter compared to 54.7 basis points in the third quarter. Management fees – Wealth Management were $30.0 million in the current quarter, up from $29.7 million in the third quarter of 2021, primarily due to the increase in assets under management of 0.9% from the third quarter. The management fee rate was 14.8 basis points in the current quarter, consistent with the third quarter. Net investment income and other was $1.3 million for the current quarter, a decrease of $0.9 million from the third quarter. 58 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisEXPENSES Advisory and business development expenses were $24.1 million for the current quarter, an increase of $4.9 million or 25.5% from $19.2 million in the third quarter. Operations and support expenses were $88.3 million for the current quarter, an increase of $5.0 million or 6.0% from $83.3 million compared to the third quarter. Sub-advisory expenses were $1.6 million for the current quarter, compared to $1.7 million in the third quarter. | 59 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportStrategic Investments and Other Review of Segment Operating Results The Strategic Investments and Other segment includes 2021 VS. 2020 investments in Great-West Lifeco Inc. (Lifeco), China Asset Management Co., Ltd. (ChinaAMC), Northleaf Capital Group Ltd. (Northleaf), Wealthsimple Financial Corp., Portag3 Ventures LPs., and unallocated capital. Earnings from the Strategic Investments and Other segment include the Company’s proportionate share of earnings of its associates, Lifeco, ChinaAMC and Northleaf as well as net investment income on unallocated capital. In January 2022, the Company entered into an agreement to acquire an additional 13.9% in ChinaAMC as discussed in the Consolidated Financial Position section of this MD&A. To partially fund the transaction, IGM Financial will sell 1.6% of its 4% interest in Lifeco. In the third quarter of 2020, the Company sold its 24.8% equity interest in Personal Capital Corporation (Personal Capital) as discussed in the Consolidated Financial Position section of this MD&A. Assets held by the Strategic Investments and Other segment are included in Table 19. Unallocated capital represents capital not allocated to any of the operating companies and which would be available for investment, debt repayment, distribution to shareholders or other corporate purposes. This capital is invested in highly liquid, high quality financial instruments in accordance with the Company’s Investment Policy. Strategic Investments and Other segment adjusted net earnings are presented in Table 20. The proportionate share of associates’ earnings increased by $10.6 million in the fourth quarter of 2021 compared to the fourth quarter of 2020, and increased by $49.4 million in the twelve months ended December 31, 2021 compared to 2020. These earnings reflect equity earnings from Lifeco, ChinaAMC, Northleaf and, until the third quarter of 2020, Personal Capital, as discussed in the Consolidated Financial Position section of this MD&A. The increase in the fourth quarter of 2021 resulted primarily from increases in the proportionate share of ChinaAMC’s earnings of $5.2 million and Lifeco’s earnings of $3.1 million. The increase in the twelve month period of 2021 resulted primarily from increases in the proportionate share of ChinaAMC’s earnings of $20.1 million and Lifeco’s earnings of $16.0 million and an increase due to Personal Capital, reflecting the sale of the Company’s investment in the second quarter of 2020. The increase in both the three and twelve month periods was also due to the increase in the proportionate share of Northleaf’s earnings of $1.8 million and $6.9 million, respectively, net of non-controlling interest. Net investment income and other was $1.1 million in the fourth quarter of 2021, unchanged from 2020, and was $2.7 million in the twelve months ended December 31, 2021, a decrease from $6.0 million in 2020. Q4 2021 VS. Q3 2021 The proportionate share of associates’ earnings was $50.7 million in the fourth quarter of 2021, a decrease of $5.2 million from the third quarter of 2021, primarily due to a decrease in the proportionate share of Lifeco’s earnings. Net investment income and other was $1.1 million in the fourth quarter of 2021, compared to $0.6 million in the third quarter. TABLE 19: TOTAL ASSETS – STRATEGIC INVESTMENTS AND OTHER ($ millions) Investments in associates Lifeco ChinaAMC Northleaf FVTOCI investments Wealthsimple (direct investment only) Portag3 and other investments Unallocated capital and other Total assets Lifeco fair value 60 | 2021 2020 DECEMBER 31 DECEMBER 31 $ 1,020.8 $ 768.7 258.8 2,048.3 1,133.5 157.9 1,291.4 767.5 962.4 720.3 248.5 1,931.2 511.6 81.7 593.3 240.6 $ 4,107.2 $ 1,415.5 $ $ 2,765.1 1,133.2 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 20: OPERATING RESULTS – STRATEGIC INVESTMENTS AND OTHER THREE MONTHS ENDED ($ millions) Revenues 2021 DEC. 31 2021 SEP. 30 2020 DEC. 31 2021 SEP. 30 % CHANGE 2020 DEC. 31 Net investment income and other $ 1.1 $ 0.6 $ 1.1 83.3 % – % Proportionate share of associates’ earnings Investment in Lifeco Investment in ChinaAMC Investment in Northleaf Expenses Operations and support Adjusted earnings before taxes Income taxes Adjusted net earnings Non-controlling interest Adjusted net earnings available to common shareholders TWELVE MONTHS ENDED ($ millions) Revenues Net investment income and other Proportionate share of associates’ earnings Investment in Lifeco Investment in ChinaAMC Investment in Northleaf Investment in Personal Capital Expenses Operations and support Adjusted earnings before taxes Income taxes Adjusted net earnings Non-controlling interest Adjusted net earnings available to common shareholders 30.4 17.0 3.3 50.7 51.8 1.3 50.5 1.5 49.0 0.7 35.3 17.0 3.6 55.9 56.5 1.2 55.3 1.6 53.7 0.7 27.3 11.8 1.0 40.1 41.2 0.9 40.3 (1.7) 42.0 0.2 (13.9) – (8.3) (9.3) (8.3) 8.3 (8.7) (6.3) (8.8) – 11.4 44.1 230.0 26.4 25.7 44.4 25.3 N/M 16.7 250.0 $ 48.3 $ 53.0 $ 41.8 (8.9) % 15.6 % 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 2.7 $ 6.0 (55.0) % 125.1 61.6 9.7 – 196.4 199.1 4.9 194.2 4.9 189.3 2.0 109.1 41.5 1.0 (4.6) 147.0 153.0 4.1 148.9 (7.4) 156.3 0.2 14.7 48.4 N/M 100.0 33.6 30.1 19.5 30.4 N/M 21.1 N/M $ 187.3 $ 156.1 20.0 % | 61 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report IGM Financial Inc. Consolidated Financial Position IGM Financial’s total assets were $17.7 billion at December 31, The total fair value of Corporate investments of $1.4 billion at 2021, compared to $16.1 billion at December 31, 2020. December 31, 2021 is presented net of certain costs incurred OTHER INVESTMENTS The composition of the Company’s securities holdings is detailed in Table 21. 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 Corp. (Wealthsimple), and Portag3 Ventures LP, Portag3 Ventures II LP and Portage Ventures III LP (Portag3). Wealthsimple is an online investment manager that provides financial investment guidance. The investment is classified at Fair value through other comprehensive income. On May 3, 2021, Wealthsimple announced a $750 million equity fundraising, valuing IGM Financial’s investment in Wealthsimple at $1,448 million. As part of the transaction, IGM Financial disposed of a portion of its investment for proceeds of $294 million ($258 million after-tax). In 2021, a realized gain of $241 million ($209 million after-tax) was transferred from Accumulated other comprehensive income to Other retained earnings. The Company continues to be the largest shareholder in Wealthsimple with an interest of 23% and fair value of $1,153 million. Portag3 consists of early-stage investment funds dedicated to backing innovating financial services companies and are controlled by Power Corporation of Canada. within the limited partnership structures holding the underlying investments. In 2021, the Company recorded after-tax gains in Other comprehensive income of $834.5 million due to fair value changes in the Company’s investments, primarily related to a $776.3 million fair value adjustment in the first quarter related to Wealthsimple. In the fourth quarter of 2021, the Company recorded after-tax gains in Other comprehensive income of $31.5 million related to fair value changes in the Company’s investment in Portag3 as well as the disposition of its investment in Aequitas Innovations, Inc. which is expected to close in 2022. FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL) Securities classified as FVTPL include equity securities and proprietary investment funds. Gains and losses are recorded in Net investment income and other in the Consolidated Statements of Earnings. Certain proprietary investment funds are consolidated where the Company has made the assessment that it controls the investment fund. The underlying securities of these funds are classified as FVTPL. LOANS The composition of the Company’s loans is detailed in Table 22. Loans consisted of residential mortgages and represented 30.3% of total assets at December 31, 2021, compared to 39.4% at December 31, 2020. Loans measured at amortized cost are primarily comprised of residential mortgages sold to securitization programs sponsored by third parties that in turn issue securities to investors. An TABLE 21: OTHER INVESTMENTS ($ millions) Fair value through other comprehensive income Corporate investments Fair value through profit or loss Equity securities Proprietary investment funds 62 | DECEMBER 31, 2021 DECEMBER 31, 2020 COST FAIR VALUE COST FAIR VALUE $ 226.2 $ 1,291.4 $ 251.4 $ 593.3 1.2 101.3 102.5 1.6 105.0 106.6 1.5 35.3 36.8 1.5 37.5 39.0 $ 328.7 $ 1,398.0 $ 288.2 $ 632.3 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 22: LOANS ($ millions) Amortized cost Less: Allowance for expected credit losses Fair value through profit or loss DECEMBER 31, 2021 DECEMBER 31, 2020 $ 5,297.0 $ 6,329.4 0.6 5,296.4 57.4 0.8 6,328.6 3.3 $ 5,353.8 $ 6,331.9 offsetting liability, Obligations to securitization entities, has effective interest rate method, recorded over the term of the been recorded and totalled $5.1 billion at December 31, 2021, mortgages, ii) the component of swaps entered into under compared to $6.2 billion at December 31, 2020. the CMB Program whereby the Company pays coupons on The Company holds loans pending sale or securitization. Loans measured at fair value through profit or loss are residential mortgages held temporarily by the Company pending sale. Loans held for securitization are carried at amortized cost. Total Canada Mortgage Bonds and receives investment returns on the reinvestment of repaid mortgage principal, are recorded at fair value, and iii) cash reserves held under the ABCP program are carried at amortized cost. loans being held pending sale or securitization are $315.8 million In the fourth quarter of 2021, the Company securitized loans at December 31, 2021, compared to $334.5 million at through its mortgage banking operations with cash proceeds December 31, 2020. Residential mortgages originated by IG Wealth Management are funded primarily through sales to third parties on a fully serviced basis, including Canada Mortgage and Housing Corporation (CMHC) or Canadian bank sponsored securitization programs. At December 31, 2021, IG Wealth Management serviced $9.7 billion of residential mortgages, including $2.3 billion of $283.7 million compared to $422.8 million in 2020. Additional information related to the Company’s securitization activities, including the Company’s hedges of related reinvestment and interest rate risk, can be found in the Financial Risk section of this MD&A and in Note 7 to the Consolidated Financial Statements. originated by subsidiaries of Lifeco. INVESTMENT IN ASSOCIATES SECURITIZATION ARRANGEMENTS Through the Company’s mortgage banking operations, Great-West Lifeco Inc. (Lifeco) At December 31, 2021, the Company held a 4.0% equity interest in Lifeco. IGM Financial and Lifeco are controlled residential mortgages originated by IG Wealth Management by Power Corporation of Canada. 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 Bond Program (CMB Program) and through Canadian bank- The equity method is used to account for IGM Financial’s investment in Lifeco, as it exercises significant influence. Changes in the carrying value for the three and twelve months ended December 31, 2021 compared with 2020 are shown in Table 23. sponsored asset-backed commercial paper (ABCP) programs. On January 5, 2022, to partially fund the acquisition of The Company retains servicing responsibilities and certain an additional 13.9% interest in ChinaAMC, the Company elements of credit risk and prepayment risk associated with the announced it will sell 15,200,662 common shares of Lifeco to transferred assets. The Company’s credit risk on its securitized Power for cash consideration of $575 million, which will reduce mortgages is partially mitigated through the use of insurance. the Company’s equity interest in Lifeco from 4.0% to 2.4%. The Derecognition of financial assets in accordance with IFRS is sale of Lifeco is conditional on IGM Financial’s purchase of the based on the transfer of risks and rewards of ownership. As the ChinaAMC shares and is expected to close in the first half Company has retained prepayment risk and certain elements of 2022. of credit risk associated with the Company’s securitization transactions through the CMB and ABCP programs, they are accounted for as secured borrowings. The Company records the transactions under these programs as follows: i) the mortgages and related obligations are carried at amortized cost, with interest income and interest expense, utilizing the In December 2020, Lifeco recorded a gain in relation to the revaluation of a deferred tax asset less certain restructuring and transaction costs. The Company’s after-tax proportionate share of these adjustments was $3.4 million. | 63 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report TABLE 23: INVESTMENT IN ASSOCIATES DECEMBER 31, 2021 ($ millions) LIFECO ChinaAMC NORTHLEAF TOTAL LIFECO ChinaAMC NORTHLEAF DECEMBER 31, 2020 PERSONAL CAPITAL(3) TOTAL THREE MONTHS ENDED Carrying value, October 1 $ 1,001.5 $ 742.6 $ 255.3 $ 1,999.4 $ 942.8 $ 713.0 $ – $ Investment Dividends Proportionate share of: Earnings(1) Associate’s adjustments(1) Other comprehensive income (loss) and other adjustments – (18.3) – – 0.2 – 0.2 (18.3) – (16.3) – – 247.5 – 30.4 17.0 3.3(2) 50.7 27.3 11.8 1.0(2) – – – – 3.4 – 7.2 9.1 – 16.3 5.2 (4.5) – – Carrying value, December 31 $ 1,020.8 $ 768.7 $ 258.8 $ 2,048.3 $ 962.4 $ 720.3 $ 248.5 $ – – – – – – – $ 1,655.8 247.5 (16.3) 40.1 3.4 0.7 $ 1,931.2 TWELVE MONTHS ENDED Carrying value, January 1 $ 962.4 $ 720.3 $ 248.5 $ 1,931.2 $ 896.7 $ 662.7 $ – $ 194.5 $ 1,753.9 Investment Dividends Proportionate share of: Earnings (losses)(1) Associate’s adjustments(1) Other comprehensive income (loss) and other adjustments Disposition – (67.4) 125.1 – – (26.8) 61.6 – 0.6 – 9.7(2) – 0.6 (94.2) 196.4 – – (65.4) 109.1 3.4 0.7 – 13.6 – – – 14.3 – 18.6 – 41.5 – 29.8 – – 247.5 (13.7) – 1.0(2) – – – (4.6) – 247.5 (79.1) 147.0 3.4 – – 8.8 57.2 (198.7) (198.7) Carrying value, December 31 $ 1,020.8 $ 768.7 $ 258.8 $ 2,048.3 $ 962.4 $ 720.3 $ 248.5 $ – $ 1,931.2 (1) The proportionate share of earnings from the Company’s investment in associates is recorded in the Strategic Investments and Other segment. (2) The Company’s proportionate share of Northleaf’s earnings, net of Non-controlling interest, was $2.6 million and $7.7 million, respectively, for the three and twelve month periods in 2021 (2020 – $0.8 million in both periods). (3) In 2020, the Company sold its equity interest in Personal Capital to a subsidiary of Lifeco, Empower Retirement. China Asset Management Co., Ltd. (ChinaAMC) On January 5, 2022, the Company entered into an agreement Founded in 1998 as one of the first fund management to acquire an additional 13.9% interest in ChinaAMC for cash companies in China, ChinaAMC has developed and maintained consideration of $1.15 billion from Power Corporation of Canada a position among the market leaders in China’s asset management industry. ChinaAMC’s total assets under management, excluding subsidiary assets under management, were RMB¥ 1,661.6 billion ($330.5 billion) at December 31, 2021, representing an increase of 13.7% (CAD$ 15.9%) from RMB¥ 1,461.1 billion ($285.1 billion) at December 31, 2020. (Power) which will increase the Company’s equity interest in ChinaAMC from 13.9% to 27.8%. The transaction is expected to close in the first half of 2022, subject to customary closing conditions, including Chinese regulatory approvals. Northleaf Capital Group Ltd. (Northleaf) On October 28, 2020, the Company’s subsidiary, Mackenzie, together with Lifeco, acquired a non-controlling interest The equity method is used to account for the Company’s 13.9% in Northleaf, a global private equity, private credit and equity interest in ChinaAMC, as it exercises significant influence. infrastructure fund manager headquartered in Toronto. Changes in the carrying value for the three and twelve months ended December 31, 2021 are shown in Table 23. The change in other comprehensive income of $9.1 million in the three month period ended December 31, 2021, was due to a 1.3% appreciation of the Chinese yuan relative to the Canadian dollar. The transaction was executed through an acquisition vehicle 80% owned by Mackenzie and 20% owned by Lifeco for cash consideration of $241 million and up to an additional $245 million in consideration at the end of five years from the acquisition date subject to the business achieving exceptional 64 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis growth in certain performance measures over the period. Any Northleaf’s assets under management, including invested additional consideration will be recognized as expense over the capital and uninvested commitments, were $19.5 billion as at five year period based on the fair value of the expected payment, December 31, 2021 (December 31, 2020 – $14.6 billion). The which is revalued at each reporting period date. increase of $4.9 billion in assets under management during The acquisition vehicle acquired a 49.9% voting interest and a 70% economic interest in Northleaf. Mackenzie and Lifeco have an obligation and right to purchase the remaining equity and voting interest in Northleaf commencing in approximately five years from the acquisition date and extending into future periods. The equity method is used to account for the acquisition vehicle’s 70% economic interest as it exercises significant influence. Significant influence arises from board representation, participating in the policy making process and shared strategic initiatives. The Company controls the acquisition vehicle therefore it recognizes the full 70% economic interest in Northleaf and the twelve month period was driven by $5.5 billion in new commitments and an increase of $0.1 billion related to foreign exchange on USD denominated assets, offset by a decrease of $0.7 billion in return of capital and other. Personal Capital Corporation (Personal Capital) In 2020, the Company sold its equity interest in Personal Capital to a subsidiary of Lifeco, Empower Retirement, for proceeds of $232.8 million (USD $176.2 million) and up to an additional USD $24.6 million in consideration subject to Personal Capital achieving certain target growth objectives. As a result of the sale, the Company has derecognized its investment in Personal Capital and recorded an accounting gain of $37.2 million recognizes Non-controlling interest (NCI) related to Lifeco’s ($31.4 million net of tax) in Net investment income and other. net interest in Northleaf of 14%. Net of NCI, IGM Financial’s During the fourth quarter of 2021, the Company recorded investment at December 31, 2020 was $199.6 million, additional consideration receivable of $10.6 million ($7.7 million comprised of $192.6 million in cash consideration, $6.2 million after tax) in Net investment income and other. in capitalized transaction costs, and proportionate share of 2020 earnings of $0.8 million. | 65 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportConsolidated Liquidity and Capital Resources Earnings before interest, taxes, depreciation and amortization LIQUIDITY Cash and cash equivalents totalled $1,292.4 million at December 31, 2021 compared with $771.6 million at December 31, 2020. Cash and cash equivalents related to the Company’s deposit operations were $1.3 million at December 31, 2021, compared to $5.2 million at December 31, 2020, as shown in Table 24. Client funds on deposit represents cash balances held by clients within their investment accounts and with the offset included in deposit liabilities. Working capital, which consists of current assets less current liabilities, totalled $908.0 million at December 31, 2021 compared with $330.8 million at December 31, 2020 (Table 25). Working capital, which includes unallocated capital, is utilized to: • Finance ongoing operations, including the funding of sales commissions. • Temporarily finance mortgages in its mortgage banking operations. • Pay interest related to long-term debt. • Maintain liquidity requirements for regulated entities. • Pay quarterly dividends on its outstanding common shares. • Finance common share repurchases and retirement of long-term debt. • Capital investment in the business and business acquisitions. 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), a non-IFRS measure, totalled $1,547.0 million for the year ended December 31, 2021, compared to $1,226.4 million for 2020. EBITDA before sales commissions excludes the impact of both commissions paid and commission amortization (refer to Table 1). TABLE 24: DEPOSIT OPERATIONS – FINANCIAL POSITION AS AT DECEMBER 31 ($ 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 66 | after sales commissions (EBITDA after sales commissions), a non-IFRS measure, totalled $1376.5 million for the year ended December 31, 2021, compared to $1,086.9 million for 2020. EBITDA after sales commissions excludes the impact of commission amortization (refer to Table 1). Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) For the financial year ($ millions) Adjusted EBITDA before and after sales commissions excluded the following: 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 of associate’s one-time charges. 2020 – the gain on sale of Personal Capital, gain on sale of Quadrus Group of Funds net of acqusition costs, the Company’s proportionate share of associate’s adjustments and restructuring and other. 2021 – additional consideration receivable related to the sale of Personal Capital in 2020. 2021 2020 $ 1.3 2,238.6 $ 5.2 1,063.4 0.6 10.8 48.4 10.5 $ 2,251.3 $ 1,127.5 $ 2,220.3 $ 1,104.9 20.4 10.6 12.2 10.4 $ 2,251.3 $ 1,127.5 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis TABLE 25: 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 securitized mortgages and other Current Liabilities Accounts and other payables Deposits and certificates Current portion of obligations to securitization entities and other 2021 2020 $ 1,292.4 $ 771.6 2,238.6 405.0 1,234.5 5,170.5 879.1 2,219.0 1,164.4 4,262.5 1,063.4 391.3 1,518.6 3,744.9 756.5 1,101.4 1,556.2 3,414.1 Working Capital $ 908.0 $ 330.8 Refer to the Financial Instruments Risk section of this MD&A • The deduction of investment in associates’ equity earnings for information related to other sources of liquidity and to offset by dividends received. the Company’s exposure to and management of liquidity and • The add-back of pension and other post-employment funding risk. CASH FLOWS Table 26 – Cash Flows is a summary of the Consolidated Statements of Cash Flows which forms part of the Consolidated Financial Statements for the year ended December 31, 2021. Cash and cash equivalents increased by $520.8 million in 2021 compared to an increase of $51.6 million in 2020. Adjustments to determine net cash from operating activities during the year ended 2021 compared to 2020 consist of non-cash operating activities offset by cash operating activities: • The add-back of amortization of capitalized sales commissions offset by the deduction of capitalized sales commissions paid. • The add-back of amortization of capital, intangible and other assets. benefits offset by cash contributions. • Changes in operating assets and liabilities and other. • The adjustment for other items in 2020, which included the add-back of restructuring provision and other and the deduction of the gain on the sale of the Company’s investment in Personal Capital and the gain on the sale of the Quadrus Group of Funds. • The deduction of restructuring provision cash payments. Financing activities during the year ended December 31, 2021 compared to 2020 related to: • An increase in obligations to securitization entities of $1,428.9 million and repayments of obligations to securitization entities of $2,442.7 million in 2021 compared to an increase in obligations to securitization entities of $1,568.5 million and repayments of obligations to securitization entities of $2,359.8 million in 2020. TABLE 26: CASH FLOWS TWELVE MONTHS ENDED ($ 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 2021 DEC. 31 2020 DEC. 31 % CHANGE $ 1,267.7 $ 965.4 (153.5) (172.3) 31.3 % 10.9 (170.6) 943.6 (1,521.9) 1,099.1 520.8 771.6 (56.5) 736.6 (1,358.4) 673.4 51.6 720.0 (201.9) 28.1 (12.0) 63.2 N/M 7.2 $ 1,292.4 $ 771.6 67.5 % | 67 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report • The payment of regular common share dividends which The total outstanding long-term debt was $2.1 billion at totalled $537.0 million in 2021 compared to $536.2 million December 31, 2021, unchanged from December 31, 2020. in 2020. Investing activities during the year ended December 31, 2021 compared to 2020 primarily related to: • The purchases of other investments totalling $131.8 million and sales of other investments with proceeds of $348.2 million in 2021 compared to $32.7 million and $38.8 million, respectively, in 2020. • An increase in loans of $1,776.1 million with repayments of loans and other of $2,744.7 million in 2021 compared to $1,793.0 million and $2,679.7 million, respectively, in 2020, primarily related to residential mortgages in the Company’s mortgage banking operations. • Net cash used in additions to intangible assets and acquisitions was $75.3 million in 2021 compared to $68.8 million in 2020. 2020 also included the following investing activities: 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. Other activities in 2021 included the declaration of common share dividends of $537.8 million or $2.25 per share. Changes in common share capital are reflected in the Annual Consolidated Statements of Changes in Shareholders’ Equity. Standard & Poor’s (S&P) current rating on the Company’s senior unsecured debentures is “A” with a stable outlook. Dominion Bond Rating Service’s (DBRS) current rating on the Company’s senior unsecured debentures is “A (High)” with a stable rating trend. Credit ratings are intended to provide investors with an independent measure of the credit quality of the securities of a company and are indicators of the likelihood of payment and the capacity of a company to meet its obligations in accordance with the terms of each obligation. Descriptions of the rating • The acquisition of GLC Asset Management Group Ltd. categories for each of the agencies set forth below have been for $175.8 million. obtained from the respective rating agencies’ websites. These ratings are not a recommendation to buy, sell or hold the securities of the Company and do not address market price or other factors that might determine suitability of a specific security for a particular investor. The ratings also may not reflect the potential impact of all risks on the value of securities and are subject to revision or withdrawal at any time by the rating organization. Capital As at December 31 ($ millions) • The investment in Northleaf Capital Group Ltd. of $198.8 million. • The sales of the Company’s investment in Personal Capital and the Quadrus Group of Funds with proceeds of $262.8 million. 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 and common shareholders’ equity which totalled $8.6 billion at December 31, 2021, compared to $7.1 billion at December 31, 2020. 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. 68 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisThe A rating assigned to IGM Financial’s senior unsecured amount of future cash flows. Wherever possible, observable debentures by S&P is the sixth highest of the 22 ratings used market inputs are used in the valuation techniques. 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 • Loans classified as held for trading are valued using market interest rates for loans with similar credit risk and maturity, specifically lending rates offered to retail borrowers by susceptible to the adverse effects of changes in circumstances and financial institutions. economic conditions than obligations in higher rated categories. The A (High) rating assigned to IGM Financial’s senior unsecured • Loans classified as amortized cost are valued by discounting the expected future cash flows at prevailing market yields. debentures by DBRS is the fifth highest of the 26 ratings used • Valuation methods used for Other investments classified as for long-term debt. Under the DBRS long-term rating scale, FVOCI include comparison to market transactions with arm’s debt securities rated A (High) are of good credit quality and the length third parties, use of market multiples, and discounted capacity for the payment of financial obligations is substantial. cash flow analysis. While this is a favourable rating, entities in the A (High) category may be vulnerable to future events, but qualifying negative factors are considered manageable. • 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. FINANCIAL INSTRUMENTS Table 27 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 measured at fair value if the carrying amount is a reasonable • 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. approximation of fair value. These items include cash and • Derivative financial instruments are valued based on quoted cash equivalents, accounts and other receivables, certain other market prices, where available, prevailing market rates for financial assets, accounts payable and accrued liabilities and instruments with similar characteristics and maturities, or certain other financial liabilities. discounted cash flow analysis. Fair value is determined using the following methods See Note 24 of the Consolidated Financial Statements which and assumptions: provides additional discussion on the determination of fair value • Other investments and other financial assets and financial of financial instruments. liabilities are valued using quoted prices from active markets, Although there were changes to both the carrying values and when available. When a quoted market price is not readily fair values of financial instruments, these changes did not have available, valuation techniques are used that require a material impact on the financial condition of the Company for assumptions related to discount rates and the timing and the twelve months ended December 31, 2021. TABLE 27: FINANCIAL INSTRUMENTS ($ millions) Financial assets recorded at fair value Other investments DECEMBER 31, 2021 DECEMBER 31, 2020 CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE – Fair value through other comprehensive income $ 1,291.4 $ 1,291.4 $ 593.3 $ 593.3 – Fair value through profit or loss 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 Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt 106.6 106.6 57.4 41.2 57.4 41.2 39.0 3.3 37.3 39.0 3.3 37.3 5,296.4 5,354.2 6,328.6 6,532.8 17.8 17.8 34.5 34.5 2,220.3 5,057.9 2,100.0 2,220.5 5,146.4 2,544.4 1,104.9 6,173.9 2,100.0 1,105.4 6,345.2 2,653.8 | 69 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report Risk Management IGM Financial is exposed to a variety of risks that are inherent in • The Related Party and Conduct Review Committee oversees our business activities. Our ability to manage these risks is key conflicts of interest. to our ongoing success. The Company emphasizes a strong risk management culture and the implementation of an effective risk management approach. Our 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 our comprehensive Enterprise Risk Management (ERM) Framework which is composed of five core elements: risk governance, risk appetite, risk principles, a defined risk management process, and risk management culture. The ERM Framework is established under our ERM Policy, which is approved by the Executive Risk Management Committee. RISK GOVERNANCE Our risk governance structure emphasizes ownership of risk management in each business unit and oversight by an executive Risk Management Committee accountable to the Risk Committee of the Board (Risk Committee) and ultimately to the Board of Directors. Additional oversight is provided by the ERM, Compliance and Internal Audit Departments. The Risk Committee provides primary oversight and carries out its risk management mandate. The Risk Committee is responsible for assisting the Board in reviewing and overseeing the risk governance structure and risk management program of Management oversight for risk management resides with the executive Risk Management Committee which is comprised of the Chief Executive Officers of IGM Financial, IG Wealth Management, Mackenzie Investments and Investment Planning Counsel, the Chief Financial Officer, the General Counsel, the Chief Operating Officer, and the Chief Human Resources Officer. The committee is responsible for oversight of IGM Financial’s risk management process by: i) establishing and maintaining the risk framework and policy; ii) defining the risk appetite; iii) ensuring our risk profile and processes are aligned with corporate strategy and risk appetite; and iv) establishing “tone at the top” and reinforcing a strong culture of risk management. 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 (the Internal Audit function) providing assurance and validation of the design and effectiveness of the ERM Framework. In response to the impact of COVID-19, the Company is focusing our teams on addressing and managing COVID-19 issues and has established new committees and processes where required. First Line of Defence the Company by: i) ensuring that appropriate procedures are in The leaders of the various business units and support functions 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: 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 • The Audit Committee has specific risk oversight responsibilities and risk appetite of the organization as established by the Risk in relation to financial disclosure, internal controls and the Management Committee. control environment as well as our compliance activities, including administration of the Code of Conduct. Second Line of Defence • The Human Resource Committee oversees compensation policies and practices. • The Governance and Nominating Committee oversees corporate governance practices. The Enterprise Risk Management (ERM) Department provides oversight, analysis and reporting to the Risk Management Committee on the level of risks relative to the established risk appetite for all activities of the Company. Other responsibilities include: i) developing and maintaining the enterprise risk 70 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysismanagement program and framework, ii) managing the We use a consistent methodology across our organizations enterprise risk management process, and iii) providing guidance and business units for identification and assessment of risks. and training to business unit and support function leaders. Risks are assessed by evaluating the impact and likelihood of The Company has a number of committees of senior business leaders which provide oversight of specific business risks, including the Financial Risk Management and Operational Risk Management committees. These committees perform critical the potential risk event after consideration of controls and any risk transfer activities. The results of these assessments are considered relative to risk appetite and tolerances and may result in action plans to adjust the risk profile. reviews of risk assessments, risk management practices and risk Risk assessments are monitored and reviewed on an ongoing response plans developed by business units and support functions. basis by business units and by oversight areas including the ERM Other oversight accountabilities reside with the Company’s Legal and Compliance Departments which are responsible for ensuring compliance with policies, laws and regulations. Third Line of Defence The Internal Audit Department is the third line of defence and provides independent assurance to senior management and the Board of Directors on the effectiveness of the Company’s risk management policies, processes and practices. RISK APPETITE AND RISK PRINCIPLES The Risk Management Committee establishes the Company’s appetite for different types of risk through the Risk Appetite Department. The ERM Department promotes and coordinates communication and consultation to support effective risk management and escalation. The ERM Department regularly reports on the results of risk assessments and on the assessment process to the Risk Management Committee and to the Board Risk Committee. RISK MANAGEMENT CULTURE Risk management is intended to be everyone’s responsibility within the organization. The ERM Department engages all business units in risk workshops and surveys to foster awareness and facilitate incorporation of our risk framework into our business activities. Framework. Under the Risk Appetite Framework, one of four We have an established business planning process which appetite levels is established for each risk type and business reinforces our risk management culture. Our compensation activity of the Company. These appetite levels range from programs are typically objectives-based, and do not encourage those where the Company has no appetite for risk and seeks or reward excessive or inappropriate risk taking, and often are to minimize any losses, to those where the Company readily aligned specifically with risk management objectives. accepts exposure while seeking to ensure that risks are well understood and managed. These appetite levels guide our business units as they engage in business activities, and inform them in establishing 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 flexibility, and focus on mitigating operational risk. Our risk management program emphasizes integrity, ethical 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. KEY RISKS OF THE BUSINESS Significant risks that may adversely affect our ability to achieve strategic and business objectives are identified through our ongoing risk management process. RISK MANAGEMENT PROCESS We use a consistent methodology across our organizations and The Company’s risk management process is designed to foster: business units to identify and assess risks, considering factors • 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. Significant risks that may adversely affect the Company’s ability to achieve its strategic and business objectives are identified through the Company’s ongoing risk management process. both internal and external to the organization. These risks are broadly grouped into five categories: financial, operational, strategic, business, and environmental and social. 1) FINANCIAL RISK LIQUIDITY AND FUNDING RISK This is the risk of an 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. | 71 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportOur liquidity management practices include: that securitized loans be insured by an insurer that is approved • Maintaining liquid assets and lines of credit to satisfy near term liquidity needs. by CMHC. The availability of mortgage insurance is dependent upon market conditions and is subject to change. • Ensuring effective controls over liquidity management processes. As part of ongoing liquidity management during 2021 and 2020, • Performing regular cash forecasts and stress testing. the Company: • Regular assessment of capital market conditions and the • Continued to assess additional funding sources for the Company’s ability to access bank and capital market funding. Company’s mortgage banking operations. • Ongoing efforts to diversify and expand long-term mortgage • Received proceeds of $310.8 million from the sales of a funding sources. portion of the Company’s investment in Wealthsimple and • Oversight of liquidity management by the Financial Risk other investments in 2021. Management Committee, a committee of finance and other • Received proceeds from the sales of the Company’s business leaders. investment in Personal Capital and the Quadrus Group of A key funding requirement 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. 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 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 repayments held in the Principal Reinvestment Accounts. The 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 Funds of $262.8 million in 2020. • Acquired GLC for $185 million and Northleaf for $241 million in 2020. The Company’s contractual obligations are reflected in Table 28. The maturity schedule for long-term debt of $2.1 billion is reflected in the accompanying chart (Long-Term Debt Maturity Schedule). 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, 2021, unchanged from December 31, 2020. The lines of credit at December 31, 2021 consisted of committed lines of $650 million and uncommitted lines of $175 million, unchanged from December 31, 2020. Any advances made by a bank under the uncommitted lines of credit are at the bank’s sole discretion. As at December 31, 2021 and December 31, 2020, the Company was not utilizing its committed lines of credit or its uncommitted lines of credit. The actuarial valuation for funding purposes related to the Company’s registered defined benefit pension plan, based on a measurement date of December 31, 2020, was completed in TABLE 28: CONTRACTUAL OBLIGATIONS AS AT DECEMBER 31, 2021 ($ millions) Derivative financial instruments Deposits and certificates Obligations to securitization entities Leases(1) Long-term debt Pension funding(2) Total contractual obligations DEMAND LESS THAN 1 YEAR $ – $ 2,218.6 – – – – 6.7 0.4 1,157.8 31.8 – 14.1 $ 1-5 YEARS 11.1 0.5 3,893.3 98.3 – – $ AFTER 5 YEARS – 0.8 6.8 125.2 2,100.0 – TOTAL $ 17.8 2,220.3 5,057.9 255.3 2,100.0 14.1 $ 2,218.6 $ 1,210.8 $ 4,003.2 $ 2,232.8 $ 9,665.4 (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, 2021. Pension funding requirements beyond 2022 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. 72 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis Long-Term Debt Maturity Schedule ($ millions) June 2021. The valuation determines the plan surplus or deficit The changes in the funding requirements will be considered on both a solvency and going concern basis. The solvency basis as part of the valuation of the pension plan that will be based determines the relationship between the plan assets and its on a measurement date of December 31, 2021. The changes liabilities assuming that the plan is wound up and settled on also allow an employer to establish a solvency reserve account the valuation date. A going concern valuation compares the which is a separate account within the pension fund to which relationship between the plan assets and the present value of the employer can remit solvency deficiency payments. The the expected future benefit cash flows, assuming the plan will administrator can refund all or a portion of the assets in this be maintained indefinitely. Based on the actuarial valuation, the separate account to the employer provided the plan remains registered pension plan had a solvency deficit of $61.3 million fully funded on a going concern basis and maintains a solvency compared to $47.2 million in the previous actuarial valuation, ratio of at least 105%. Benefit improvements under the plan are which was based on a measurement date of December 31, not allowed if the solvency ratio is less than 85%. 2017. The increase in the solvency deficit resulted primarily as a result of lower interest rates and is required to be funded over five years. The registered pension plan had a going concern surplus of $79.2 million compared to $46.1 million in the previous valuation. The next required actuarial valuation will be based on a measurement date of December 31, 2021. During the year, the Company has made cash contributions of $14.3 million (2020 – $25.6 million). IGM Financial expects annual contributions of approximately $14.1 million in 2022. 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. Effective December 20, 2021, the Government of Manitoba implemented funding changes for defined benefit pension plans. The changes include funding the solvency deficit only if it falls below 85% (previously was required to fund the entire solvency deficit). In determining the funding for going concern deficits, a margin known as the provision for adverse deviation will be added to the going concern deficit. The minimum provision is 5% of the Management believes cash flows from operations, available cash balances and other sources of liquidity described above are sufficient to meet the Company’s liquidity needs. The Company continues to have the ability to meet its operational cash flow requirements, its contractual obligations, and its declared dividends. The current practice of the Company is to declare and pay dividends to common shareholders on a quarterly basis at the discretion of the Board of Directors. The declaration of dividends by the Board of Directors is dependent on a variety of factors, including earnings which are significantly influenced by the impact that debt and equity market performance has on the Company’s fee income and commission and certain other expenses. The Company’s liquidity position and its management of liquidity and funding risk have not changed materially since December 31, 2020. CREDIT RISK This is the risk of financial loss to the Company if a counterparty to a transaction fails to meet its obligations. going concern liabilities and can increase up to 22% based on The Company’s cash and cash equivalents, other investment the pension’s target asset allocation. The funding period for holdings, mortgage portfolios, and derivatives are subject to going concern deficits will decrease from 15 years to 10 years. | 73 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Reportcredit risk. The Company monitors its credit risk management such payments were received from the mortgage borrower. practices on an ongoing basis to evaluate their effectiveness. However, as required by the NHA MBS program, 100% of Cash and Cash Equivalents and Client Funds on Deposit At December 31, 2021, cash and cash equivalents of $1,292.4 million (2020 – $771.6 million) consisted of cash balances of $326.2 million (2020 – $76.6 million) on deposit with Canadian chartered banks and cash equivalents of the loans are insured by an approved insurer. • Credit risk for mortgages securitized by transfer to bank- sponsored securitization trusts totalling $2.4 billion (2020 – $2.8 billion) is limited to amounts held in cash reserve accounts and future net interest income, the fair values of which were $67.6 million (2020 – $73.0 million) and $966.2 million (2020 – $695.0 million). Cash equivalents are $34.1 million (2020 – $45.6 million), respectively, at comprised of Government of Canada treasury bills totalling December 31, 2021. Cash reserve accounts are reflected $358.7 million (2020 – $96.0 million), provincial government on the balance sheet, whereas rights to future net interest treasury bills and promissory notes of $350.6 million (2020 – income are not reflected on the balance sheet and will be $148.8 million), bankers’ acceptances of $198.3 million (2020 recorded over the life of the mortgages. – $450.2 million) and other corporate commercial paper of $58.6 million (2020 – nil). At December 31, 2021, residential mortgages recorded on balance sheet were 53.1% insured (2020 – 55.3%). As at Client funds on deposit of $2,238.6 million (2020 – $1,063.4 million) December 31, 2021, impaired mortgages on these portfolios represent cash balances held in client accounts deposited at were $2.8 million, compared to $4.8 million at December 31, Canadian financial institutions. The Company manages credit risk related to cash and cash equivalents by adhering to its Investment Policy that outlines 2020. Uninsured non-performing mortgages over 90 days on these portfolios were $1.5 million at December 31, 2021, compared to $2.3 million at December 31, 2020. credit risk parameters and concentration limits. The Company The Company also retains certain elements of credit risk regularly reviews the credit ratings of its counterparties. The on mortgage loans sold to the IG Mackenzie Mortgage and maximum exposure to credit risk on these financial instruments Short Term Income Fund and to the IG Mackenzie Canadian is their carrying value. The Company’s exposure to and management of credit risk related to cash and cash equivalents and fixed income securities have not changed materially since December 31, 2020. 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. Mortgage Portfolio The Company regularly reviews the credit quality of the As at December 31, 2021, residential mortgages, recorded on mortgages and the adequacy of the allowance for expected the Company’s balance sheet, of $5.4 billion (2020 – $6.3 billion) credit losses. consisted of $5.0 billion sold to securitization programs (2020 – $6.0 billion), $315.8 million held pending sale or securitization (2020 – $334.5 million) and $13.7 million related to the Company’s intermediary operations (2020 – $14.1 million). The Company’s allowance for expected credit losses was $0.6 million at December 31, 2021, compared to $0.8 million at December 31, 2020, and is considered adequate by management to absorb all credit-related losses in the mortgage The Company manages credit risk related to residential portfolios based on: i) historical credit performance experience, 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. ii) recent trends including the economic impact of COVID-19 and Canada’s COVID-19 Economic Response Plan to support Canadians and businesses, iii) current portfolio credit metrics and other relevant characteristics, iv) our strong financial planning relationship with our clients, and v) 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 since December 31, 2020. In certain instances, credit risk is also limited by the terms and nature of securitization transactions as described below: Derivatives • Under the NHA MBS program totalling $2.6 billion (2020 – $3.2 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 securitization transactions and to hedge market risk related 74 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysisto certain stock-based compensation arrangements. These with Canadian Schedule I chartered banks to hedge the risk derivatives are discussed more fully under the Market Risk that the interest rates earned on floating rate mortgages and section of this MD&A. 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. reinvestment returns decline. The fair value of these swaps totalled $3.5 million (December 31, 2020 – $19.9 million), on an outstanding notional amount of $1.3 billion at December 31, 2021 (December 31, 2020 – $1.3 billion). The net fair value of these swaps of $4.5 million at December 31, 2021 (December 31, 2020 – negative $1.2 million) is recorded The Company’s derivative activities are managed in accordance on the balance sheet and has an outstanding notional with its Investment Policy which includes counterparty limits amount of $1.6 billion (December 31, 2020 – $2.0 billion). and other parameters to manage counterparty risk. The aggregate credit risk exposure related to derivatives that are in a gain position of $39.5 million (2020 – $35.8 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, 2021 (2020 – $3.8 million). 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, 2021. Management of credit risk related to derivatives has not changed materially since December 31, 2020. Additional information related to the Company’s securitization activities and utilization of derivative contracts can be found in Notes 2, 7 and 23 to the Consolidated Financial Statements. MARKET RISK • 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. 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 Wealth Management revenue over the term of the related Obligations to securitization entities. The fair value of these swaps was $0.6 million (December 31, 2020 – negative $0.3 million) on an outstanding notional amount of $128.6 million at December 31, 2021 (December 31, 2020 – $191.3 million). As at December 31, 2021, the impact to annual net earnings of a 100 basis point increase in interest rates would have been This is the risk of loss arising from changes in the values of a decrease of approximately $3.0 million (December 31, 2020 the Company’s financial instruments due to changes in interest – decrease of $1.3 million). The Company’s exposure to and rates, equity prices or foreign exchange rates. management of interest rate risk have not changed materially since December 31, 2020. Interest Rate Risk IGM Financial is exposed to interest rate risk on its mortgage Equity Price Risk portfolio and on certain of the derivative financial instruments IGM Financial is exposed to equity price risk on our equity used in our 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 fair value of $1.0 million (December 31, 2020 – negative $21.1 million) and an outstanding notional amount of $0.3 billion at December 31, 2021 (December 31, 2020 – $0.7 billion). The Company enters into interest rate swaps investments which are classified as either fair value through other comprehensive income or fair value through profit or loss or investments in associates. The fair value of the equity investments was $1.4 billion at December 31, 2021 (December 31, 2020 – $632.3 million), as shown in Table 21. 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 IGM Financial is exposed to foreign exchange risk on its investment in ChinaAMC. Changes to the carrying value due to changes in foreign exchange rates is recognized in Other | 75 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Reportcomprehensive income. As at December 31, 2021, a 5% result in lower revenues depending upon the management appreciation (depreciation) in Canadian currency relative to fee rates associated with different asset classes and mandates. foreign currencies would decrease (increase) the aggregate carrying value of foreign investments by approximately $36.3 million ($40.2 million). 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, The Company’s proportionate share of ChinaAMC’s earnings, and generally it does not engage in risk transfer activities such recorded in Proportionate share of associates’ earnings in the as hedging in relation to these exposures. Consolidated Statements of Earnings, is also affected by changes in foreign exchange rates. For the year ended December 31, 2021, the impact to net earnings of 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 $2.9 million ($3.2 million). RISKS RELATED TO ASSETS UNDER MANAGEMENT AND ADVISEMENT At December 31, 2021, IGM Financial’s total assets under management and advisement were $277.1 billion compared to $240.0 billion at December 31, 2020. The Company’s primary sources of revenues are advisory fees and asset management fees which are applied as an annual percentage of the level of assets under management and advisement. 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 and advisement 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. Changing financial market conditions may also lead to a change in the composition of the Company’s assets under management between equity and fixed income instruments, which could The Company’s exposure to the value of assets under management and advisement aligns it with the experience of its clients. Assets under management are broadly diversified by asset class, geographic region, industry sector, investment team and style. The Company regularly reviews the sensitivity of its assets under management, revenues, earnings and cash flow to changes in financial markets. 2) OPERATIONAL RISK This is the risk of financial loss, reputational damage or regulatory actions resulting from inadequate or failed internal processes or systems, human interaction or external events. This excludes business risk, which is a separate category in our ERM framework. We are exposed to a broad range of operational risks, including information technology security and system failures, errors relating to transaction processing, financial models and valuations, fraud and misappropriation of assets, and inadequate application of internal control processes. 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 Internal Audit Department. The Company has an insurance review process where it assesses and determines the nature and extent of insurance TABLE 29: IGM FINANCIAL ASSETS UNDER MANAGEMENT – ASSET AND CURRENCY MIX AS AT DECEMBER 31, 2021 Cash Short-term fixed income and mortgages Other fixed income Domestic equity Foreign equity Real Property CAD USD Other 76 | INVESTMENT FUNDS TOTAL 1.2 % 3.7 23.3 20.6 48.7 2.5 2.2 % 3.5 23.0 25.8 43.6 1.9 100.0 % 100.0 % 51.0 % 56.4 % 32.4 16.6 29.5 14.1 100.0 % 100.0 % 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis that is appropriate to provide adequate protection against confidential information of the Company and that of clients or unexpected losses, and where it is required by law, regulators other stakeholders, and could result in negative consequences or contractual agreements. 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. including lost revenue, litigation, regulatory scrutiny or reputational damage. To remain resilient to such threats, we have established enterprise-wide cyber security programs, benchmarked capabilities to sound industry practices, and implemented threat and vulnerability assessment and response capabilities. Extended duration of work from home programs introduces increased need to mitigate risk of potential data loss. The Company’s risk management framework emphasizes operational risk management and internal control. The THIRD PARTY RISK Company has a very low appetite for risk in this area. We regularly engage third parties to provide expertise and The business unit leaders are responsible for management of the day to day operational risks of their respective business units. Specific programs, policies, training, standards and governance processes have been developed to help manage operational risk. 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 and outsourcing policy, have been The Company has a crisis response plan which outlines crisis developed and implemented to specifically address third party response coordination policies and procedures in the event service provider risk. We perform due diligence and monitoring of a crisis that could significantly impact the organization’s activities before entering into contractual relationships with reputation, brands or business operations. The Company third-party service providers and on an ongoing basis. As our executes simulation exercises on a regular basis. The Company reliance on external service providers continues to grow, we has a crisis assessment team comprised of senior leadership continue to enhance resources and processes to support third who are responsible for crisis confirmation and management. In party risk management. addition, this team is responsible for setting strategy, overseeing response and ensuring appropriate subject matter experts are MODEL RISK engaged in the scenario-dependent crisis response team. The Company also has a business continuity management program to enable critical operations and processes to function in the event of a business disruption. For the health and safety of the Company’s employees and clients and to help efforts to limit the speed and spread of the COVID-19 infection, the Company moved substantially all of its employees and Consultants to work from home and temporarily closed its offices in March 2020. The Company is continuously assessing its plan and protocols, and taking direction from external governing bodies such as the Medical Officers of Health, to determine when employees and advisors will return to the office. The Company’s business continuity plan has been effective at ensuring the Company is able to continue operations and provide client service with minimal disruptions. TECHNOLOGY AND CYBER RISK We use systems and technology to support business operations and the client and financial advisor experience. As a result, we are exposed to risks relating to technology and cyber security such as data breaches, identity theft and hacking, including the risk of denial of service or malicious software attacks. The volume of these activities in our society has increased since the onset of COVID-19. Such attacks could compromise We use a variety of models to assist in: the valuation of financial instruments, operational scenario testing, management of cash flows, capital management, and assessment of potential 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 adverse effect on the Company’s consolidated financial position and reputation. LEGAL AND REGULATORY COMPLIANCE RISK This 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 agencies of the federal, provincial and territorial governments in Canada which regulate the Company and its activities. The Company and its subsidiaries are also subject to the requirements of self-regulatory organizations to which they belong. These and other regulatory bodies regularly adopt new laws, rules, regulations and policies that apply to the Company and its subsidiaries. These requirements include those that apply to IGM Financial as a publicly traded company and | 77 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Reportthose that apply to the Company’s subsidiaries based on the protect it through contracts that commit the service providers to nature of their activities. They include regulations related to the maintain levels of protection comparable to ours. management and provision of financial products and services, including securities, insurance and mortgages, and other activities carried on by the Company in the markets in which it operates. Regulatory standards affecting the Company and the financial services industry are significant and continually evolve. The Company and its subsidiaries are subject to reviews as part of the normal ongoing process of oversight by the various regulators. IGM Financial has established an enterprise Privacy Policy, and our operating companies have supporting privacy policies and procedures relevant to their businesses. Our operating companies also have comprehensive procedures and controls to safeguard personal information and prevent privacy breaches. In the event of a privacy breach, our operating companies have policies and procedures to mitigate risks and prevent Failure to comply with laws, rules or regulations could lead to re-occurrence. If a breach is determined to pose a real risk of regulatory sanctions and civil liability, and may have an adverse significant harm to a client, we will notify the individual, and reputational or financial effect on the Company. The Company the federal and/or provincial Privacy Commissioner where manages legal and regulatory compliance risk through its efforts applicable, in a timely manner. 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 Board receives regular reporting on compliance initiatives and issues. Employees and advisors are required to complete mandatory privacy training at onboarding, and annually thereafter. The training includes our privacy obligations, privacy tips and best practices, and how to prevent, handle and report privacy breaches, complaints and access to information requests. Each operating company also has its own Privacy Officer, who is responsible for the operating company’s privacy program, provides guidance to employees and advisors, and manages our response to privacy concerns. IGM Financial promotes a strong culture of ethics and integrity through its Code of Conduct approved by the Board of Directors, CONTINGENCIES which outlines standards of conduct that apply to all IGM The Company is subject to legal actions arising in the normal Financial directors, officers and employees. The Code of Conduct course of its business. In December 2018, a proposed class references many policies relating to the conduct of directors, action was filed in the Ontario Superior Court against Mackenzie officers and employees. Other corporate policies cover anti- which alleges that the company should not have paid mutual money laundering and privacy. Training is provided on these fund trailing commissions to order execution only dealers. policies on an annual basis. Individuals subject to the Code of Although it is difficult to predict the outcome of any such legal Conduct attest annually that they understand the requirements actions, based on current knowledge and consultation with legal and have complied with its provisions. Business units are responsible for management of legal and regulatory compliance risk, and implementing appropriate policies, procedures and controls. The Compliance Department is responsible for providing oversight of all regulated compliance 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. 3) STRATEGIC RISK activities. The Internal Audit Department also provides oversight This is the risk of potential adverse impacts resulting concerning regulatory compliance matters. PRIVACY RISK Our clients entrust us with their personal information, and we have a legal and ethical responsibility to protect it. In accordance with Canadian privacy laws, we collect only personal information that is necessary to provide our products and services to clients, or where we have consent to do so. We do not disclose personal information about clients unless required by law, when necessary to provide products or services to them, or as otherwise authorized by them. If we need to share clients’ personal information with third-party service providers, we remain responsible for that information and from inadequate or inappropriate governance, oversight, management  of incentives and conflicts, regulatory developments and strategy. 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 our shareholders. Oversight of IGM Financial is performed by the Board of Directors directly and through its five committees. The Company’s President and Chief Executive Officer has overall responsibility for management of the Company. The Company’s activities are carried out principally by three operating 78 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysiscompanies – Investors Group Inc., Mackenzie Financial ACQUISITION RISK Corporation and Investment Planning Counsel Inc. – each of The Company is exposed to risks related to its acquisitions and which are managed by a President and Chief Executive Officer. strategic investments. The Company undertakes thorough due The Company also has a strategy execution oversight function diligence prior to completing an acquisition, but there is no and committee that reviews and approves strategic initiative assurance that the Company will achieve the expected strategic business cases and oversees progress against our strategic objectives or cost and revenue synergies subsequent to an priorities and objectives. The President and Chief Executive Officer of the Company, in collaboration with the Board of Directors, is responsible each year to develop, review and update the Company’s strategic plan. The strategic plan sets out both the annual and longer-term objectives for the Company in light of emerging opportunities and risks and with a view to the Company’s sustained profitable growth and long-term value creation. The Board is responsible for approving the Company’s overall business strategy. In carrying out this responsibility, the Board reviews the short-, medium- and long-term risks associated with the strategic plan, considers the strengths and potential weaknesses of trends and opportunities, and approves the Company’s annual business, financial and capital management plans. A portion of each Board meeting is dedicated to discussion of strategic matters including receiving updates on the progress and implementation of the strategic plan. REGULATORY DEVELOPMENT RISK This is the potential for changes to regulatory, legal, or tax requirements that may have an adverse impact on the Company’s business activities or financial results. We are exposed to the risk of changes in laws, taxation and regulation that could have an adverse impact on the Company. Particular regulatory initiatives may have the effect of making the products of the Company’s subsidiaries appear to be less competitive than the products of other financial service providers, to third party distribution channels and to clients. Regulatory differences that may impact the competitiveness of the Company’s products include regulatory costs, tax treatment, disclosure requirements, transaction processes or 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 treatment of financial products or services is limited. The Company continuously monitors regulatory developments, guidance and communications. . 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) BUSINESS RISK GENERAL BUSINESS CONDITIONS This risk refers to the potential for unfavourable impacts on IGM Financial resulting from competitive or other external factors relating to the marketplace. Global economic conditions, changes in equity markets, inflation, demographics and other factors including geopolitical risk and government instability, can affect investor confidence, income levels and savings decisions. This could result in reduced sales of IGM Financial’s products and services and/or result in investors redeeming their investments. These factors may also affect the level and volatility of financial markets and the value of the Company’s assets under management, as described more fully under the Risks Related to Assets Under Management section of this MD&A. To manage this risk, the Company, across its operating subsidiaries, communicates with clients and underscores 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 30 and are discussed in the Wealth Management and the Asset Management Segment Operating Results sections of this MD&A. CATASTROPHIC EVENTS OR LOSS Catastrophic events or loss refers to the risk that events such as earthquakes, floods, fire, tornadoes, pandemics, or terrorism could adversely affect the Company’s financial performance. Catastrophic events can cause economic uncertainty, affect investor confidence, income levels and financial planning decisions. This could affect the level and volatility of financial markets and the level of the Company’s assets under management and advisement. | 79 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportTABLE 30: TWELVE MONTH TRAILING REDEMPTION RATE FOR LONG-TERM FUNDS IGM Financial Inc. IG Wealth Management Mackenzie Counsel 2021 DEC. 31 2020 DEC. 31 9.2 % 13.6 % 22.3 % 9.8 % 16.6 % 20.1 % The global COVID-19 pandemic has caused economic disruption, Meaningful and/or sustained underperformance could affect adversely impacted economic conditions, has caused significant the Company’s results. Our objective is to cultivate investment volatility in the level of financial markets, and has increased processes and disciplines that give us a competitive advantage, unemployment in Canada and globally. and we do this by diversifying our assets under management In response, the Company implemented its business continuity plans and transitioned substantially all of its employees and Consultants to working from home. and product shelf by investment team, brand, asset class, mandate, style and geographic region. BUSINESS / CLIENT RELATIONSHIPS It is difficult to predict the ongoing significance of the COVID- This risk refers to the potential for unfavourable impacts 19 pandemic and government measures taken in response will on IGM Financial resulting from changes to key business or affect world economies, our clients and our business. This event client relationships. These relationships primarily include IG could have a material impact on the financial positions and Wealth Management clients and Consultants, Mackenzie retail results of the Company, subject to duration and severity. distribution, strategic and significant business partners, clients of PRODUCT / SERVICE OFFERING This risk refers to the potential for unfavourable impacts on IGM Financial resulting from inadequate product or service performance, quality or breadth. Mackenzie funds, and sub-advisors and other product suppliers. IG Wealth Management Consultant network – IG Wealth Management derives all of its mutual fund sales through its Consultant network. IG Wealth Management Consultants have regular direct contact with clients which can lead to a strong IGM Financial and its subsidiaries operate in a highly competitive and personal client relationship based on the client’s confidence environment, competing with other financial service providers, in that individual Consultant. The market for financial advisors investment managers and product and service types. Client is extremely competitive. The loss of a significant number of key development and retention can be influenced by a number Consultants could lead to the loss of client accounts which could of factors, including investment performance, products and have an adverse effect on IG Wealth Management’s results of services offered by competitors, relative service levels, relative operations and business prospects. IG Wealth Management is pricing, product attributes, reputation and actions taken by focused on strengthening its distribution network of Consultants competitors. This competition could have an adverse impact and on responding to the complex financial needs of its clients by upon the Company’s financial position and operating results. delivering a diverse range of products and services in the context Please refer to The Competitive Landscape section of this MD&A of personalized financial advice, as discussed in the Wealth for further discussion. Management Review of the Business section of this MD&A. We provide Consultants, independent financial advisors, as Asset Management – Mackenzie derives the majority of its well as retail and institutional clients with a high level of service mutual fund sales through third party financial advisors. and support and a broad range of investment products, with Financial advisors generally offer their clients investment a focus on building enduring relationships. The Company’s products in addition to, and in competition with Mackenzie. subsidiaries also continually review their respective product Mackenzie also derives sales of its investment products and and service offering and pricing to ensure competitiveness in services from its strategic alliance and institutional clients. the marketplace. We strive to deliver strong investment performance on our products relative to benchmarks and peers. Poor investment performance relative to benchmarks or peers could reduce the level of assets under management and sales and asset retention, as well as adversely impact our brands and reputation. Due to the nature of the distribution relationship in these relationships and the relative size of these accounts, gross sale and redemption activity can be more pronounced in these accounts than in a retail relationship. Mackenzie’s ability to market its investment products is highly dependent on continued access to these distribution networks. Lack of access could have a material adverse effect on Mackenzie’s operating 80 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysis results and business prospects. Mackenzie is well positioned 5) ENVIRONMENTAL AND SOCIAL RISK to manage this risk and to continue to build and enhance (INCLUDING CLIMATE CHANGE) its distribution relationships. Mackenzie’s diverse portfolio of financial products and its long-term investment performance record, marketing, educational and service support has made Mackenzie one of Canada’s leading investment management companies. These factors are discussed further in the Asset Management Review of the Business section of this MD&A. PEOPLE RISK This risk refers to the potential inability to attract or retain employees or Consultants, develop them to an appropriate level of proficiency, or manage engagement and personnel succession or transition. 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 engage sufficient numbers of qualified personnel could negatively affect IGM Financial’s business and financial performance. We have a Diversity, Equity and Inclusion Strategy with the purpose of driving an inclusive, equitable and consistent experience for employees and clients that supports our business objectives now and into the future. To achieve the desired outcomes, we focus on three pillars of action: raising awareness; improving inclusive leadership behaviours; and building external partnerships and community engagement. We also have a Wellness Strategy to support our employees’ wellbeing with a goal to ensure our employees are physically thriving, emotionally balanced, socially connected and financially secure. COVID-19 has caused significant disruption in peoples’ lives both professionally and personally. The Company’s actions have included: • Implementing a work at home strategy to maintain the health and safety of our employees and Consultants through social distancing. • Providing tools and processes to enable our employees and Consultants to continue to operate effectively from home. This is the potential for financial loss or other unfavourable impacts resulting from environmental or social (E&S) issues connected to our business operations, investment activities, meeting our sustainability commitments, and increasingly for regulatory compliance. We recognize that E&S risks can be within our operations or impact stakeholders along our supply chain, including clients, investee companies and suppliers. Environmental risks include issues such as climate change, biodiversity and land use, pollution, waste, and the unsustainable use of energy, water and other resources. Social risks include issues such as: human rights; labour standards; diversity; equity and inclusion; Indigenous reconciliation; and community impacts. IGM Financial has a long-standing commitment to responsible management, as articulated in our Corporate Sustainability Statement approved by the Board of Directors. Through its Risk Committee, the Board is responsible for ensuring that material E&S risks are appropriately identified, managed and monitored. The Company’s executive Risk Management Committee is responsible for oversight of the risk management process, including E&S and climate change risks. Other management committees provide oversight of specific risks including the Sustainability Committee and the Diversity and Inclusion Executive Council. The Sustainability Committee is composed of senior executives who are responsible for ensuring implementation of policy and strategy, establishing goals and initiatives, measuring progress, and approving annual reporting for environmental, social and governance (ESG) matters. Our commitment to responsible management is demonstrated through various mechanisms. These include our Code of Conduct for employees, contractors, and directors; our Supplier Code of Conduct; our Workplace Harassment and Discrimination Prevention Policy; our Diversity Policy; our Environmental Policy; and other related policies. IG Wealth Management and Mackenzie Investments, and their investment sub-advisors, are signatories to the Principles for Responsible Investment (PRI). Under the PRI, investors formally commit to incorporate ESG issues into their investment decision • Providing various wellness programs including Employee making and active ownership processes. In addition, IG Wealth Assistance Programs, e-Health and other programs to Management, Mackenzie Investments and Investment Planning support the mental and physical well-being of our employees, Counsel have implemented Sustainable Investment Policies Consultants, and their families. outlining the practices at each company. • Developing a return to office strategy including the introduction of a hybrid working model to enhance work life flexibility and to safely allow employees and Consultants to return to the office when appropriate. IGM Financial reports annually on ESG management and performance in its Sustainability Report available on our website. The Company has been recognized for demonstrating strong ESG performance through positions earned on the FTSE4Good Index Series, Jantzi Social Index, Corporate Knights’ 2022 Global 100 and 2021 Best 50 Corporate Citizens. | 81 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportIGM Financial is a long-standing participant in the CDP policies; approval and oversight for investment stewardship (formerly Carbon Disclosure Project), which promotes priorities including climate; approval and monitoring for targets corporate disclosures on greenhouse gas emissions and related to climate change; and evaluation of progress relative to climate change management including setting and monitoring key performance indicators, strategy roadmap, and the market. emission reduction targets. IGM Financial has been recognized by CDP at the leadership level for the past five years for its climate disclosures. The IG Wealth Management Sustainable Investing Committee is responsible for reviewing and approving sustainable investing and ESG matters including but not limited to evaluating and Global practices are continually evolving relating to the considering climate-related risks and opportunities. identification, analysis, and management of climate risks and opportunities. The Financial Stability Board’s Task Force on STRATEGY Climate-related Financial Disclosures (TCFD) was established Through IGM Financial’s wealth and asset management in response to investor demand for enhanced information on businesses the company plays a role in the global transition climate-related risks and opportunities. IGM Financial and its to a low-carbon economy. In November 2021, IGM Financial operating companies support the TCFD recommendations which detailed its climate commitments in a position statement on include a framework for consistent, voluntary climate-related our website, with a focus on three key areas: financial disclosures that provide decision-useful information to investors, analysts, rating agencies and other stakeholders. TCFD DISCLOSURE The TCFD recommends that organizations disclose information 1. Investing in a greener, climate resilient economy – Our investment processes and products give us the opportunity to manage climate risks and create innovative solutions to our ongoing climate issues. about climate-related risks and opportunities in four areas: 2. Collaborating and engaging to help shape the global transition – governance, strategy, risk management, and metrics and targets. We play a role in bringing climate-smart investment advice and Full implementation of TCFD will be a multi-year journey. solutions to clients, helping companies adapt, and participating GOVERNANCE Our Board is responsible for providing oversight on risk and strategy, which includes sustainability and climate-related matters. The Board meets with management at least annually to discuss plans and emerging ESG issues. Through its Risk in industry and policy advancements. 3. Demonstrating alignment through our corporate actions – We will hold ourselves to a similar standard that we expect from the companies we invest in and empower our employees to stand behind our commitments. Committee, the Board is responsible for ensuring that material Our operating companies are active participants in collaborative ESG risks are appropriately identified, managed and monitored. industry groups that support our climate commitments by The senior-most leaders at each of our operating companies have primary ownership and accountability for the ongoing climate risk and opportunity management associated with their respective activities. IGM Financial’s Risk Management and Sustainability Committees perform oversight functions, and our Chief Financial Officer oversees implementation of the Corporate Sustainability and Enterprise Risk Management programs. We have established a cross-functional, enterprise wide TCFD Working Group of senior leaders to lead the planning and implementation of the TCFD recommendations. This working group is focused on enhancing our knowledge and tools to quantify climate risks in tandem with our industry, further integrating climate into our business strategy, operations and product offering, evolving our engagement approach with investee companies, and addressing increased disclosure expectations. engaging companies on improving climate change governance, reducing emissions and strengthening climate-related financial disclosures. IGM Financial also joined the Partnership for Carbon Accounting Financials (PCAF) to support our journey to measure and disclose the greenhouse gas emissions associated with our mortgage loans and investments. Climate-related risks and opportunities are identified and assessed within IGM Financial through our business planning processes which define our strategic priorities, initiatives and budgets. Our climate-related risks and opportunities can be grouped into the physical impacts of climate change and the impacts related to the transition to a low-carbon economy. Risks Our climate risks relate primarily to the potential for physical or transition risks to: negatively affect the performance of our clients’ investments, resulting in reduced fee revenue; harm our reputation; create market risks through shifts in The Mackenzie Sustainability Steering Committee is responsible product demand; or lead to new regulatory, legal or disclosure for approving and governing corporate and sustainability related requirements that could affect our business. Diversification 82 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and Analysiswithin and across our investment portfolios aids in managing Scenarios exposure to any one company, sector or geographic region that We have implemented a tool for our investment funds to might be exposed to climate-related risks. We are also exposed enhance our quantitative assessment of climate risks by to the impact of extreme weather events on our corporate analyzing emissions and other climate-related information properties which could lead to business disruption, and on the at the investee company and portfolio levels. This system valuations of investment properties and client mortgages, which enables us to model potential transition pathways and track if not addressed proactively, could affect financial performance our portfolios against the goal of limiting global warming to and the ability to use the assets long-term. Our operating companies are committed to sustainable investing programs and policies that include a focus on climate risk. We provide data and tools for our investment teams to carry out current and forward-looking climate analysis and we integrate material climate risks into our investment and oversight processes for investment management sub- advisors. As part of the hiring process and ongoing assessment of sub-advisors, our teams request information about how ESG, including climate risks and opportunities, is resourced, what processes and tools are used, metrics and targets, and how strategy and governance are influenced. As we continue to implement the TCFD recommendations, we are devoting increased resources to areas such as training, analysis, metrics, target-setting, strategy planning and working with collaborative organizations. Opportunities 2°C above pre-industrial levels and examine the adequacy of emissions reductions over time in meeting the goals of the Paris Agreement. We are exploring scenario analysis tools with external data providers to support us in our efforts to run climate-related scenario analysis across our business. RISK MANAGEMENT Assessment and management of climate-related risks is integrated into our ERM framework. We use a consistent methodology across our organizations and business units for identification and assessment of risks, considering factors both internal and external to the organization. Risks are broadly grouped into five categories: financial, operational, strategic, business, and environmental and social. We are increasingly focused on defining the relationship of climate risk to other material risks. At Mackenzie Investments, each boutique investment team is responsible for determining when and how climate transition We are focused on meeting growing demand for sustainable and physical risks are material, and for incorporating these investing and the opportunity to invest in the transition to risks into their investment process. At IG Wealth Management a net-zero economy. We are also increasing our focus on and IPC, management evaluates the sustainable investing educating and communicating with clients and advisors on practices of investment manager sub-advisors, including the sustainable investing and climate change. integration of climate risks into their investment and active At Mackenzie Investments, sustainable investing is an area of strategic emphasis, and we have established a dedicated team within Mackenzie’s Sustainability Centre of Excellence who bring focus to ESG and climate across the organization. Mackenzie has an investment boutique, Greenchip, which is exclusively focused on thematic investing to combat climate change. In 2021, Mackenzie also launched the Betterworld Team who invests in companies making a positive impact on the people and the planet, and expanded its suite of climate offerings in 2021 through the addition of the Mackenzie Greenchip Global Balanced Fund, the Mackenzie Global Sustainable Bond ETF, and the Mackenzie Global Green Bond Fund. At IG Wealth Management, we have integrated environmental and climate issues into our sub-advisory selection and oversight processes, and product development strategy. In October 2021, IG Wealth Management launched its Climate Action Portfolios, a suite of four diversified managed solutions which aim to provide clients with the opportunity to support and benefit from the global transition to net zero emissions. ownership practice. Engagement To maximize stewardship efforts, engagement at Mackenzie is undertaken both internally and by a third-party engagement specialist where climate change is a priority engagement topic. At IPC, a pooled engagement service provider is used to work with companies to enhance corporate behaviour and strategy related to topics including climate change. At IG Wealth Management, investment management sub-advisors including Mackenzie are responsible for engagement activities and IG Wealth Management monitors their practices as part of regular due diligence and oversight. Mackenzie Investments became a founding participant in Climate Engagement Canada this quarter, and also participates in CERES’ Investor Network on Climate Risk. Both Mackenzie Investments and IG Wealth Management support Climate Action 100+ and became founding signatories to the Canadian Investor Statement on Climate Change in October 2021. | 83 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportMETRICS AND TARGETS We set, monitor and report on climate change-related metrics and targets annually in our CDP response and our Sustainability Report which are available on our website. We currently report Scope 1, 2 and 3 GHG emissions, where possible, including Scope 3 investment emissions related to our real assets in the IG Real Property Fund. We are working to expand the measurement and reporting of emissions related to our investment portfolios in 2022. Through IGM Financial’s Climate Position Statement launched in November 2021, we have set a target to be climate neutral in our corporate offices and travel by the end of 2022. We also commit to setting interim targets for investment portfolios as a first step, consistent with the global ambition to achieve net zero emissions by 2050. As such, Mackenzie Investments joined the Net Zero Asset Managers Initiative and will set an interim investment target in line with the attainment of net zero emissions by 2050 or sooner by the end of 2022. 84 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisThe Financial Services Environment Canadians held $5.6 trillion in discretionary financial assets continue to place increased emphasis on both financial planning with financial institutions at December 31, 2020 based on and mutual funds. In addition, each of the “big six” banks has the most recent report from Investor Economics. The nature one or more mutual fund management subsidiaries. Collectively, of holdings was diverse, ranging from demand deposits held mutual fund assets of the “big six” bank-owned mutual fund for short-term cash management purposes to longer-term managers and affiliated firms represented 47% of total industry investments held for retirement purposes. Approximately 64% long-term mutual fund assets at December 31, 2021. ($3.6 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 $2.0 trillion held outside of a financial advisory relationship, approximately 59% consisted of bank deposits. The Canadian mutual fund industry continues to be very concentrated, with the 10 largest firms and their subsidiaries representing 69% of industry long-term mutual fund assets and 69% of total mutual fund assets under management at December 31, 2021. We anticipate continuing consolidation in Financial advisors represent the primary distribution channel for this segment of the industry as smaller participants are acquired IGM Financial’s products and services, and the core emphasis of by larger organizations. our 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 We believe that the financial services industry will continue to be influenced by the following trends: financial outcomes for Canadians who use financial advisors • Shifting demographics as the number of Canadians in their compared to those who do not. We actively promote the value prime savings and retirement years continues to increase. of financial advice and the importance of a relationship with an advisor to develop and remain focused on long-term financial plans and goals. Approximately 40% of Canadian discretionary financial assets or $2.2 trillion resided in investment funds at December 31, 2020, making it the largest financial asset class held by Canadians. Other asset types include deposit products and direct securities such as stocks and bonds. Approximately 76% of investment • Changes in investor attitudes based on economic conditions. • Continued importance of the role of the financial advisor. • Public policy related to retirement savings. • Changes in the regulatory environment. • A highly competitive landscape. • Advancing and changing technology. funds are comprised of mutual fund products, with other THE COMPETITIVE LANDSCAPE product categories including segregated funds, hedge funds, pooled funds, closed end funds and exchange traded funds. With $185 billion in investment fund assets under management at December 31, 2021, IGM Financial is among the country’s largest investment fund managers. We believe that investment funds are likely to remain the preferred savings vehicle of Canadians. They offer 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. 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, diversified, vertically- integrated participants, similar to IGM Financial, that 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 Our subsidiaries, IG Wealth Management and Investment Planning Counsel, compete directly with other retail financial service providers in the advice segment, including other financial planning firms, as well as full service brokerages, banks and insurance companies. Our asset management subsidiary, Mackenzie Investments, competes directly with other investment managers for assets under management, and our products compete with stocks, bonds and other asset classes for a share of Canadians’ investment assets. Competition from other financial service providers, alternative product types or delivery channels, and changes in regulations or public preferences could impact the characteristics of our product and service offerings, including pricing, product structures, dealer and advisor compensation and disclosure. We monitor developments on an ongoing basis, and engage in policy discussions and develop product and service responses as appropriate. IGM Financial continues to focus on our commitment to provide quality investment advice and financial products, service innovations, effective and responsible management of the Company and long-term value for our clients and shareholders. | 85 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportWe are midway through a five-year transformation to BROAD PRODUCT CAPABILITIES modernize our digital platforms and technology infrastructure Our subsidiaries continue to develop and launch innovative to enhance operations, achieve efficiencies and improve the products and strategic investment planning tools to assist service experience for our clients. We believe that IGM Financial advisors in building optimized portfolios for clients. is well-positioned to meet competitive challenges and capitalize on future growth opportunities. Our competitive strength includes: • Broad and diversified distribution through more than 35,000 financial advisors, with an emphasis on comprehensive financial planning. ENDURING CLIENT RELATIONSHIPS IGM Financial enjoys significant advantages as a result of the enduring relationships that advisors have developed with clients. In addition, our subsidiaries have strong heritages and cultures which are challenging for competitors to replicate. • Broad product capabilities, leading brands and quality PART OF THE POWER CORPORATION sub-advisory relationships. GROUP OF COMPANIES • Enduring client relationships and the long-standing heritages As part of the Power Corporation group of companies, and cultures of its subsidiaries. • Benefits of being part of the Power Corporation group IGM Financial benefits through expense savings from shared service arrangements, as well as through access to distribution, of companies. products and capital. BROAD AND DIVERSIFIED DISTRIBUTION 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 global manufacturing and distribution entities to provide investment management services. 86 | 2021 IGM Financial Inc. Annual Report | Management’s Discussion and AnalysisCritical Accounting Estimates and Policies SUMMARY OF CRITICAL ACCOUNTING ESTIMATES These tests involve the use of estimates and assumptions appropriate in the circumstances. In assessing the recoverable The preparation of financial statements in accordance with IFRS amounts, valuation approaches are used that include requires management to exercise judgment in the process of discounted cash flow analysis and application of capitalization applying accounting policies and requires management to make multiples to financial and operating metrics based upon 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 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, matters that are inherently uncertain. Many of these policies are discount rates, and capitalization multiples. common in the financial services industry; others are specific The Company completed its annual impairment tests of to IGM Financial’s businesses and operations. IGM Financial’s goodwill and indefinite life intangible assets as at April 1, significant accounting policies are described in detail in Note 2 2021, 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. The major critical accounting estimates are summarized below: • 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 Corporate investments and 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 12 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. • 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 interpretation of tax legislation in a number of jurisdictions. 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 16 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, 2021, there were no indications of impairment to capitalized sales commissions. | 87 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual Report• Provisions – A provision is recognized when there is a present at December 31, 2020. The increase in plan assets was due obligation as a result of a past transaction or event, it is to market performance of $62.0 million comprised of interest “probable” that an outflow of resources will be required to income of $13.8 million calculated based on the discount settle the obligation and a reliable estimate can be made rate, which was recorded as a reduction to the pension of the obligation. In determining the best estimate for a expense, and actuarial gains of $48.2 million, which were provision, a single estimate, a weighted average of all possible recorded in Other comprehensive income. The assets in outcomes, or the midpoint where there is a range of equally the Company’s registered defined benefit pension plan also possible outcomes are all considered. A significant change in increased due to the Company contributing $13.6 million assessment of the likelihood or the best estimate may result (2020 – $25.6 million) to the pension plan. The increase in in additional adjustments to net earnings. the discount rate utilized to value the defined benefit pension • 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 pension plan assets and for the accrued benefit obligations on 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, mortality and termination rates. The discount rate assumption is determined 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 and other future benefits expenses and accrued benefit obligations. Actual experience that differs from the actuarial plan obligation resulted in actuarial gains of $75.5 million which were recorded in Other comprehensive income. Demographic assumptions and experience adjustments were revised which resulted in $3.3 million in net actuarial gains. The total defined benefit pension plan obligation was $588.4 million at December 31, 2021 compared to $650.1 million at December 31, 2020. As a result of these changes, the defined benefit pension plan had an accrued benefit liability of $21.7 million at December 31, 2021 compared to $133.1 million at the end of 2020. The unfunded SERPs and other post-retirement benefits plans had an accrued benefit liability of $71.6 million and $32.6 million, respectively, at December 31, 2021 compared to $74.8 million and $42.1 million in 2020. A decrease of 0.25% in the discount rate utilized in 2021 would result in a change of $30.2 million in the accrued pension obligation, $27.8 million in other comprehensive income, and $2.4 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 15 of the Consolidated Financial Statements. assumptions will result in actuarial gains or losses as well as CHANGES IN ACCOUNTING POLICIES changes in benefits expense. The Company records actuarial IGM Financial has not adopted any changes in accounting gains and losses on all of its defined benefit plans in Other policies in 2021. comprehensive income. During 2021, the performance of the defined benefit pension plan assets was positively impacted by market conditions. Corporate bond yields increased in 2021 thereby impacting the discount rate used to measure the Company’s accrued benefit liability. The discount rate utilized to value the defined benefit pension plan accrued benefit liability at December 31, 2021 was 3.30% compared to 2.70% at December 31, 2020. Pension plan assets increased to $566.7 million at December 31, 2021 from $517.0 million FUTURE ACCOUNTING CHANGES The Company continuously monitors the potential changes proposed by the International Accounting Standards Board (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. 88 | 2021 IGM Financial Inc. Annual Report | 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, 2021, 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 published by The Committee of Sponsoring Organizations of the designed to provide reasonable assurance regarding the Treadway Commission. The Company transitioned to the COSO reliability of financial reporting and the preparation of financial 2013 Framework during 2014. Based on their evaluations statements for external purposes in accordance with IFRS. The as of December 31, 2021, the President and Chief Executive Company’s management is responsible for establishing and Officer and the Chief Financial Officer have concluded that the maintaining adequate internal control over financial reporting. Company’s internal control over financial reporting is effective All internal control systems have inherent limitations and may become inadequate because of changes in conditions. Therefore, even those systems determined to be effective can provide in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. only reasonable assurance with respect to financial statement Notwithstanding the above, during the fourth quarter of 2021, preparation and presentation. The Company’s management, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s internal control over financial reporting based on the Internal Control – Integrated Framework (COSO 2013 Framework) there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. | 89 Management’s Discussion and Analysis | 2021 IGM Financial Inc. Annual ReportOther Information TRANSACTIONS WITH RELATED PARTIES On January 5, 2022, the Company entered into an agreement IGM Financial enters into transactions with The Canada Life to acquire an additional interest in ChinaAMC from Power Assurance Company (Canada Life), which is a subsidiary of Corporation of Canada. The Company’s Board of Directors its affiliate, Lifeco, which is a subsidiary of Power Corporation (Board) established a special committee of independent directors of Canada. These transactions are in the normal course of (Committee) to assess, review and supervise negotiations operations and have been recorded at fair value: regarding the proposed terms of the purchase of Power’s equity • During 2021 and 2020, the Company provided to and received from Canada Life certain administrative services enabling each organization to take advantage of economies of scale and areas of expertise. interest in ChinaAMC and the sale of Lifeco shares and to make recommendations relating to the transactions to the Board. Having received and considered the recommendation of the Committee, the Board unanimously determined that each of the transactions is in the best interests of the Company and approved • The Company distributes insurance products under a distribution agreement with Canada Life and received the transactions. $52.7 million in distribution fees (2020 – $45.1 million). The Company received $63.3 million (2020 – $18.4 million) and paid $22.6 million (2020 – $29.6 million) to Canada Life and related subsidiary companies for the provision of sub-advisory services for certain investment funds. The Company paid $15.5 million (2020 – $78.3 million) to Canada Life related to the distribution of certain mutual funds of the Company. In 2020, additional transactions with related parties included the sale of Personal Capital, the investment in Northleaf, the acquisition of GLC Asset Management Group Ltd. and the sale of Quadrus Group of Funds (Notes 9 and 30 of the Consolidated Financial Statements). For further information on transactions involving related parties, see Notes 9, 27 and 30 to the Company’s Consolidated • In order to manage its overall liquidity position, the Financial Statements. 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 2021, the Company sold residential mortgage loans to Canada Life for $11.9 million compared to $20.9 million in 2020. 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. On December 31, 2020, the OUTSTANDING SHARE DATA Outstanding common shares of IGM Financial as at December 31, 2021 totalled 239,679,043. Outstanding stock options as at December 31, 2021 totalled 11,712,164 of which 6,179,244 were exercisable. As at February 4, 2022, outstanding common shares totalled 239,727,142 and outstanding stock options totalled 11,655,519 of which 6,131,145 were exercisable. Company acquired shares of such loss companies and recorded the benefit of the tax losses acquired. The benefits from these tax SEDAR loss consolidation arrangements ended at December 31, 2020. Additional information relating to IGM Financial, including the Company’s most recent financial statements and Annual Information Form, is available at www.sedar.com. 90 | 2021 IGM Financial Inc. Annual Report | 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 Revenues from contracts with customers Note 4 Expenses Note 5 Other investments Note 6 Loans Note 7 Securitizations Note 8 Other assets Note 9 Investment in associates Note 10 Capital assets Note 11 Capitalized sales commissions Note 12 Goodwill and intangible assets Note 13 Deposits and certificates Note 14 Other liabilities Note 15 Employee benefits Note 16 Income taxes Note 17 Long-term debt Note 18 Share capital Note 19 Capital management Note 20 Share-based payments Note 21 Accumulated other comprehensive income (loss) Note 22 Risk management Note 23 Derivative financial instruments Note 24 Fair value of financial instruments Note 25 Earnings per common share Note 26 Contingent liabilities and guarantees Note 27 Related party transactions Note 28 COVID-19 Note 29 Segmented information Note 30 Acquisitions Note 31 Subsequent event 92 93 96 97 98 99 100 101 101 106 106 107 108 108 109 110 112 112 113 114 114 114 118 119 120 120 120 122 123 126 127 130 130 130 131 132 135 135 | 91 2021 IGM Financial Inc. Annual Report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. James O’Sullivan President and Chief Executive Officer Luke Gould Executive Vice-President and Chief Financial Officer 92 | 2021 IGM Financial Inc. Annual Report | 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, 2021 and 2020, 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, 2021 and 2020, 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. KEY AUDIT MATTERS A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements for the year ended December 31, 2021. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Other investments – Wealthsimple Financial Corp. (“Wealthsimple”) — Refer to Notes 2, 5 and 24 to the financial statements Key Audit Matter Description The Company’s Other investments balance includes an equity investment in Wealthsimple, which is recognized at fair value through other comprehensive income. On May 3, 2021, Wealthsimple announced a $750 million equity fundraising, implying a fair value of the Company’s investment in Wealthsimple of $1,153 million (“May 2021 transaction”). Given that Wealthsimple is a private company, significant management judgment is required in the determination of the fair value of the investment as at December 31, 2021. In determining fair value, recent arm’s length market transactions, a market approach using observable valuation metrics, including revenue multiples, and discounted cash flow analysis were considered. Significant management judgment was required in determining the most appropriate valuation approaches and the related revenue multiples applied in the market approach. Management determined that the fair value was $1,153 million as at December 31, 2021. Auditing the fair value of Wealthsimple as at December 31, 2021 required a high degree of auditor judgment which resulted in an increased extent of audit effort, including the use of fair value specialists. How the Key Audit Matter Was Addressed in the Audit With the assistance of fair value specialists, our audit procedures related to the fair value of Wealthsimple included the following, among others: • We obtained the underlying source documents of the May 2021 transaction and analyzed the terms and determined if the transaction represented an appropriate estimate of fair value at the date of the transaction. • We independently performed a retrospective evaluation and analyzed Wealthsimple’s financial performance between the May 2021 transaction and December 31, 2021 using private investment financial information provided to the Company by Wealthsimple in order to determine the impact, if any, on the fair value determination as at December 31, 2021. • We evaluated relevant internal and external information, including industry information, and assessed the reasonability of unobservable market inputs in instances where these inputs were more subjective. • We evaluated other available information and considered whether this information corroborated or contradicted the Company’s conclusions. • We evaluated the appropriateness of fair value approaches and developed independent fair value estimates using an independent market approach by using private investment financial information provided to the Company by Wealthsimple, and analyzed comparable public company multiples and transactions. | 93 Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportIndependent Auditor’s Report (continued) 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. 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. 94 | 2021 IGM Financial Inc. Annual Report | Consolidated Financial StatementsIndependent Auditor’s Report (continued) • 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is David Dalziel. Chartered Professional Accountants Winnipeg, Manitoba February 10, 2022 | 95 Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportCONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 (in thousands of Canadian dollars, except per share amounts) Revenues Wealth management (Note 3) Asset management Dealer compensation expense Net asset management (Note 3) Net investment income and other (Notes 9 and 30) Proportionate share of associates’ earnings (Note 9) Expenses (Note 4) Advisory and business development Operations and support Sub-advisory Interest (Note 17) Earnings before income taxes Income taxes (Note 16) Net earnings Non-controlling interest (Note 9) 2021 2020 $ 2,553,600 $ 2,259,576 1,011,456 (335,970) 675,486 22,542 196,367 812,931 (283,163) 529,768 78,209 150,429 3,447,995 3,017,982 1,178,009 1,040,146 806,380 82,020 113,936 830,650 71,213 110,597 2,180,345 2,052,606 1,267,650 286,763 980,887 (1,938) 965,376 200,770 764,606 (198) Net earnings available to common shareholders $ 978,949 $ 764,408 Earnings per share (in dollars) (Note 25) – Basic – Diluted (See accompanying notes to consolidated financial statements.) $ $ 4.10 4.08 $ $ 3.21 3.21 96 | 2021 IGM Financial Inc. Annual Report | 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 2021 2020 $ 980,887 $ 764,606 Other comprehensive income (loss) (Note 5), net of tax of $(130,242) and $(38,565) 834,519 247,085 Employee benefits Net actuarial gains (losses), net of tax of $(37,466) and $11,461 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 $(4,284) and $(1,900) Total comprehensive income (See accompanying notes to consolidated financial statements.) 101,283 (31,002) 23,519 (2,906) (3,787) 955,534 50,889 264,066 $ 1,936,421 $ 1,028,672 | 97 Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31 (in thousands of Canadian dollars) Assets Cash and cash equivalents Other investments (Note 5) Client funds on deposit Accounts and other receivables Income taxes recoverable Loans (Note 6) Derivative financial instruments (Note 23) Other assets (Note 8) Investment in associates (Note 9) Capital assets (Note 10) Capitalized sales commissions (Note 11) Deferred income taxes (Note 16) Intangible assets (Note 12) Goodwill (Note 12) Liabilities Accounts payable and accrued liabilities Income taxes payable Derivative financial instruments (Note 23) Deposits and certificates (Note 13) Other liabilities (Note 14) Obligations to securitization entities (Note 7) Lease obligations Deferred income taxes (Note 16) Long-term debt (Note 17) Shareholders’ Equity Share capital (Note 18) Common shares Contributed surplus Retained earnings Accumulated other comprehensive income (loss) (Note 21) Non-controlling interest (Note 9) 2021 2020 $ 1,292,446 $ 771,585 1,398,023 2,238,624 387,157 17,344 632,300 1,063,442 444,458 30,366 5,353,842 6,331,855 41,172 54,298 37,334 49,782 2,048,255 1,931,168 315,964 325,424 29,269 1,356,704 2,802,066 329,690 231,085 84,624 1,321,590 2,803,075 $ 17,660,588 $ 16,062,354 $ 553,429 $ 486,575 104,113 17,773 7,146 34,514 2,220,274 1,104,889 382,466 536,141 5,057,917 6,173,886 197,969 525,476 188,334 388,079 2,100,000 2,100,000 11,159,417 11,019,564 1,658,680 1,598,381 51,069 51,663 3,856,996 3,207,469 883,083 51,343 136,364 48,913 6,501,171 5,042,790 $ 17,660,588 $ 16,062,354 These financial statements were approved and authorized for issuance by the Board of Directors on February 10, 2022. James O’Sullivan Director John McCallum Director (See accompanying notes to consolidated financial statements.) 98 | 2021 IGM Financial Inc. Annual Report | Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (in thousands of Canadian dollars) 2021 SHARE CAPITAL – COMMON SHARES (Note 18) CONTRIBUTED SURPLUS RETAINED EARNINGS ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 21) NON- CONTROLLING INTEREST TOTAL SHAREHOLDERS EQUITY Balance, beginning of year $ 1,598,381 $ 51,663 $ 3,207,469 $ 136,364 $ 48,913 $ 5,042,790 Net earnings Other comprehensive income (loss), net of tax Total comprehensive income Common shares – – – Issued under stock option plan 60,299 Stock options Current period expense Exercised Common share dividends Non-controlling interest Transfer out of fair value through other comprehensive income (Note 5) Other – – – – – – – – – – 3,802 (4,396) – – – – 980,887 – – 980,887 955,534 955,534 – – – (537,795) (1,938) – – – – – 208,815 (208,815) (442) – – – – – – – – 2,430 – – 980,887 955,534 1,936,421 60,299 3,802 (4,396) (537,795) 492 – (442) Balance, end of year $ 1,658,680 $ 51,069 $ 3,856,996 $ 883,083 $ 51,343 $ 6,501,171 2020 Balance, beginning of year $ 1,597,860 $ 48,677 $ 2,980,260 $ (127,702) $ 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 Common share dividends Non-controlling interest Other Balance, end of year – – – 521 – – – – – – – – – 3,010 (24) – – – 764,606 – – 764,606 264,066 264,066 – – – (536,194) (198) (1,005) – – – – – – – – – – – – – – 48,913 – $ 4,499,095 764,606 264,066 1,028,672 521 3,010 (24) (536,194) 48,715 (1,005) $ 1,598,381 $ 51,663 $ 3,207,469 $ 136,364 $ 48,913 $ 5,042,790 (See accompanying notes to consolidated financial statements.) | 99 Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report 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 Gain on sale of Personal Capital Corporation Gain on sale of Quadrus Group of Funds 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 common shares 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 Investment in Northleaf Capital Group Ltd. (Note 9) Acquisition of GLC Asset Management Group Ltd. (Note 30) Proceeds from sale of Personal Capital Corporation (Note 9) Proceeds from sale of Quadrus Group of Funds (Note 9) Increase 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.) 100 | 2021 2020 $ 1,267,650 $ 965,376 (153,501) (172,319) 56,683 (151,022) 99,818 (102,134) 14,403 – – – (38,342) 993,555 (49,965) 943,590 36,433 (117,652) 83,498 (71,328) (4,758) 74,460 (37,232) (30,000) 26,772 753,250 (16,625) 736,625 (3,861) (5,832) 1,428,861 1,568,521 (2,442,698) (2,359,844) (23,023) 55,904 (537,027) (25,579) 498 (536,186) (1,521,844) (1,358,422) (131,778) 348,206 (32,651) 38,840 (1,776,070) (1,792,995) 2,744,676 2,679,740 (10,643) (75,276) – – – – 1,099,115 520,861 771,585 (38,991) (68,808) (198,793) (175,788) 232,823 30,000 673,377 51,580 720,005 $ 1,292,446 $ 771,585 $ 326,225 $ 76,617 966,221 694,968 $ 1,292,446 $ 771,585 $ $ 247,377 221,129 $ $ 267,369 256,272 2021 IGM Financial Inc. Annual Report | Consolidated Financial Statements Notes to Consolidated Financial Statements December 31, 2021 and 2020 (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 Corporation of Canada. 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 (Mackenzie). 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 5, 7, 9, 11, 12, 14, 15, 16, 24 and 30. The twelve months ended December 31, 2020 and 2021, were characterized by increased uncertainty due to COVID-19. The Company is closely monitoring the current environment and assessing the impacts, if any, on its significant assumptions related to critical estimates. 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. (ChinaAMC) and Northleaf Capital Group Ltd. (Northleaf) 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. The equity method was used to account for the Company’s equity interest in Personal Capital Corporation (Personal Capital) until the announcement of the sale of the investment on June 29, 2020. REVENUE RECOGNITION Wealth management revenue is earned for providing financial planning, investment advisory and related financial services. Revenues from financial advisory fees and investment management and related administration fees are based on the net asset value of investment funds or other assets under advisement and are accrued as services are performed. Distribution revenue associated with insurance and banking products and services are also recognized on an accrual basis while distribution fees derived from investment fund and securities transactions are recognized on a trade date basis. Asset management revenue related to investment management advisory and administrative services is based on the net asset value of investment funds and other assets under management and is accrued as services are performed. | 101 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENTS All financial assets are initially recognized at fair value in the Consolidated Balance Sheets and are subsequently classified as measured at 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. 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. Revenues from mortgage activities are included in Wealth Management revenues in the Consolidated Statement of Earnings. Changes in fair value of loans measured at FVTPL are recorded in Wealth management revenue 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 Wealth management revenue 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. 102 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 Wealth management revenue 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. Commissions paid on investment product sales where the Company earns fees from a 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 Advisory and business development and Operations and support expenses. 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). | 103 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) GOODWILL AND INTANGIBLE ASSETS (continued) 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. 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 Operations and support 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. 104 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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 23). The effective portion of changes in fair value are initially recorded in Other comprehensive income and subsequently recorded in Wealth management revenue 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 Wealth management revenue 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 Operations and support expenses 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. | 105 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 and has determined that amendments effective January 1, 2022, will have no material impact. NOTE 3 REVENUES FROM CONTRACTS WITH CUSTOMERS Advisory fees Product and program fees Redemption fees Other financial planning revenues Wealth management Asset management Dealer compensation expense Net asset management Net revenues from contracts with customers 2021 2020 $ 1,397,859 $ 1,229,299 961,122 846,341 2,358,981 2,075,640 10,029 184,590 15,965 167,971 2,553,600 2,259,576 1,011,456 (335,970) 812,931 (283,163) 675,486 529,768 $ 3,229,086 $ 2,789,344 Wealth management revenue is earned by providing financial planning, investment advisory and related financial services. Advisory fees, related to financial planning, are associated with assets under management and advisement. Product and program fees, related to investment management and administration services, are associated with assets under management. Other financial planning revenues include insurance, banking products and services, and mortgage lending activities. Asset management revenue, related to investment management advisory and administrative services, depends on the level and composition of assets under management. NOTE 4 EXPENSES Commissions Salaries and employee benefits Restructuring and other Occupancy Amortization of capital, intangible and other assets Other Sub-advisory Interest 2021 2020 $ 918,793 $ 787,684 590,388 556,115 – 27,117 99,818 74,460 28,608 83,498 348,273 340,431 1,984,389 1,870,796 82,020 113,936 71,213 110,597 $ 2,180,345 $ 2,052,606 During 2020, the Company incurred restructuring and other charges of $74.5 million related to the ongoing multi-year transformation initiatives and efforts to enhance our operational effectiveness and also from the acquisition of GLC Asset Management (GLC) and other changes to our investment management teams. As a result of these initiatives, the Company recorded costs relating to restructuring and downsizing certain related party sharing services activities as well as impairment of redundant internally generated software assets. 106 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 5 OTHER INVESTMENTS Fair value through other comprehensive income (FVTOCI) Corporate investments Fair value through profit or loss (FVTPL) Equity securities Proprietary investment funds 2021 2020 COST FAIR VALUE COST FAIR VALUE $ 226,220 $ 1,291,434 $ 251,417 $ 593,273 1,173 1,552 101,327 105,037 102,500 106,589 1,499 35,254 36,753 1,513 37,514 39,027 $ 328,720 $ 1,398,023 $ 288,170 $ 632,300 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Corporate investments is primarily comprised of the Company’s investments in Wealthsimple Financial Corp. (Wealthsimple), and Portag3 Ventures LP, Portag3 Ventures II LP and Portage Ventures III LP (Portag3). Portag3 is an early-stage investment fund dedicated to backing innovating financial services companies. Portag3 is controlled by Power Corporation of Canada. The total fair value of Corporate investments of $1,291.4 million is presented net of certain costs incurred within the limited partnership structures holding the underlying investments. Investment in Wealthsimple Wealthsimple Financial Corp. (Wealthsimple) is an online investment manager that provides financial investment guidance. The Company’s investment in Wealthsimple is held through a limited partnership controlled by Power Corporation of Canada. The investment is classified at Fair Value Through Other Comprehensive Income. On May 3, 2021, Wealthsimple announced a $750 million equity fundraising, valuing IGM Financial Inc.’s investment in Wealthsimple at $1,448 million. As part of the transaction, IGM Financial Inc. disposed of a portion of its investment for proceeds of $294 million ($258 million after-tax). In 2021, a realized gain of $241 million ($209 million after-tax) was transferred from Accumulated other comprehensive income to Other retained earnings. On October 14, 2020, Wealthsimple announced a $114 million equity fundraising. The purchase price associated with this fundraising valued the common equity of Wealthsimple at $1.5 billion ($1.4 billion pre-money valuation). IGM Financial Inc. holds directly and indirectly a 23% interest in Wealthsimple (2020 – 36%) valued at $1,153 million at December 31, 2021 (2020 – $550 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, 2021, there were $184.5 billion in investment fund assets under management (2020 – $159.5 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. The Company’s maximum exposure to loss is limited to its direct investment in the proprietary investment funds. Certain investment funds are consolidated where the Company has made the assessment that it controls the investment fund. As at December 31, 2021, the underlying investments related to these consolidated investment funds primarily consisted of cash and short-term investments of $25.1 million (2020 – $7.5 million), equity securities of $50.9 million (2020 – $10.9 million) and fixed income securities of $13.0 million (2020 – $5.8 million). The underlying securities of these funds are classified as FVTPL and recognized at fair value. | 107 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 6 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 CONTRACTUAL MATURITY 1 YEAR OR LESS 1 – 5 YEARS OVER 5 YEARS 2021 TOTAL 2020 TOTAL $ 1,162,460 $ 4,131,098 $ 3,496 $ 5,297,054 $ 6,329,342 648 778 5,296,406 6,328,564 57,436 3,291 $ 5,353,842 $ 6,331,855 $ 778 $ (407) 277 $ 648 $ 675 (562) 665 778 Total credit impaired loans as at December 31, 2021 were $2,822 (2020 – $4,807). Total interest income on loans was $154.7 million (2020 – $191.2 million). Total interest expense on obligations to securitization entities, related to securitized loans, was $111.4 million (2020 – $148.5 million). Gains realized on the sale of residential mortgages totalled $3.9 million (2020 – $9.8 million). Fair value adjustments related to mortgage banking operations totalled $1.4 million (2020 – negative $5.1 million). These amounts were included in Wealth management revenue. Wealth management revenue also includes other mortgage banking related items including portfolio insurance, issue costs, and other items. NOTE 7 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, and the hedging swap used to manage exposure to changes in variable rate investment returns, are recorded as derivatives with a fair value of $4.5 million at December 31, 2021 (2020 – negative $1.2 million). 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. 108 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 7 SECURITIZATIONS (continued) 2021 Carrying value NHA MBS and CMB Program Bank sponsored ABCP Total Fair value 2020 Carrying value NHA MBS and CMB Program Bank sponsored ABCP Total Fair value SECURITIZED MORTGAGES OBLIGATIONS TO SECURITIZATION ENTITIES NET $ 2,653,682 $ 2,651,293 $ 2,389 2,371,320 2,406,624 $ 5,025,002 $ 5,057,917 $ 5,083,991 $ 5,146,420 (35,304) (32,915) (62,429) $ $ $ 3,216,158 $ 3,307,428 $ (91,270) 2,767,743 2,866,458 (98,715) $ 5,983,901 $ 6,173,886 $ 6,186,410 $ 6,345,189 $ $ (189,985) (158,779) 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 8 OTHER ASSETS Deferred and prepaid expenses Other 2021 2020 $ 52,225 $ 48,763 2,073 1,019 $ 54,298 $ 49,782 Total other assets of $29.6 million as at December 31, 2021 (2020 – $24.2 million) are expected to be realized within one year. | 109 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 9 INVESTMENT IN ASSOCIATES 2021 Balance, beginning of year Additions Dividends Proportionate share of: Earnings Other comprehensive income (loss) and other adjustments Balance, end of year 2020 Balance, beginning of year Investment Dividends Proportionate share of: Earnings (losses) Associate’s adjustments Other comprehensive income (loss) and other adjustments Disposition Balance, end of year LIFECO ChinaAMC NORTHLEAF PERSONAL CAPITAL TOTAL $ 962,388 $ 720,282 $ 248,498 $ – $ 1,931,168 – – (67,356) (26,877) 643 – 125,103 61,574 9,690(1) 565 13,745 – – – – – 643 (94,233) 196,367 14,310 $ 1,020,700 $ 768,724 $ 258,831 $ – $ 2,048,255 $ 896,651 $ 662,694 $ – $ 194,537 $ 1,753,882 – – 247,508 (65,415) (13,686) – – – 247,508 (79,101) 109,148 41,531 3,400 – 18,604 29,743 – – 990(1) – – – (4,640) 147,029 – 3,400 8,817 57,164 (198,714) (198,714) $ 962,388 $ 720,282 $ 248,498 $ – $ 1,931,168 (1) The Company’s proportionate share of Northleaf’s earnings, net of Non-controlling interest, was $7,752 in 2021 (2020 – $792). The Company uses the equity method to account for its investments in Great-West Lifeco Inc. (Lifeco), China Asset Management Co., Ltd. (ChinaAMC) and Northleaf Capital Group Ltd. (Northleaf) as it exercises significant influence. The equity method was used up to June 29, 2020 to account for the Company’s 24.8% equity interest in Personal Capital Corporation (Personal Capital), as it exercised significant influence. On January 5, 2022, the Company entered into an agreement with Power Corporation of Canada to acquire an additional interest in ChinaAMC and to sell a portion of its investment in Lifeco (Note 31). GREAT-WEST LIFECO INC. (LIFECO) Lifeco is a publicly listed company that is incorporated and domiciled in Canada and is controlled by Power Corporation of Canada. 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, 2021, the Company held 37,337,133 (2020 – 37,337,133) shares of Lifeco, which represented an equity interest of 4.0% (2020 – 4.0%). Significant influence arises from several factors, including but not limited to the following: common control of Lifeco by Power Corporation of Canada, directors common to the boards of the Company and Lifeco, certain shared strategic alliances and significant intercompany transactions 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 December 2020, Lifeco recorded a gain in relation to the revaluation of a deferred tax asset less certain restructuring and transaction costs. The Company’s after-tax proportionate share of these adjustments was $3.4 million. The fair value of the Company’s investment in Lifeco totalled $1,415.5 million at December 31, 2021 (2020 – $1,133.2 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, 2021 (2020 – 9,200,000). Lifeco’s financial information as at December 31, 2021 can be obtained in its publicly available information. 110 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 9 INVESTMENT IN ASSOCIATES (continued) CHINA ASSET MANAGEMENT CO., LTD. (ChinaAMC) ChinaAMC is an asset management company established in Beijing, China and is controlled by CITIC Securities Company Limited. As at December 31, 2021, the Company held a 13.9% ownership interest in ChinaAMC (2020 – 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 ChinaAMC: 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 3,241 996 1,560 449 444 2021 CHINESE YUAN 16,295 5,007 8,015 2,312 2,287 CANADIAN DOLLARS 2,672 720 1,078 311 300 2020 CHINESE YUAN 13,695 3,688 5,539 1,598 1,542 NORTHLEAF CAPITAL GROUP LTD. (NORTHLEAF) On October 28, 2020, the Company’s subsidiary, Mackenzie, together with Lifeco, acquired a non-controlling interest in Northleaf Capital Group Ltd. (Northleaf), a global private equity, private credit and infrastructure fund manager headquartered in Toronto, Canada. The transaction was executed through an acquisition vehicle 80% owned by Mackenzie and 20% owned by Lifeco for cash consideration of $241.0 million and up to an additional $245.0 million in consideration at the end of five years from the acquisition date subject to the business achieving exceptional growth in certain performance measures over the period. Any additional consideration will be recognized as expense over the five year period based on the fair value of the expected payment, which is revalued at each reporting period date. The acquisition vehicle acquired a 49.9% non-controlling voting interest and a 70% economic interest in Northleaf. Mackenzie and Lifeco have an obligation and right to purchase the remaining economic and voting interest in Northleaf commencing in approximately five years from the acquisition date and extending into future periods. The equity method is used to account for the acquisition vehicle’s 70% economic interest as it exercises significant influence. Significant influence arises from board representation, participation in the policy making process and shared strategic initiatives. The Company controls the acquisition vehicle and therefore recognizes the full 70% economic interest in Northleaf and recognizes Non-controlling interest (NCI) related to Lifeco’s net interest in Northleaf of 14%. The following table sets forth certain summary financial information from Northleaf: AS AT DECEMBER 31 (millions) Total assets Total liabilities FOR THE PERIOD ENDED DECEMBER 31(1) Revenue Net earnings available to common shareholders Total comprehensive income (1) 2020 results include only fourth quarter; however, the Company’s proportionate share of Northleaf’s earnings was effective October 28, 2020. 2021 $ 119.6 106.0 $ 99.8 17.9 17.9 2020 $ 115.9 98.5 $ 21.7 3.1 3.1 | 111 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 9 INVESTMENT IN ASSOCIATES (continued) PERSONAL CAPITAL CORPORATION (PERSONAL CAPITAL) In 2020, the Company sold its equity interest in Personal Capital to a subsidiary of Lifeco, Empower Retirement, for proceeds of $232.8 million (USD $176.2 million) and up to an additional USD $24.6 million in consideration subject to Personal Capital achieving certain target growth objectives. As a result of the sale, the Company has derecognized its investment in Personal Capital and recorded an accounting gain of $37.2 million ($31.4 million net of tax) in Net investment income and other. During the fourth quarter of 2021, the Company recorded additional consideration receivable of $10.6 million ($7.7 million after-tax) in Net investment income and other. NOTE 10 CAPITAL ASSETS 2021 Cost Less: accumulated amortization Changes in capital assets: Balance, beginning of year Additions Disposals Amortization Balance, end of year 2020 Cost Less: accumulated amortization Changes in capital assets: Balance, beginning of year Additions Disposals Amortization Balance, end of year NOTE 11 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 112 | FURNITURE AND EQUIPMENT BUILDING AND COMPONENTS RIGHT-OF-USE ASSETS TOTAL $ 336,025 $ 69,349 $ 260,530 $ 665,904 (254,602) (18,244) (77,094) (349,940) $ $ $ $ 81,423 99,036 9,296 (9,166) (17,743) 51,105 $ 183,436 $ 315,964 51,411 $ 179,243 $ 329,690 1,339 – (1,645) 32,658 – (28,465) 43,293 (9,166) (47,853) $ 81,423 $ 51,105 $ 183,436 $ 315,964 $ $ $ $ 357,351 $ $ (258,315) 99,036 84,299 37,799 (3,653) (19,409) 68,009 $ 227,872 $ 653,232 (16,598) (48,629) (323,542) 51,411 $ 179,243 $ 329,690 51,801 $ 80,856 $ 216,956 1,192 – (1,582) 123,529 – (25,142) 162,520 (3,653) (46,133) $ 99,036 $ 51,411 $ 179,243 $ 329,690 2021 2020 $ 461,149 $ 310,127 (135,725) (79,042) $ 325,424 $ 231,085 $ 231,085 $ 149,866 151,022 (56,683) 94,339 117,652 (36,433) 81,219 $ 325,424 $ 231,085 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 12 GOODWILL AND INTANGIBLE ASSETS FINITE LIFE DISTRIBUTION AND OTHER MANAGEMENT CONTRACTS INVESTMENT FUND MANAGEMENT CONTRACTS SOFTWARE INDEFINITE LIFE TRADE NAMES TOTAL INTANGIBLE ASSETS GOODWILL 2021 Cost $ 325,123 $ 270,327 $ 740,559 $ 285,177 $ 1,621,186 $ 2,802,066 Less: accumulated amortization (164,787) (99,695) – – (264,482) – $ 160,336 $ 170,632 $ 740,559 $ 285,177 $ 1,356,704 $ 2,802,066 Changes in goodwill and intangible assets: Balance, beginning of year $ 155,923 $ 139,931 $ 740,559 $ 285,177 $ 1,321,590 $ 2,803,075 Additions(1) Disposals Amortization 38,865 (19) (34,433) 44,072 (867) (12,504) – – – – – – 82,937 (886) (46,937) (1,009) – – Balance, end of year $ 160,336 $ 170,632 $ 740,559 $ 285,177 $ 1,356,704 $ 2,802,066 2020 Cost $ 293,412 $ 228,167 $ 740,559 $ 285,177 $ 1,547,315 $ 2,803,075 Less: accumulated amortization (137,489) (88,236) – – (225,725) – $ 155,923 $ 139,931 $ 740,559 $ 285,177 $ 1,321,590 $ 2,803,075 Changes in goodwill and intangible assets: Balance, beginning of year $ 138,499 $ Additions(1) Disposals Amortization 43,606 (1,421) (24,761) 65,892 81,950 (490) (7,421) $ 740,559 $ 285,177 $ 1,230,127 $ 2,660,267 – – – – – – 125,556 (1,911) (32,182) 142,808 – – Balance, end of year $ 155,923 $ 139,931 $ 740,559 $ 285,177 $ 1,321,590 $ 2,803,075 (1) The Company completed its acquisition of GLC on December 31, 2020 and Greenchip on December 22, 2020 and finalized the purchase price allocations in 2021 (Note 30). 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: Wealth Management Asset Management Total 2021 INDEFINITE LIFE INTANGIBLE ASSETS GOODWILL 2020 INDEFINITE LIFE INTANGIBLE ASSETS GOODWILL $ 1,491,687 $ 23,055 $ 1,491,687 $ 23,055 1,310,379 1,002,681 1,311,388 1,002,681 $ 2,802,066 $ 1,025,736 $ 2,803,075 $ 1,025,736 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. In assessing the recoverable amounts, valuation approaches are used that may 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 in discounted cash flows include future changes in assets under management resulting from net sales and investment returns, pricing and profit margin changes and discount rates, which represent level 3 fair value inputs. 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. | 113 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 12 GOODWILL AND INTANGIBLE ASSETS (continued) 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 13 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 $2,220.3 million (2020 – $1,104.9 million) related to deposits and certificates. Deposits Certificates NOTE 14 OTHER LIABILITIES Dividends payable Interest payable Accrued benefit liabilities (Note 15) Provisions Other DEMAND 1 YEAR OR LESS TERM TO MATURITY 1–5 YEARS OVER 5 YEARS 2021 TOTAL 2020 TOTAL $ 2,218,611 $ – $ – $ – $ 2,218,611 $ 1,103,127 – 387 538 738 1,663 1,762 $ 2,218,611 $ 387 $ 538 $ 738 $ 2,220,274 $ 1,104,889 2021 2020 $ 134,816 $ 134,048 26,775 125,732 26,674 68,469 27,500 250,079 77,495 47,019 $ 382,466 $ 536,141 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 2021 consisted of additional estimates of $7.3 million (2020 – $77.8 million), provision reversals of $4.0 million (2020 – $2.2 million) and payments of $54.1 million (2020 – $18.6 million). Total other liabilities of $244.9 million as at December 31, 2021 (2020 – $276.0 million) are expected to be settled within one year. NOTE 15 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. 114 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 15 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) 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, 2020, was completed in June 2021. 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 $61.3 million compared to $47.2 million in the previous actuarial valuation, which was based on a measurement date of December 31, 2017. The increase in the solvency deficit resulted primarily as a result of lower interest rates and is required to be funded over five years. The registered pension plan had a going concern surplus of $79.2 million compared to $46.1 million in the previous valuation. The next required actuarial valuation will be based on a measurement date of December 31, 2021. During the year, the Company has made contributions of $13.6 million (2020 – $25.5 million). The Company expects annual contributions of approximately $14.1 million in 2022. 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. Effective December 20, 2021, the Government of Manitoba implemented funding changes for defined benefit pension plans. The changes include funding the solvency deficit only if it falls below 85% (previously was required to fund the entire solvency deficit). In determining the funding for going concern deficits, a margin known as the provision for adverse deviation will be added to the going concern deficit. The minimum provision is 5% of the going concern liabilities and can increase up to 22% based on the pension’s target asset allocation. The funding period for going concern deficits will decrease from 15 years to 10 years. The changes in the funding requirements will be considered as part of the valuation of the pension plan that will be based on a measurement date of December 31, 2021. The changes also allow an employer to establish a solvency reserve account which is a separate account within the pension fund to which the employer can remit solvency deficiency payments. The administrator can refund all or a portion of the assets in this separate account to the employer provided the plan remains fully funded on a going concern basis and maintains a solvency ratio of at least 105%. Benefit improvements under the plan are not allowed if the solvency ratio is less than 85%. 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. | 115 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 15 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) Plan assets, benefit obligations and funded status: DEFINED BENEFIT PENSION PLAN SERPS 2021 OTHER POST– EMPLOYMENT BENEFITS DEFINED BENEFIT PENSION PLAN SERPS 2020 OTHER POST– EMPLOYMENT BENEFITS Fair value of plan assets Balance, beginning of year $ 516,945 $ Employee contributions Employer contributions Benefits paid Interest income Additions Remeasurements: Return on plan assets Balance, end of year Accrued benefit obligation Balance, beginning of year Benefits paid Current service cost Past service costs Employee contributions Interest expense Additions Remeasurements: Actuarial losses (gains) Demographic assumption Experience adjustments Financial assumptions Balance, end of year 1,964 13,598 (27,748) 13,774 – 48,194 566,727 650,064 (27,748) 25,707 – 1,964 17,177 – – (3,348) (75,465) 588,351 $ – – – – – – – – 74,825 (3,853) 2,107 – – 1,668 – – 1,861 (5,051) 71,557 – – – – – – – – 42,135 (2,671) 679 – – 960 – – (6,402) (2,150) 32,551 $ 466,547 $ 1,979 25,468 (27,792) 14,935 11,200 24,608 516,945 565,606 (27,792) 20,728 – 1,979 17,688 14,700 – (33) 57,188 650,064 $ – – – – – – – – 69,236 (3,267) 1,639 (1,588) – 2,072 – – 1,345 5,388 – – – – – – – – 39,147 (1,942) 587 – – 1,156 – 830 (535) 2,892 74,825 42,135 Accrued benefit liability $ 21,624 $ 71,557 $ 32,551 $ 133,119 $ 74,825 $ 42,135 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 PENSION PLAN 3.30% 3.75% N/A SERPS 2.65%-3.10% 3.75% N/A 2021 OTHER POST– EMPLOYMENT BENEFITS 3.00% N/A 5.50% DEFINED BENEFIT PENSION PLAN 2.70% 3.75% N/A SERPS 1.85%-2.50% 3.75% N/A 2020 OTHER POST– EMPLOYMENT BENEFITS 2.35% N/A 5.60% 23.1 years 23.1 years 23.1 years 23.0 years 23.0 years 23.0 years (1) Trending to 4.00% in 2040 and remaining at that rate thereafter. The weighted average duration of the pension plan’s defined benefit obligation at the end of the reporting period is 20.7 years (2020 – 19.3 years). 116 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 15 EMPLOYEE BENEFITS (continued) DEFINED BENEFIT PLANS (continued) Benefit expense: DEFINED BENEFIT PENSION PLAN 2021 OTHER POST– EMPLOYMENT BENEFITS SERPS DEFINED BENEFIT PENSION PLAN 2020 OTHER POST– EMPLOYMENT BENEFITS SERPS $ 25,707 $ 2,107 $ – 3,403 – 1,668 679 – 960 $ 20,728 $ 1,639 $ – 2,753 (1,588) 2,072 $ 29,110 $ 3,775 $ 1,639 $ 23,481 $ 2,123 $ 587 – 1,156 1,743 Current service cost Past service costs Net interest cost 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 INCREASE (DECREASE) IN LIABILITY 2021 INCREASE (DECREASE) IN EXPENSE INCREASE (DECREASE) IN LIABILITY 2020 INCREASE (DECREASE) IN EXPENSE $ (28,634) 30,242 $ (2,391) 2,389 $ (29,334) 31,391 $ (2,081) 2,110 7,805 (7,674) 11,214 (1,683) 1,755 30 (26) 1,415 (763) 797 659 (574) 807 838 (822) 721 82 (87) 12 (13) 48 42 (44) 20 (17) 30 11,121 (10,981) 1,075 (1,057) 14,339 849 (1,922) 2,001 41 (42) 1,645 (1,056) 1,106 1,476 (1,273) 1,270 87 (93) 21 (15) 45 52 (55) 35 (30) 42 | 117 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 15 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 2021 61.5 % 30.2 7.3 1.0 2020 60.8 % 29.6 8.6 1.0 100.0 % 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 Advisory and business development and Operations and support expenses was $6.9 million (2020 – $6.2 million). GROUP RETIREMENT SAVINGS PLAN (RSP) The Company maintains a group RSP for eligible employees. The Company’s contributions are recorded in Advisory and business development and Operations and support expenses as paid and totalled $8.6 million (2020 – $7.6 million). NOTE 16 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 9) Proportionate share of associate’s adjustments (Note 9) Tax loss consolidation (Note 27) Disposition of assets and other acquisition costs Other items Effective income tax rate 118 | 2021 2020 $ 230,651 $ 170,441 (676) 229,975 56,788 (2,003) 168,438 32,332 $ 286,763 $ 200,770 2021 26.63 % 2020 26.68 % (3.65) – – – (0.36) (3.71) (0.09) (1.15) (0.82) (0.11) 22.62 % 20.80 % 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 16 INCOME TAXES (continued) DEFERRED INCOME TAXES Composition and changes in net deferred taxes are as follows: ACCRUED BENEFIT LIABILITIES LOSS CARRYFORWARDS CAPITALIZED SALES COMMISSIONS INTANGIBLE ASSETS OTHER INVESTMENTS OTHER TOTAL FOR THE YEAR ENDED DECEMBER 31, 2021 Balance, beginning of year $ 67,467 $ 27,604 $ (61,579) $ (288,229) $ (45,961) $ (2,757) $ (303,455) Recognized in statements of: Earnings Comprehensive income Equity Foreign exchange rate charges and other 3,885 (37,466) – (21,145) – – (25,037) – – (1,605) – – (1,371) (97,653) 3,438 (11,515) (4,284) – (56,788) (139,403) 3,438 – – – (1) (1,204) 1,206 1 Balance, end of year $ 33,886 $ 6,459 $ (86,616) $ (289,835) $ (142,751) $ (17,350) $ (496,207) FOR THE YEAR ENDED DECEMBER 31, 2020 Balance, beginning of year $ 55,994 $ 33,700 $ (40,006) $ (268,734) $ (8,104) $ (1,382) $ (228,532) Recognized in statements of: Earnings Comprehensive income Business acquisitions Foreign exchange rate charges and other (933) 11,461 945 (6,096) – – (21,573) – – (4,485) – (15,010) 708 (38,565) – 47 (1,900) 488 (32,332) (29,004) (13,577) – – – – – (10) (10) Balance, end of year $ 67,467 $ 27,604 $ (61,579) $ (288,229) $ (45,961) $ (2,757) $ (303,455) Deferred income tax assets and liabilities are presented on the Consolidated Balance Sheets as follows: Deferred income tax assets Deferred income tax liabilities NOTE 17 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 2021 2020 $ 29,269 $ 84,624 (525,476) (388,079) $ (496,207) $ (303,455) RATE 3.44 % 6.65 % 7.45 % 7.00 % 7.11 % 6.00 % 4.56 % 4.115 % 4.174 % 4.206 % 2021 400,000 125,000 150,000 175,000 150,000 200,000 200,000 250,000 200,000 250,000 2020 400,000 125,000 150,000 175,000 150,000 200,000 200,000 250,000 200,000 250,000 $ 2,100,000 $ 2,100,000 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 $106.6 million (2020 – $106.7 million). | 119 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 18 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 Common shares: Balance, beginning of year Issued under Stock Option Plan (Note 20) Balance, end of year NOTE 19 CAPITAL MANAGEMENT SHARES 2021 STATED VALUE SHARES 2020 STATED VALUE 238,308,284 1,370,759 $ 1,598,381 60,299 238,294,090 14,194 $ 1,597,860 521 239,679,043 $ 1,658,680 238,308,284 $ 1,598,381 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. 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, 2021, unchanged from December 31, 2020. 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. Other activities in 2021 included the declaration of common share dividends of $537.8 million or $2.25 per share. Changes in common share capital are reflected in the Consolidated Statements of Changes in Shareholders’ Equity. NOTE 20 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, 2021, 19,030,398 (2020 – 20,401,157) common shares were reserved for issuance under the Plan. During 2021, the Company granted 1,648,345 options to employees (2020 – 2,104,365). The weighted-average fair value of options granted during the year ended December 31, 2021 has been estimated at $2.73 per option (2020 – $1.43) using the Black-Scholes option pricing model. The weighted-average closing share price at the grant dates was $35.19 (2020 – $35.05). Other assumptions used in these valuation models include: 120 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 20 SHARE-BASED PAYMENTS (continued) STOCK OPTION PLAN (continued) Exercise price Risk-free interest rate Expected option life Expected volatility Expected dividend yield 2021 $ 35.29 1.29 % 7 years 23.00 % 6.41 % 2020 $ 36.82 1.11 % 7 years 18.62 % 6.45 % 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 2021 and the average share price in 2021 was $43.18 (2020 – $32.65). The Company recorded compensation expense related to its stock option program of $3.8 million (2020 – $3.0 million). Balance, beginning of year Granted Exercised Forfeited Balance, end of year Exercisable, end of year OPTIONS OUTSTANDING AT DECEMBER 31, 2021 NUMBER OF OPTIONS 11,930,224 1,648,345 (1,370,759) (495,646) 11,712,164 6,179,244 2021 WEIGHTED AVERAGE EXERCISE PRICE 40.37 $ 35.29 40.78 46.08 $ $ 39.36 41.83 NUMBER OF OPTIONS 10,529,360 2,104,365 (14,194) (689,307) 11,930,224 6,326,067 EXPIRY DATE 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 EXERCISE PRICE $ 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 31.85 – 38.65 35.01 – 46.02 OPTIONS OUTSTANDING 364,700 825,885 701,459 861,986 1,523,860 1,091,764 1,249,071 1,391,493 2,066,571 1,635,375 11,712,164 2020 WEIGHTED AVERAGE EXERCISE PRICE 41.22 $ 36.82 35.08 42.64 $ $ 40.37 43.00 OPTIONS EXERCISABLE 364,700 825,885 701,459 764,534 1,139,960 731,808 728,031 522,816 400,051 – 6,179,244 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 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 $31.5 million in 2021 (2020 – $16.8 million) and a liability of $45.8 million at December 31, 2021 (2020 – $31.5 million). | 121 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 20 SHARE-BASED PAYMENTS (continued) 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 Advisory and business development and Operations and support expenses as paid and totalled $4.4 million (2020 – $3.8 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, 2021, the fair value of the DSUs outstanding was $31.8 million (2020 – $21.2 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 Operations and support expense in the period in which the change occurs. NOTE 21 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 2021 Balance, beginning of year Other comprehensive income (loss) Transfer out of FVTOCI Balance, end of year 2020 Balance, beginning of year Other comprehensive income (loss) Balance, end of year Amounts are recorded net of tax. EMPLOYEE BENEFITS OTHER INVESTMENTS INVESTMENT IN ASSOCIATES AND OTHER TOTAL $ (196,949) $ 101,283 293,448 $ 834,519 39,865 $ 19,732 136,364 955,534 – (208,815) – (208,815) $ (95,666) $ 919,152 $ 59,597 $ 883,083 $ $ (165,947) $ 46,363 $ (8,118) $ (127,702) (31,002) 247,085 47,983 264,066 (196,949) $ 293,448 $ 39,865 $ 136,364 In 2021, the Company recorded after-tax gains in Other Comprehensive Income of $834.5 million due to fair value changes in the Company’s investments, primarily related to a $776.3 million fair value adjustment in the first quarter related to Wealthsimple. 122 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 22 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 an 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 management by the Financial Risk Management Committee, a committee of finance and other business leaders. A key funding requirement 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. 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, 2021 ($ millions) Derivative financial instruments Deposits and certificates Obligations to securitization entities Leases(1) Long-term debt Pension funding(2) Total contractual maturities DEMAND LESS THAN 1 YEAR 1 – 5 YEARS AFTER 5 YEARS TOTAL $ $ – 2,218.6 – – – $ $ 6.7 0.4 1,157.8 31.8 – 14.1 11.1 0.5 3,893.3 98.3 – – – 0.8 6.8 125.2 2,100.0 – $ 17.8 2,220.3 5,057.9 255.3 2,100.0 14.1 $ 2,218.6 $ 1,210.8 $ 4,003.2 $ 2,232.8 $ 9,665.4 (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, 2021. Pension funding requirements beyond 2022 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. 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, 2021, unchanged from December 31, 2020. The lines of credit at December 31, 2021 consisted of committed lines of $650 million and uncommitted lines of $175 million, unchanged from December 31, 2020. Any advances made by a bank under the uncommitted lines of credit are at the bank’s sole discretion. As at December 31, 2021 and December 31, 2020, 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, 2020. | 123 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 22 RISK MANAGEMENT (continued) CREDIT RISK RELATED TO FINANCIAL INSTRUMENTS This is the risk of 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, 2021, cash and cash equivalents of $1,292.4 million (2020 – $771.6 million) consisted of cash balances of $326.2 million (2020 – $76.6 million) on deposit with Canadian chartered banks and cash equivalents of $966.2 million (2020 – $695.0 million). Cash equivalents are comprised of Government of Canada treasury bills totalling $358.7 million (2020 – $96.0 million), provincial government treasury bills and promissory notes of $350.6 million (2020 – $148.8 million), bankers’ acceptances of $198.3 million (2020 – $450.2 million) and other corporate commercial paper of $58.6 million (2020 – nil). Client funds on deposit of $2,238.6 million (2020 – $1,063.4 million) represent cash balances held in client accounts deposited at Canadian financial institutions. 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, 2021, residential mortgages, recorded on the Company’s balance sheet, of $5.4 billion (2020 – $6.3 billion) consisted of $5.0 billion sold to securitization programs (2020 – $6.0 billion), $315.8 million held pending sale or securitization (2020 – $334.5 million) and $13.7 million related to the Company’s intermediary operations (2020 – $14.1 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 $2.6 billion (2020 – $3.2 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 $2.4 billion (2020 – $2.8 billion) is limited to amounts held in cash reserve accounts and future net interest income, the fair values of which were $67.6 million (2020 – $73.0 million) and $34.1 million (2020 – $45.6 million), respectively, at December 31, 2021. 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. At December 31, 2021, residential mortgages recorded on balance sheet were 53.1% insured (2020 – 55.3%). As at December 31, 2021, impaired mortgages on these portfolios were $2.8 million, compared to $4.8 million at December 31, 2020. Uninsured non- performing mortgages over 90 days on these portfolios were $1.5 million at December 31, 2021, compared to $2.3 million at December 31, 2020. The Company also retains certain elements of credit risk on mortgage loans sold to the IG Mackenzie Mortgage and Short-Term Income Fund and to the IG Mackenzie 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. 124 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 22 RISK MANAGEMENT (continued) CREDIT RISK RELATED TO FINANCIAL INSTRUMENTS (continued) The Company’s allowance for expected credit losses was $0.6 million at December 31, 2021, compared to $0.8 million at December 31, 2020, and is considered adequate by management to absorb all credit-related losses in the mortgage portfolios based on: i) historical credit performance experience, ii) recent trends including the economic impact of COVID-19 and Canada’s COVID-19 Economic Response Plan to support Canadians and businesses, iii) current portfolio credit metrics and other relevant characteristics, iv) our strong financial planning relationship with our clients, and v) 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, 2020. 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 $39.5 million (2020 – $35.8 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, 2021 (2020 – $3.8 million). 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, 2021. Management of credit risk related to derivatives has not changed materially since December 31, 2020. MARKET RISK RELATED TO FINANCIAL INSTRUMENTS This is the risk of loss arising from changes in the values of the Company’s financial instruments due to changes in interest rates, equity prices or foreign exchange rates. 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 fair value of $1.0 million (2020 – negative $21.1 million) and an outstanding notional amount of $0.3 billion at December 31, 2021 (2020 – $0.7 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 totalled $3.5 million (2020 – $19.9 million), on an outstanding notional amount of $1.3 billion at December 31, 2021 (2020 – $1.3 billion). The net fair value of these swaps of $4.5 million at December 31, 2021 (2020 – negative $1.2 million) is recorded on the balance sheet and has an outstanding notional amount of $1.6 billion (2020 – $2.0 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. 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 Wealth Management revenue over the term of the related Obligations to securitization entities. The fair value of these swaps was $0.6 million (2020 – negative $0.3 million) on an outstanding notional amount of $128.6 million at December 31, 2021 (December 31, 2020 – $191.3 million). | 125 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 22 RISK MANAGEMENT (continued) MARKET RISK RELATED TO FINANCIAL INSTRUMENTS (continued) As at December 31, 2021, the impact to annual net earnings of a 100 basis point increase in interest rates would have been a decrease of approximately $3.0 million (2020 – decrease of $1.3 million). The Company’s exposure to and management of interest rate risk have not changed materially since December 31, 2020. Equity Price Risk The Company is exposed to equity price risk on its equity investments (Note 5) which are classified as either fair value through other comprehensive income or fair value through profit or loss or investments in associates. The fair value of the equity investments was $1.4 billion at December 31, 2021 (2020 – $632.3 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 investment in ChinaAMC. Changes to the carrying value due to changes in foreign exchange rates is recognized in Other comprehensive income. As at December 31, 2021, a 5% appreciation (depreciation) in Canadian currency relative to foreign currencies would decrease (increase) the aggregate carrying value of foreign investments by approximately $36.3 million ($40.2 million). The Company’s proportionate share of ChinaAMC’s earnings, recorded in Proportionate share of associates’ earnings in the Consolidated Statements of Earnings, is also affected by changes in foreign exchange rates. For the year ended December 31, 2021, the impact to net earnings of 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 $2.9 million ($3.2 million). RISKS RELATED TO ASSETS UNDER MANAGEMENT AND ADVISEMENT 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 and advisement. These changes in assets under management and advisement directly impact earnings. NOTE 23 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. 126 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 23 DERIVATIVE FINANCIAL INSTRUMENTS (continued) The following table summarizes the Company’s derivative financial instruments: 1 YEAR OR LESS 1–5 YEARS OVER 5 YEARS TOTAL CREDIT RISK ASSET LIABILITY NOTIONAL AMOUNT FAIR VALUE 2021 Swaps Hedge accounting No hedge accounting $ – 769,567 $ 42,227 972,623 $ – 771 $ 42,227 1,742,961 $ – 20,401 $ – 20,401 $ 90 17,683 Forward contracts Hedge accounting 2020 Swaps 16,167 38,341 – 54,508 20,771 20,771 – $ 785,734 $ 1,053,191 $ 771 $ 1,839,696 $ 41,172 $ 41,172 $ 17,773 Hedge accounting No hedge accounting $ – 992,444 $ 20,831 1,058,001 $ 135,731 15,081 $ 156,562 2,065,526 $ – 35,770 $ – 35,770 $ 214 32,854 Forward contracts Hedge accounting 14,890 36,650 – 51,540 1,564 1,564 1,446 $ 1,007,334 $ 1,115,482 $ 150,812 $ 2,273,628 $ 37,334 $ 37,334 $ 34,514 The credit risk related to the Company’s derivative financial instruments after giving effect to any netting agreements was $5.8 million (2020 – $3.8 million). 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 (2020 – $3.8 million). Rights to future net interest income are related to the Company’s securitization activities and are not reflected on the Consolidated Balance Sheets. NOTE 24 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. 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. | 127 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) 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. Valuation methods used for Other investments classified as Level 3 include comparison to market transactions with arm’s length third parties, use of market multiples, and discounted cash flow analysis. 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 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. Level 3 Other investments of $1,291.4 million, are predominantly comprised of early-stage financial technology companies, including Wealthsimple with a fair value of $1,153 million. Fair value is determined by using observable transactions in the investments’ securities, where available, forecasted cash flows, and other valuation metrics, including revenue multiples, used in the valuation of comparable public companies. A 5% increase (decrease) to each of these variables, individually, would result in an increase (decrease) in fair value of the Company’s investment in Wealthsimple of approximately $60 million. 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. 128 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 24 FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) CARRYING VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL FAIR VALUE 2021 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 Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt 2020 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 Financial liabilities recorded at amortized cost Deposits and certificates Obligations to securitization entities Long-term debt $ 1,291,434 106,589 $ – 104,658 $ $ – 1,931 1,291,434 – $ 1,291,434 106,589 57,436 41,172 5,296,406 17,773 2,220,274 5,057,917 2,100,000 – – – – – – – 57,436 34,074 – 7,098 57,436 41,172 270,156 5,083,991 5,354,147 11,635 6,138 17,773 2,220,530 – 2,544,380 – 5,146,420 – 2,220,530 5,146,420 2,544,380 $ 593,273 39,027 $ – 38,748 $ $ – – 593,273 279 $ 593,273 39,027 3,291 37,334 6,328,564 34,514 1,104,889 6,173,886 2,100,000 – – – – – – – 3,291 35,389 – 1,945 3,291 37,334 346,428 6,186,410 6,532,838 11,466 23,048 34,514 1,105,384 – 2,653,814 – 6,345,189 – 1,105,384 6,345,189 2,653,814 There were no significant transfers between Level 1 and Level 2 in 2021 and 2020. The following table provides a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis. BALANCE JANUARY 1 GAINS/(LOSSES) INCLUDED IN NET EARNINGS(1) GAINS/(LOSSES) INCLUDED IN OTHER COMPREHENSIVE INCOME PURCHASES AND ISSUANCES SETTLEMENTS TRANSFERS IN/OUT BALANCE DECEMBER 31 2021 Other investments – FVTOCI – FVTPL Derivative financial instruments, net 2020 Other investments – FVTOCI – FVTPL Derivative financial instruments, net $ 593,273 $ 279 $ – (181) 964,761 – $ 15,868 – $ 282,468(2) 98 $ (21,103) 12,852 – 1,974 (7,237) $ 301,196 $ 563 $ – (194) 285,650 – $ 6,427 – $ $ – 90 (906) (27,143) – 1,727 (5,219) (1) Included in Wealth management revenue or Net investment income and other in the Consolidated Statements of Earnings. (2) Related to disposition of a portion of IGM Financial Inc.’s investment in Wealthsimple (Note 5). – – – – – – $ 1,291,434 – 960 $ 593,273 279 (21,103) | 129 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 25 EARNINGS PER COMMON SHARE Earnings Net earnings Non-controlling interest 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 2021 2020 $ 980,887 $ 764,606 (1,938) (198) $ 978,949 $ 764,408 238,841 1,178 240,019 238,307 – 238,307 $ $ 4.10 4.08 $ $ 3.21 3.21 (1) Excludes 272 thousand shares in 2021 related to outstanding stock options that were anti-dilutive (2020 – 2,934 thousand). NOTE 26 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 27 RELATED PARTY TRANSACTIONS TRANSACTIONS AND BALANCES WITH RELATED ENTITIES The Company enters into transactions with The Canada Life Assurance Company (Canada Life), which is a subsidiary of its affiliate, Lifeco, which is a subsidiary of Power Corporation of Canada. These transactions are in the normal course of operations and have been recorded at fair value: • During 2021 and 2020, the Company provided to and received from Canada Life certain administrative services. The Company distributes insurance products under a distribution agreement with Canada Life and received $52.7 million in distribution fees (2020 – $45.1 million). The Company received $63.3 million (2020 – $18.4 million) and paid $22.6 million (2020 – $29.6 million) to Canada Life and related subsidiary companies for the provision of sub-advisory services for certain investment funds. The Company paid $15.5 million (2020 – $78.3 million) to Canada Life related to the distribution of certain investment funds of the Company. • During 2021, the Company sold residential mortgage loans to Canada Life for $11.9 million (2020 – $20.9 million). 130 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 27 RELATED PARTY TRANSACTIONS (continued) TRANSACTIONS AND BALANCES WITH RELATED ENTITIES (continued) 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. On December 31, 2020, the Company acquired shares of such loss companies and recorded the benefit of the tax losses acquired. The benefits from these tax loss consolidation arrangements ended at December 31, 2020. In 2020, additional transactions with related parties included the sale of Personal Capital (Note 9), the investment in Northleaf (Note 9), the acquisition of GLC Asset Management Group Ltd. and the sale of Quadrus Group of Funds (Note 30). On January 5, 2022, the Company entered into an agreement to acquire an additional interest in ChinaAMC from Power Corporation of Canada (Note 31). 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 2021 $ 3,981 3,793 1,066 $ 8,840 2020 $ 3,848 13,522 1,431 $ 18,801 Share-based payments exclude the fair value remeasurement of the deferred share units associated with changes in the Company’s share price (Note 20). NOTE 28 COVID-19 Governments worldwide have enacted emergency measures to combat the spread of a novel strain of coronavirus (COVID-19). These measures, which include the implementation of travel bans, closing of non-essential businesses, self-imposed quarantine periods and social distancing, have caused significant volatility in global equity markets and material disruption to global businesses. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The Company has implemented its business continuity plan as a result of these events, which has included moving substantially all employees and consultants to work from home and further supporting the Company’s information technology infrastructure. The distribution of vaccines has resulted in the easing of restrictions in many economies and has contributed to strong gains in certain economic sectors during 2021. However, there is uncertainty regarding the effectiveness of vaccines against new variants of the virus, and this contributes towards uncertainty of the timing of a full economic recovery. As a result, it is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. | 131 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual ReportNOTE 29 SEGMENTED INFORMATION The Company’s reportable segments are: • Wealth Management • Asset Management • Strategic Investments and Other These segments reflect the Company’s internal financial reporting and performance measurement. Wealth Management – reflects the activities of operating companies that are principally focused on providing financial planning and related services to Canadian households. This segment includes the activities of IG Wealth Management and Investment Planning Counsel. These firms are retail distribution organizations who serve Canadian households through their securities dealers, mutual fund dealers and other subsidiaries licensed to distribute financial products and services. A majority of the revenues of this segment are derived from providing financial advice and distributing financial products and services to Canadian households. This segment also includes the investment management activities of these organizations, including mutual fund management and discretionary portfolio management services. Asset Management – reflects the activities of operating companies primarily focused on providing investment management services, and represents the operations of Mackenzie Investments. Investment management services are provided to a suite of investment funds that are distributed through third party dealers and financial advisors, and also through institutional advisory mandates to financial institutions, pensions and other institutional investors. Strategic Investments and Other – primarily represents the key strategic investments made by the Company, including China Asset Management Co., Ltd., Great-West Lifeco Inc., Northleaf Capital Group Ltd., Wealthsimple Financial Corp., and Portag3 Ventures LPs. Unallocated capital is also included within this segment. Effective January 1, 2021, the Company expanded its reportable segment disclosures to report to Net earnings, whereas previously it was reported to Earnings before interest and taxes. The Company restated comparative figures in its segment results to conform to the current period’s presentation. These changes further build on the disclosure enhancements announced by the Company in the third quarter of 2020, which were introduced to improve transparency into key drivers of each business line and help stakeholders understand and assess components of value. 132 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial StatementsNOTE 29 SEGMENTED INFORMATION (continued) 2021 Revenues WEALTH MANAGEMENT ASSET MANAGEMENT STRATEGIC INVESTMENTS TOTAL AND OTHER INTERSEGMENT SEGMENT ADJUSTMENTS(1) TOTAL Wealth management $ 2,572,891 $ – $ – $ (19,291) $ 2,553,600 $ – $ 2,553,600 Asset management Dealer compensation Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development Operations and support Sub-advisory Interest expense(2) Earnings before income taxes Income taxes Non-controlling interest Gain on sale of Personal Capital, net of tax Net earnings available to common shareholders – – – 1,126,007 (355,242) 770,765 – – – (114,551) 1,011,456 19,272 (335,970) (95,279) 675,486 – – – 1,011,456 (335,970) 675,486 3,619 5,850 2,722 (249) 11,942 10,600 22,542 – – 196,367 – 196,367 – 196,367 2,576,510 776,615 199,089 (114,819) 3,437,395 10,600 3,447,995 1,089,282 466,170 189,678 1,745,130 831,380 90,284 741,096 197,959 543,137 – 88,746 335,544 6,892 431,182 345,433 23,652 321,781 81,026 240,755 – – 4,916 – 4,916 194,173 – 194,173 4,916 189,257 (1,938) $ 543,137 $ 240,755 $ 187,319 $ (19) (250) (114,550) 1,178,009 806,380 82,020 (114,819) 2,066,409 – – – – – – – 1,370,986 113,936 1,257,050 283,901 973,149 (1,938) 971,211 – – – – 1,178,009 806,380 82,020 2,066,409 10,600 1,381,586 – 113,936 10,600 1,267,650 2,862 7,738 – 7,738 286,763 980,887 (1,938) 978,949 7,738 (7,738) – $ 978,949 $ – $ 978,949 Identifiable assets $ 9,237,235 $ 1,514,124 $ 4,107,163 $ – $ 14,858,522 $ – $ 14,858,522 Goodwill Total assets 1,491,687 1,310,379 – – 2,802,066 – 2,802,066 $ 10,728,922 $ 2,824,503 $ 4,107,163 $ – $ 17,660,588 $ – $ 17,660,588 (1) Gain on sale of Personal Capital is not related to a specific segment and therefore excluded from segment results. This item has been added back to Net investment income and other and Income taxes to reconcile Total Segment results to the Company’s Consolidated Statements of Earnings. (2) Interest expense includes interest on long-term debt and interest on leases. | 133 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report NOTE 29 SEGMENTED INFORMATION (continued) 2020 Revenues WEALTH MANAGEMENT ASSET MANAGEMENT STRATEGIC INVESTMENTS AND OTHER INTERSEGMENT TOTAL SEGMENT ADJUSTMENTS(1) TOTAL Wealth management $ 2,275,955 $ – $ – – – 913,579 (299,530) 614,049 – – – – $ (16,379) $ 2,259,576 $ (100,648) 16,367 812,931 (283,163) (84,281) 529,768 – – – – $ 2,259,576 812,931 (283,163) 529,768 2,299 2,900 5,960 (182) 10,977 67,232 78,209 – – 2,278,254 616,949 959,946 453,738 163,197 1,576,881 701,373 89,925 611,448 162,604 448,844 – 80,212 293,755 8,664 382,631 234,318 20,672 213,646 55,663 157,983 – 147,029 152,989 – 4,063 – 4,063 148,926 – 148,926 (7,333) 156,259 (198) $ 448,844 $ 157,983 $ 156,061 $ – 147,029 3,400 150,429 (100,842) 2,947,350 70,632 3,017,982 (12) 1,040,146 – 1,040,146 (182) (100,648) 751,374 71,213 79,276 – 830,650 71,213 (100,842) 1,862,733 79,276 1,942,009 – – – – – – – 1,084,617 (8,644) 1,075,973 110,597 974,020 210,934 763,086 (198) 762,888 – (8,644) (10,164) 1,520 – 110,597 965,376 200,770 764,606 (198) 1,520 764,408 Asset management Dealer compensation Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development Operations and support Sub-advisory Interest expense(2) Earnings before income taxes Income taxes Non-controlling interest Gain on sale of Personal Capital, net of tax Gain on sale of QGOF net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other charges, net of tax Net earnings available to common shareholders 31,387 (31,387) 21,374 (21,374) 3,400 (3,400) (54,641) 54,641 – – – – $ 764,408 $ 13,259,279 2,803,075 $ $ $ 16,062,354 $ – – – – – – – $ 764,408 $ 13,259,279 2,803,075 $ 16,062,354 Identifiable assets $ 8,984,472 $ 1,509,729 $ 2,765,078 $ Goodwill Total assets 1,491,687 1,311,388 – $ 10,476,159 $ 2,821,117 $ 2,765,078 $ (1) Gain on sale of Personal Capital, Gain on sale of Quadrus Group of Funds (QGOF) net of acquisition costs, Proportionate share of associate’s adjustments, and Restructuring and other changes 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. (2) Interest expense includes interest on long-term debt and interest on leases. 134 | 2021 IGM Financial Inc. Annual Report | Notes to Consolidated Financial Statements NOTE 30 ACQUISITIONS GLC Asset Management Group Ltd. (GLC) On December 31, 2020, the Company’s subsidiary, Mackenzie, acquired all of the common shares of GLC, a wholly-owned subsidiary of Great-West Lifeco Inc. (Lifeco), for cash consideration of $185.0 million. Net cash outflow related to the transaction was $175.8 million, including acquisition costs of $3.8 million and $13.0 million in cash acquired. In a separate transaction, Lifeco’s subsidiary, Canada Life Assurance Company (Canada Life) acquired the fund management contracts relating to private label Quadrus Group of Funds (QGOF) from Mackenzie for cash consideration of $30.0 million. Mackenzie was previously the manager and trustee of the QGOF. Subsequent to the sale, Mackenzie continues to provide investment and administration services to the QGOF. The fair value of the identifiable assets of GLC at the date of acquisition were: Purchase price allocation Cash and cash equivalents Other current assets Deferred tax asset Intangible assets Goodwill(1) Accounts payable and accrued liabilities Deferred tax liability (1) nil deductible for tax purposes $ 13,003 2,528 945 56,763 134,799 (8,482) (14,522) $ 185,034 Goodwill is attributable to synergies including expansion of Mackenzie’s distribution reach into the fast-growing group retirement business. Identified intangible assets are comprised of finite life management contracts valued at $56.8 million. As GLC was acquired on December 31, 2020, it did not impact the Company’s revenues and expenses in 2020. GREENCHIP FINANCIAL CORP. (GREENCHIP) On December 22, 2020, Mackenzie acquired 100% of Greenchip, a Canadian firm focused exclusively on the environmental economy since 2007. During 2021, the Company finalized the purchase price allocation which resulted in an increase to the fair value of identifiable assets of $1.0 million and an offsetting decrease to goodwill of $1.0 million. NOTE 31 SUBSEQUENT EVENT On January 5, 2022, the Company entered into an agreement to acquire an additional 13.9% interest in ChinaAMC for cash consideration of $1.15 billion from Power Corporation of Canada (Power), which will increase the Company’s equity interest in ChinaAMC from 13.9% to 27.8%. To partially fund the transaction, the Company will sell 15,200,662 common shares of Lifeco to Power for cash consideration of $575 million, which will reduce the Company’s equity interest in Lifeco from 4.0% to 2.4%. These transactions are expected to close in the first half of 2022, subject to customary closing conditions, including Chinese regulatory approvals. The sale of Lifeco shares is conditional on the Company’s purchase of the ChinaAMC shares. | 135 Notes to Consolidated Financial Statements | 2021 IGM Financial Inc. Annual Report Quarterly Review CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 ($ millions, except per share amounts) Q4 Q3 Q2 2021 Q1 Q4 Q3 Q2 2020 Q1 Revenues Wealth management Asset management Dealer compensation expense Net asset management Net investment income and other Proportionate share of associates’ earnings Expenses Advisory and business development Operations and support Sub-advisory Interest Earnings before income taxes Income taxes Net earnings Non-controlling interest Net earnings available to common shareholders Reconciliation of Non-IFRS financial measures(1) ($ millions) Adjusted net earnings available to common shareholders – non-IFRS measure Other items: $ 667.5 $ 655.0 $ 627.6 $ 603.5 $ 594.2 $ 571.6 $ 531.1 $ 562.7 266.8 (86.7) 180.1 14.4 50.7 263.4 (85.9) 177.5 2.5 55.9 248.3 (82.7) 165.6 2.5 48.2 233.0 (80.7) 152.3 3.1 41.6 216.3 (74.3) 142.0 33.2 43.5 207.4 (71.3) 136.1 39.4 43.5 190.7 (66.1) 124.6 7.6 43.3 912.7 890.9 843.9 800.5 812.9 790.6 706.6 308.9 205.5 21.1 28.6 564.1 348.6 79.4 269.2 (0.7) 294.0 197.6 20.7 28.7 541.0 349.9 78.4 271.5 (0.7) 291.1 196.8 20.4 28.5 536.8 307.1 69.3 237.8 (0.4) 284.0 206.5 19.8 28.1 538.4 262.1 59.7 202.4 (0.2) 283.1 193.8 18.3 27.9 523.1 289.8 60.5 229.3 (0.2) 252.6 256.4 18.5 27.9 555.4 235.2 44.3 190.9 – 245.4 185.4 16.9 27.5 475.2 231.4 47.9 183.5 – 198.5 (71.4) 127.1 (2.0) 20.1 707.9 259.1 195.1 17.5 27.3 499.0 208.9 48.0 160.9 – $ 268.5 $ 270.8 $ 237.4 $ 202.2 $ 229.1 $ 190.9 $ 183.5 $ 160.9 $ 260.8 $ 270.8 $ 237.4 $ 202.2 $ 204.3 $ 214.2 $ 183.5 $ 160.9 Gain on sale of Personal Capital, net of tax 7.7 Gain on sale of Quadrus Group of Funds net of acquisition costs, net of tax Proportionate share of associate’s adjustments Restructuring and other, net of tax Net earnings available to common shareholders – IFRS Diluted Earnings per Share ($) Adjusted net earnings available to common shareholders(1) Net earnings available to common shareholders – – – – – – – – – – – – – 31.4 21.4 3.4 – – – (54.7) – – – – – – – – – – – $ 268.5 $ 270.8 $ 237.4 $ 202.2 $ 229.1 $ 190.9 $ 183.5 $ 160.9 1.08 1.11 1.13 1.13 0.99 0.99 0.85 0.85 0.86 0.96 0.90 0.80 0.77 0.77 0.68 0.68 Dividends per Share ($) 0.5625 0.5625 0.5625 0.5625 0.5625 0.5625 0.5625 0.5625 (1) Refer to page 18 of the MD&A for an explanation of the Company’s use of non-IFRS financial measures. 136 | 2021 IGM Financial Inc. Annual Report | Quarterly Review Quarterly Review STATISTICAL INFORMATION FOR THE YEARS ENDED DECEMBER 31 ($ millions, except per share amounts) Q4 Q3 Q2 Mutual fund gross sales Wealth management(1) 2021 Q1 Q4 Q3 Q2 2020 Q1 IG Wealth Management $ 2,959 $ 2,741 $ 2,794 $ 3,351 $ 2,572 $ 1,949 $ 1,780 $ 2,686 IPC Asset management Mackenzie Investments IGM Consolidated Dealer gross inflows IG Wealth Management IPC IGM Wealth management(1) Net flows – by segment IG Wealth Management net flows IPC net flows Wealth management net flows(1) Asset Management net sales(2) Eliminations(3) IGM Consolidated Net flows – by product Mutual fund gross sales Mutual fund redemptions Mutual fund net sales ETFs(4) Investment funds Institutional SMA Consolidated AUM Other AUA IGM Consolidated Redemption rate – long-term funds (%) IG Wealth Management IPC Mackenzie Investments Assets under management and advisement – by segment IG Wealth AUA IPC AUA 174 3,133 2,592 5,725 3,437 1,509 4,946 985 123 1,109 181 (56) 1,234 5,725 4,885 840 245 1,085 (576) 509 725 1,234 9.2 22.3 13.6 188 2,929 2,476 5,405 3,141 1,137 4,278 1,014 258 1,275 1,092 (119) 2,248 5,405 4,020 1,385 320 1,705 (27) 1,678 570 2,248 9.6 23.0 15.0 182 2,976 2,923 5,899 3,220 1,121 4,341 670 116 787 2,286 (156) 2,917 5,899 4,573 1,326 562 1,888 617 2,505 412 2,917 10.0 23.4 15.4 230 3,581 4,031 7,612 3,636 1,599 5,235 1,015 (9) 1,007 1,575 (280) 2,302 7,612 5,730 1,882 405 2,287 (320) 1,967 335 2,302 9.7 22.3 15.8 177 2,749 4,501 7,250 2,938 1,487 4,425 485 249 737 1,673 (189) 2,221 7,250 5,972 1,278 372 1,650 (75) 1,575 646 2,221 9.8 20.1 16.6 97 2,046 2,903 4,949 2,132 892 3,024 (9) (146) (155) 627 (64) 408 4,949 4,436 513 97 610 (319) 291 117 408 9.8 19.0 16.2 110 1,890 2,505 4,395 1,901 1,063 2,964 (62) 154 93 3,599 (43) 3,649 4,395 4,212 183 681 864 2,542 3,406 243 3,649 10.0 19.3 16.5 193 2,879 3,656 6,535 3,006 1,318 4,324 381 116 498 351 (28) 821 6,535 6,311 224 82 306 (86) 220 601 821 10.7 20.7 17.0 119,557 113,958 112,185 106,995 103,273 33,077 31,515 31,171 29,891 29,318 97,538 27,484 93,836 26,637 85,834 24,372 Wealth Management AUA(1) 152,623 145,462 143,345 136,876 132,583 125,015 120,467 110,199 Asset Management AUM (ex sub-advisory to Wealth Management)(5) 129,115 124,098 122,913 115,524 110,938 Sub-advisory to Wealth Management 81,228 79,242 78,788 76,041 74,210 74,600 71,388 70,821 68,927 60,898 64,068 Asset Management AUM Asset Management through Wealth Management Consolidated assets under management & advisement Assets under management and advisement – by product Mutual fund AUM(5) ETF AUM(4) Investment Fund AUM Institutional SMA Sub-Advisory to Canada Life(5) Total Institutional SMA Consolidated AUM Other AUA Consolidated assets under management & advisement Consolidated AUM, excluding Asset Management segment AUM 210,343 203,340 201,701 191,565 185,148 145,988 139,748 124,966 (85,825) (83,588) (83,040) (79,967) (77,781) (74,583) (71,955) (66,809) 277,141 265,214 262,006 248,474 239,950 196,420 188,260 168,356 179,139 171,775 169,468 161,363 155,715 161,612 154,706 140,887 5,393 5,068 4,889 4,174 3,788 3,330 3,132 2,335 184,532 176,843 174,357 165,537 159,503 164,942 157,838 143,222 7,948 52,805 60,753 8,178 51,131 59,309 8,167 51,092 59,259 7,272 48,768 56,040 7,293 47,175 54,468 7,671 7,557 4,275 245,285 236,152 233,616 221,577 213,971 172,613 165,395 147,497 31,856 29,062 28,390 26,897 25,979 23,807 22,865 20,859 277,141 265,214 262,006 248,474 239,950 196,420 188,260 168,356 34,942 32,812 31,915 30,012 28,823 26,625 25,647 22,531 Corporate assets $ 17,661 $ 16,995 $ 16,897 $ 16,866 $ 16,062 $ 15,863 $ 15,449 $ 15,553 (1) Assets under management recorded within both operating companies’ results are eliminated on consolidation. (2) Asset Management flows activity excludes sub-advisory to Canada Life and the Wealth Management segment. (3) Mackenzie investment funds distributed through Wealth Management. (4) Excludes IGM investment fund investments in ETFs. (5) The fourth quarter of 2020 reflects the impact of net business acquisitions of $30.3 billion, which included the acquisitions of GLC Asset Management Group Ltd. (GLC) and Greenchip Financial Corporation (Greenchip), and the divestiture of the fund management contracts relating to private label Quadrus Group of Funds (QGOF). As a result, mutual fund AUM decreased by $13.2 billion and institutional SMA increased by $43.5 billion. | 137 Quarterly Review | 2021 IGM Financial Inc. Annual Report Ten Year Review CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31 ($ millions, except per share amounts) Revenues(2) Wealth and Asset Management revenues Net investment income and other Proportionate share of associate’s earnings 2021 2020 2019 2018 2017 CAGR(1) 5 YEAR % 2016 2015 2014 2013 2012 RESTATED 3,229.1 2,789.4 2,814.3 2,792.1 2,749.1 4.1 2,642.9 2,607.2 2,520.1 2,307.4 2,231.6 22.5 78.2 24.8 20.0 13.8 13.8 11.8 11.0 16.5 21.6 18.6 196.4 150.4 105.2 150.0 95.6 13.5 104.2 111.0 96.5 93.8 72.0 3,448.0 3,018.0 2,944.3 2,962.1 2,858.5 4.6 2,758.9 2,729.2 2,633.1 2,422.8 2,322.2 Expenses(2) 2,180.3 2,052.7 1,975.7 1,976.0 2,073.9 3.8 1,812.0 1,738.4 1,668.2 1,441.4 1,364.1 Earnings before undernoted 1,267.7 286.8 965.3 200.7 968.6 219.7 986.1 210.0 784.6 173.9 6.0 11.3 946.9 167.6 990.8 210.3 964.9 202.8 981.4 210.7 958.1 190.5 CAGR(1) 10 YEAR % 3.2 7.7 9.5 3.5 4.9 1.5 1.4 Income taxes Net earnings 980.9 764.6 748.9 776.1 610.7 4.7 779.3 780.5 762.1 770.7 767.6 0.8 Non-controlling interest (2.0) (0.2) – – – – – – – – Perpetual preferred share dividends Net earnings available to common shareholders Adjusted net earnings available to common shareholders(3) Diluted earnings per share ($) Net earnings Adjusted net earnings(3) Dividends per share ($) Return on average common equity (ROE) (%) – – (2.2) (8.8) (8.8) (8.8) (8.8) (8.8) (8.8) (8.8) 978.9 764.4 746.7 767.3 601.9 4.9 770.5 771.7 753.3 761.9 758.8 0.8 971.2 762.9 763.9 791.8 727.8 5.7 736.5 796.0 826.1 763.5 746.4 1.5 4.05 4.08 2.25 3.21 3.20 2.25 3.12 3.19 2.25 3.18 3.29 2.25 2.50 3.02 2.25 4.9 6.0 – 3.19 3.05 2.25 3.11 3.21 2.25 2.98 3.27 2.18 3.02 3.02 2.15 2.97 2.92 2.15 1.5 2.4 0.7 Net earnings Adjusted net earnings(3) 16.5 16.4 16.1 16.1 16.9 17.2 17.7 18.2 12.9 15.6 17.1 16.3 16.9 17.4 16.2 17.8 17.3 17.3 17.6 17.3 Average shares outstanding (thousands) – Basic – Diluted 238,841 238,307 239,105 240,815 240,585 241,300 248,173 252,108 252,013 254,853 240,019 238,307 239,181 240,940 240,921 241,402 248,299 252,778 252,474 255,277 Share price (closing $) 45.62 34.51 37.28 31.03 44.15 3.6 38.20 35.34 46.31 56.09 41.60 0.3 (1) Compound annual growth rate. (2) Revenues and expense have been restated to retroactively reflect the disclosure enhancements introduced in 2020, as disclosed in Note 2 to the 2020 Consolidated Financial Statements. (3) Non-IFRS Financial Measures – Excludes other items as follows: 2021 – Additional consideration receivable of $7.7 million after-tax related to the sale in 2020 of the Company’s equity interest in Personal Capital Corporation. 2020 – After-tax gain of $31.4 million on sale of Personal Capital Corporation, after-tax gain on sale of Quadrus Group of Funds net of acquisition costs of $21.4 million, the Company’s proportionate share in Great-West Lifeco Inc.’s (Lifeco) after-tax adjustments of $3.4 million, and restructuring and other charges of $54.7 million after-tax. 2019 – After-tax charge of $17.2 million representing the Company’s proportionate share in Lifeco’s 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 $6.4 million resulting from increases in Ontario corporate income tax rates and their effect on the deferred income tax liability related to indefinite life intangible assets arising from prior business acquisitions. 138 | 2021 IGM Financial Inc. Annual Report | Ten Year Review Ten Year Review STATISTICAL INFORMATION FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2021 2020 2019 2018 2017 CAGR(1) 5 YEAR % 2016 2015 2014 2013 2012 CAGR(1) 10 YEAR % Wealth Management IG Wealth Management(2) Assets under management Mutual fund gross sales Mutual fund redemption rate – long-term funds (%) Net sales (redemptions) Ending assets Assets under advisement(3) 11,845 8,987 8,723 9,075 9,693 8.8 7,760 7,890 7,461 6,668 5,778 7.0 9.2 1,813 110,541 9.8 (451) 97,713 10.3 (1,089) 93,161 9.2 485 83,137 8.4 1,944 88,008 8.8 366 81,242 8.7 754 74,897 8.7 651 73,459 9.4 159 68,255 10.0 (724) 60,595 37.7 6.4 N/M 6.7 Net flows Ending assets 3,684 119,557 795 103,273 (780) 97,100 739 86,422 Investment Planning Counsel(2) Assets under management Mutual fund gross sales Mutual fund redemption rate – long-term funds (%) Net sales (redemptions) Assets under management Assets under advisement(3) 774 577 694 960 889 (4.1) 955 741 682 485 401 3.6 22.3 (288) 5,629 20.1 (307) 5,320 19.3 (272) 5,391 19.2 (18) 5,125 16.7 79 5,377 15.7 293 4,908 13.6 177 4,452 12.6 207 3,850 13.2 52 3,406 14.3 (24) 2,950 N/M 2.8 N/M 7.2 Net flows Ending assets 488 33,077 373 29,318 (589) 27,728 (148) 25,706 Asset Management (Mackenzie Investments) Mutual fund gross sales 12,022 13,565 9,886 9,951 9,124 11.6 6,939 6,965 7,070 6,700 5,490 7.9 Mutual fund redemption rate – long-term funds (%) Investment fund net sales (redemptions) Assets under management Mutual fund ETF ETFs excluding those held by IGM investment funds Investment fund(4) Total assets under management excluding subadvisory to Wealth Management(3) Total assets under management(3) Consolidated assets under management(5) Investment fund assets under management Assets under management Assets under management and advisement 13.6 16.6 15.6 17.1 14.8 15.0 16.2 14.6 16.0 17.9 5,440 4,188 1,219 973 1,780 N/M (555) (1,258) (209) (487) (1,974) N/M 62,969 12,674 52,682 8,451 60,839 4,748 53,407 2,949 55,615 1,296 4.2 51,314 113 48,445 48,782 46,024 40,394 4.9 5,393 68,362 3,788 56,470 2,372 63,211 1,613 55,020 928 56,543 113 51,427 4.2 48,445 48,782 46,024 40,394 4.9 129,115 110,938 68,257 60,804 210,343 185,148 140,984 129,863 184,532 245,285 159,503 213,971 161,763 166,809 143,282 149,066 149,818 156,513 6.0 11.4 137,575 142,688 127,791 134,398 126,039 141,919 117,649 131,777 103,915 120,694 6.4 7.5 277,141 239,950 190,035 170,216 Corporate assets 17,661 16,062 15,391 15,609 16,499 2.5 15,625 14,831 14,417 12,880 11,962 4.7 (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) As a result of revised segment reporting introduced in 2020, as discussed in the MD&A included in this Annual Report, these metrics were not reported on this basis prior to 2018. (4) Excludes IGM investment fund investments in ETFs. (5) Adjusted for inter-segment assets. | 139 Ten Year Review | 2021 IGM Financial Inc. Annual Report Board of Directors and Executive Leadership BOARD OF DIRECTORS Marc A. Bibeau (1,3) PRESIDENT AND CHIEF EXECUTIVE OFFICER BEAUWARD REAL ESTATE INC. Marcel R. Coutu (3) CORPORATE DIRECTOR André Desmarais, O.C., O.Q. (2,3) DEPUTY CHAIRMAN POWER CORPORATION OF CANADA Paul Desmarais, Jr., O.C., O.Q. (2) CHAIRMAN POWER CORPORATION OF CANADA Gary Doer (2) SENIOR BUSINESS ADVISOR DENTONS CANADA LLP Susan Doniz (1,5) CHIEF INFORMATION OFFICER THE BOEING COMPANY R. Jeffrey Orr (2,3,5) CHAIR OF THE BOARD IGM FINANCIAL INC. Claude Généreux (3,5) EXECUTIVE VICE-PRESIDENT POWER CORPORATION OF CANADA Sharon L. Hodgson (1,4,5) DEAN IVEY BUSINESS SCHOOL Sharon MacLeod (1,3) CORPORATE DIRECTOR Susan J. McArthur (2,3,5) CO-FOUNDER AND EXECUTIVE CHAIR LOCKDOCS INC. John McCallum (1,2,4) CORPORATE DIRECTOR PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER CORPORATION OF CANADA James O’Sullivan PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL INC. Gregory D. Tretiak, FCPA, FCA (5) EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER POWER CORPORATION OF CANADA Beth Wilson (4,5) CORPORATE DIRECTOR (1) AUDIT COMMITTEE Chair: John McCallum (2) GOVERNANCE AND NOMINATING COMMITTEE Chair: R. Jeffrey Orr (3) HUMAN RESOURCES COMMITTEE Chair: Claude Généreux (4) RELATED PARTY AND CONDUCT REVIEW COMMITTEE Chair: John McCallum (5) RISK COMMITTEE Chair: Gregory D. Tretiak EXECUTIVE LEADERSHIP James O’Sullivan PRESIDENT AND CHIEF EXECUTIVE OFFICER IGM FINANCIAL Barry McInerney PRESIDENT AND CHIEF EXECUTIVE OFFICER MACKENZIE INVESTMENTS Damon Murchison PRESIDENT AND CHIEF EXECUTIVE OFFICER IG WEALTH MANAGEMENT Blaine Shewchuk PRESIDENT AND CHIEF EXECUTIVE OFFICER INVESTMENT PLANNING COUNSEL Luke Gould EXECUTIVE VICE-PRESIDENT, CHIEF FINANCIAL OFFICER IGM FINANCIAL Cynthia Currie EXECUTIVE VICE-PRESIDENT, CHIEF HUMAN RESOURCES OFFICER IGM FINANCIAL Michael Dibden CHIEF OPERATING OFFICER IGM FINANCIAL Rhonda Goldberg EXECUTIVE VICE-PRESIDENT, GENERAL COUNSEL IGM FINANCIAL Douglas Milne EXECUTIVE VICE-PRESIDENT, CHIEF MARKETING AND STRATEGY OFFICER IGM FINANCIAL R. Jeffrey Orr CHAIR OF THE BOARD IGM FINANCIAL INC. 140 | 2021 IGM Financial Inc. Annual Report | Board of Directors and Executive Leadership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: 1 800 564 6253 service@computershare.com 800, 324 – 8th Avenue S.W. Calgary, Alberta T2P 2Z2 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 8259 or visit our website at igmfinancial.com ANNUAL MEETING The Annual Meeting of IGM Financial Inc. will be held at The Metropolitan Entertainment Centre, 281 Donald Street, Winnipeg, Manitoba and online at https://web.lumiagm.com/272979158 on Friday, May 6, 2022 at 11:00 a.m., Eastern Time. WEBSITES Visit our websites at igmfinancial.com ig.ca mackenzieinvestments.com 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. 2021 Annual Report” © Copyright IGM Financial Inc. 2022 A MEMBER OF THE POWER CORPORATION GROUP OF COMPANIES | 141 Shareholder Information | 2021 IGM Financial Inc. Annual Report 

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