CI Financial, Corp. (NYSE:CIXX) Q2 2022 Earnings Conference Call August 11, 2022 9:00 AM ET
Company Participants
Kurt MacAlpine – CEO
Amit Muni – CFO
Conference Call Participants
Kyle Voigt – KBW
Tom MacKinnon – BMO Capital Markets
Nik Priebe – CIBC Capital Markets
Geoff Kwan – RBC Capital Markets
Graham Ryding – TD Securities
James Shanahan – Edward Jones
Nik Priebe – CIBC Capital Markets
Operator
Hello, all. And welcome to the CI Financial Second Quarter 2022 Earnings Call. My name is Lydia, and I’ll be your operator today. [Operator Instructions]. It’s my pleasure to now hand over to Kurt MacAlpine, CEO of CI Financial. Please go ahead when you’re ready.
Kurt MacAlpine
Good morning, everyone, and welcome to CI Financials Second Quarter Earnings Call. Joining me this morning is our CFO, Amit Muni. Together we will cover the following, an overview of the highlights of the quarter a review of our financial performance during the quarter. An update on our sales to-date for the third quarter, an update on the execution of select items of our corporate strategy. Then we will take your questions.
The impact of our corporate strategy is evident in our second quarter results amidst an extremely challenging market environment. Our adjusted EPS of $0.78 despite the market pull back was up 5% from a year ago, illustrating the benefits of our diversification efforts and capital management approach. To put these results in perspective, our peer group averaged a 20% decline in earnings per share on a year-over-year basis. EBITDA per share and free cash flow per share both increased more than 10% from a year ago. And our direct result of the capital we’ve allocated to transforming the business. The percentage of our EBITDA coming from our wealth businesses has doubled since the same quarter last year.
Our capital deployment in the quarter was focused on completing previously announced M&A obligations as well as buybacks to take advantage of the market dislocation in our shares. A sizeable redemption from a single institutional client exaggerated net add first for the quarter. Importantly, the institutional outflows were primarily form a single low fee mandate and had no impact on our earnings. On the Canadian retail side, flows held up well given the operating environment in broader industry flow challenges. Excluding these institutional channel, Canada retail net flows improved by more than $500 million sequentially. Our Wealth businesses continue to generate consistently positive inflows despite market volatility. Both our Canadian and U.S. Wealth businesses had positive organic growth in Q1 and Q2 and combined have generated net inflows of more than $4 billion to the first half of the year.
Periods of volatility like this year-to-date illustrate the strength of the advisor client relationship and the importance of sound financial planning. We also continue to execute against our three strategic priorities to modernize asset management, expand wealth management and globalize the company. During the quarter, we closed on the previously announced acquisitions of Northwood Family Office, Canada’s leading multifamily office and U.S. RIAs, Corient, and Galapagos. We continue to make strategic progress on the modernization of our asset management business and I will discuss later on the call how these changes are leading to better outcomes for our clients. Within our U.S. Wealth platform, we are taking advantage of the scale we know have to expand the services we provide to clients and to improve our operational efficiency. During the quarter, we applied for a charter to establish the South Dakota Trust Company.
This enables us to provide a variety of services that better meet the complex financial needs of high and ultra-high networked clients. Finally in May, we were the recipient of IT World Canada’s Digital Transformation Award. This award validates the team’s hard work and vision to modernize the business. Highlights of our efforts include embedding artificial intelligence and machine learning into our sales process, digitizing and automating several internal functions and adopting a cloud strategy. The result is a more efficient company better positioned to serve our clients. There is more work to be done on the digitization and automation front but I’m excited about the progress to-date.
I’ll now turn the call over to Amit to review our financial results.
Amit Muni
Thank you, Kurt. And good morning, everyone. Turning to Slide 04. Our global assets end of the quarter had $334 million primarily driven by the negative market sentiment which was partially offset by inflows in our Canadian and U.S. Wealth businesses as well as assets from three wealth acquisitions which closed during the quarter. Despite the negative backdrop, we have seen a 12% increase in AUM from last year due to a combination of organic and inorganic growth partly offset by the market. Turning to our financial results on the next slide. I’ll focus my comments on our adjusted results. Adjusted net income was a $149.2 million in the quarter down an 11%. However, adjusted EPS was down only 8% to $0.78 per share. Despite revenues being down 4%, expenses increased only less than 1%.1111 I’ll now highlight revenues from our three segments on our consolidated results.
Turning to the next slide. Asset management revenues declined due to negative markets and net outflows primarily in a low fee generating institutional product. Our Canada Wealth segment declined primarily due to lower asset levels which was partly offset by net inflows and our acquisition of Northwood. Our U.S. Wealth segment revenues increased primarily due to acquisitions and positive net flows which were partly offset by negative market declines. Other income increased primarily due to higher interest income from client account balances due to an increase in interest rates. Turning to expenses on the next slide. On a fully comparable basis, total expenses declined 1.3% to $378 million primarily due to lower advisor and dealer fees which are mainly driven by asset levels in our Canadian Wealth segment. Despite inflationary pressures, SG&A increased less than 1%. Expenses from newly acquired businesses were $8 million in the quarter resulting in adjusted total expenses about $385 million.
On Slide 08, we can review our margins. Consolidated adjusted EBITDA margin was 44.5% down only 2% from the first quarter. The segment results reflect the benefits of our strategy to expand our wealth businesses. Despite the challenging market that affected all segments the decline in our asset management margins were probably offset by an increase in margins from our Canadian and U.S. Wealth segments. These margin increases are a result of the integration initiatives starting to flow through our business. We are still in the early innings of capturing synergies and operating leverage in the business that will flow through as markets improve. Now to provide you with some additional information given the difference in how our revenue was generated by our U.S. Wealth business that our Canadian analysts and investors may not be as familiar with. About half of our U.S. Wealth revenue is based on client asset levels at the beginning of the quarter.
Therefore, part of the revenue we generated in the second quarter was based on asset levels as of March 31. Asset levels are down at June 30 due to market declines. Therefore we project our U.S. Wealth revenues to be in the $150 million to a $160 million range which is down from a $169 million in the second quarter. However, due to our ongoing integration efforts, we don’t anticipate a decline in margins. Turning to Slide 09. We generated free cash flows of a $170 million for the quarter. We deployed $60 million of buybacks and $35 million for dividends. Turning to the next Slide, we can review our debt and leverage. At the end of the quarter, we had approximately $3.7 billion of debt outstanding on a gross basis or $3.5 billion on a net basis. The $158 million increase in our debt levels was due to two factors. First, an $85 million increase in the use of our credit facility due to the closing of three acquisitions during the quarter and to fund our buybacks.
Second, a $73 million or 46% of the increase was due to an FX translation of our U.S. denominated debt. Our net leverage was 3.5x based on our annualized second quarter adjusted EBITDA. However, our credit facility definition of leverage is well lower than in the four times covenant level. Of the $85 million we drew on our credit facility, we spent $60 million on buybacks. As you’ve heard us say many times, we believe there is a disconnect in our stock price and the value of the business we have built. Because of this disconnect, this quarter we used our free cash to buy back stock to save on a 4.9% dividend yield versus a 2.9% after-tax cost of our debt. We bought back shares at an approximate 4.4x price to earnings multiple. We believe comparable public companies to our U.S. business trade at higher multiples than that. So, we view these buybacks as an efficient use of capital ahead on an IPO of our U.S. business.
Thank you. And now, let met turn the call back to Kurt.
Kurt MacAlpine
Since joining CI, we prioritized creating a strategy that is designed to continuously assess all aspects of the business in order to position the firm from maximum success. Historically, CI operated with a horizontal management structure that set across the entire firm. We’d implemented changes over the past couple of years to improve the governance structure of each business, enhance operations, expand profitability, and accelerate growth. As discussed previously, we’ve overhauled all aspects of our asset management business to improve investment performance that will serve clients and operate more efficiently. On this call last quarter, we talked about the organizational changes we made to the Canadian Wealth business. Namely, unifying leadership under Sean Etherington and Chris Enright, the Presidents of Assante and Aligned Capital respectively.
Having unified management, enabled us to integrate our advisor recruiting efforts, consolidate technology, discontinue redundant systems, and expand the capacity of our institutional broker dealer CI Investment Services. In the U.S., we installed a complete governance structure with committees comprised of partners and CI Private Wealth that oversee key aspects of the integration and synergy capture including technology, finance, client experience, business development, client solutions, and investments. Across the company, the structural and governance changes combined with our rapid strategic transformation have resulted in promotions and new opportunities for employees. CI believe that we are a better organization when we maximize diversity of background, education, and perspective in our decision making. This viewpoint has resulted in us now having one of the most diverse workforces in Canadian Financial Services.
Today, more than 40% of our employee base are women, with a proportionate representation in management roles and approximately 40% of our workforce identify as minorities. We operate in human capital businesses and we are committed to continuing to create opportunities for our employees and increase our diversity as we execute our strategy. I’ve talked at length on previous calls about the changes we made to our investment management platform. Pivoting from a series of competing boutiques to an integrated global platform and shifting from funds run by individuals to funds run collaboratively by a team. The results of these changes speak for themselves. When we initiated this strategy in Q4 of 2020, only 37% of our funds were outperforming their peers over the previous three years.
Today, we’re at approximately double that amount with 72% of our funds outperforming their peers. This is the best investment performance improvement of any of our peers over this time period. It is important to note that the performance improvement spans a variety of asset classes and products and combined with newer innovative products leaves us well-positioned to compete for virtually all money in motion opportunities. A combination of new integrated team-based approach to our investment platform and the resulting performance improvements, our distribution and marketing strategy powered by predictive analytics and our new approach to product development are starting to drive sustainable improvements to our flows. During the month of July, our Canadian flows remain positive, driven by a $139 million in net flows from our Canadian retail business while the rebounding markets helped our firm-wide assets increase to 4.4% to just under $350 million.
Before opening the call to questions, I want to take a step back and put our recent results in context and highlight where we are today and where CI is headed. It’s been a challenging operating environment given market volatility across nearly every asset class. However, our laser focus on strategic priorities and affective capital management have produced the growth. As to where we are today, in the second quarter we delivered the best year-over-year financial performance of any of our North American traditional asset management peers. Our EPS increased 5% from the same quarter a year ago compared to an average decline of 20% for our peers. These results reflect the restructuring we did in our Canadian Asset Management business, per prioritization of our Canadian Wealth Management business. The expansion ended you as wealth management space and our effective deployment of capital. We are on-track to file an S1 for our U.S. IPO with the SEC during Q4.
Looking forward, I believe the changes we have made, position us to deliver sustained organic growth in asset management, continued rapid and profitable expansion of Canadian Wealth Management and unlocking significant value for our shareholders as our U.S. Wealth business continues to scale, recognizes efficiencies through integration and execute the IPO.
I’d now like to open up the call for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Our first question today comes from Kyle Voigt of KBW. Your line is open, please go ahead.
Kyle Voigt
Hi, good morning. Maybe my first question will be on capital but with leverage moving a bit higher in the quarter at 3.5x and with average market levels still down a bit year-on-year and significant volatilities on the equity markets. Should we really you thinking about this level as being the high end of where you want to run your leverage ratio over the next few quarters. And I guess are you comfortable running here until we get this U.S. Wealth IPO or should we expect some deleveraging even ahead of the IPO?
Kurt MacAlpine
Thanks, Kyle. So, as you mentioned, our leverage ratio increases effectively entirely driven by the declines in the markets, not or increase in spending. So, during the quarter as Amit had mentioned, we increased our debt by $85 million to fund these previously announced transactions and then buyback about $60 million worth of stock at a PE multiple of 4.4. In a neutral market, this would have impacted our leverage ratio effectively zero or less than 0.1 turns. So, when we took a look at this, we are comfortable with the tradeoff looking at the current share price in the upcoming IPO intentions. I’d say looking forward for the remainder of the quarter, we have no additional uses of capital planned for us currently. So, we’re comfortable with the debt that we have and we believed as markets continue to totally stabilize and rebound that our leverage ratio with trend down proportionally given the uptick was driven by markets.
Kyle Voigt
Okay, great. And then, just a second question on the U.S. Wealth IPO. Now I appreciate the additional color regarding the S1 filing in Q4. I think on last quarters call, you mentioned you went through a strategic review of options for that, that U.S. business and noted that the IPO was the best half forward. I just want to confirm that that indeed still the case and I guess are you open to other strategic alternatives still or this kind of should we take this as really narrowing their sites on this IPO track?
Kurt MacAlpine
We are a 100% confident that the separation of the businesses to unlock shareholder value through the IPO is the right path forward for us. We’ve been sticking absolutely to plan in our on track to file. If you look at the U.S. business, what it’s done for our earnings and growth as a Company that’s been transformative for us. It’s incredibly strategically important to us. We’re just beginning to scratch the surface and really in the first inning of capturing our true potential. So, we’re a 100% committed to the pathway that we’re on. We’re on track on schedule and look forward to getting everything filed in the coming weeks
Kyle Voigt
Great. Thank you.
Kurt MacAlpine
Thanks.
Operator
Our next question comes from Tom MacKinnon of BMO Capital Markets. Please go ahead.
Tom MacKinnon
Yes, thanks. Good morning. First question is just about operating free cash flow. It seems to be a down 10% year-over-year. And despite higher AUM and despite a better EBITDA year-over-year and better adjusted EPS year-over-year. So, is there anything unusual in the operating free cash flow this quarter and how should we be looking at that going forward. And then I have a follow-up. Thanks.
Amit Muni
Hey, Tom. No there’s nothing unusual. We remember we had a couple of closing of transactions in the quarter. So, that will affect the timing of any major cash flow movement. So, I think you’re just really just seeing the effect of that in this particular quarter.
Tom MacKinnon
So, if adjusted EPS goes up 5% I don’t know 10% going forward will we expect the operating free cash flow to be going up consistent with that or should attract that comp growth going forward?
Amit Muni
I don’t want to give just consistent guidance but I would say you are directionally correct.
Tom MacKinnon
Okay. And then, question for Kurt. With respect to the decision here to not take the free cash flow and deleverage but to buy back stock. I understand the stocks cheap and it’s the reason why you want to buy back. But as I understand when you move to IPO or the U.S. Wealth Management, I don’t think you’re going to have any debt on that. So, it’s not going to influence the value of the U.S. Wealth Management IPO in that regard with respect to leverage. But you’re just going to be loading up more leverage on the stub here and that might have some implication for its value. So, why not just try to continue to reduce your debt as opposed to buying back stock?
Kurt MacAlpine
Well Tom, when we look at it, we’re looking at a variety of different factors. As I mentioned having an opportunity to acquire the shares that we acquired at a PE multiple of 4.4 was unprecedented and incredibly attractive buying opportunity for us. The capital we’ve deployed in addition to the share buyback was to fund acquisitions that we previously announced that we believe will set our U.S. business up with more scale, faster growth, and in better margin. So, knowing we intend IPO this business in the coming months, we felt the tradeoff was appropriate and we will use the proceeds as indicated before to de-lever the Canadian business. So, our belief is that if we can buy our shares back at 4.4x PE when you look at all comps of Wealth Management businesses, there’s a very significant disconnect between the multiple we trade at and what that multiple ideally will be on the corresponding other end. And that’s how we made the tradeoff.
If you look at the buyback decision and put it in broader context, $60 million would have a very little impact or no impact actually on our leverage ratio on a standalone basis but the impact from an accretion standpoint and what it does for our business is quite profound and that’s the tradeoff that we made.
Tom MacKinnon
I understand. And the decision then to IPO or the U.S. Wealth Management business, is that strictly to search its value or does it have anything to do with trying to raise proceeds to pay down debt. Or is that just a something that would happen as a result of you trying the surface value?
Kurt MacAlpine
This is 100% driven by a desire for our shareholders to realize what we believe to be the true value, it reflected in the share price. This has absolutely nothing to do with the need for capital or anything along those lines. I think we had people ask the question before and I think if anybody looks at our leverage, our interest obligations, our free cash flow in the business it’s you would not come to that conclusion at all. So, 100% driven by our desire to realize value for our shareholders.
Tom MacKinnon
And if I could just squeeze one more in.
Kurt MacAlpine
Sure.
Tom MacKinnon
I think you had mentioned in the past what the net sales are for the U.S. Wealth Management business in the second quarter. I think in the first quarter, they were breakeven and not sure if you can share with us what the net sales were in the second quarter for the U.S. Wealth Management business and how they’re trending so far in July?
Kurt MacAlpine
So in Q1, just to clarify, strongly positive. Q2 was strongly positive. We’re figuring out this sequencing and the timing for when we disclose kind of well flow is going forward. But in the first half of this year, as I mentioned in prepared remarks, we delivered well north of $4 billion of net flows across our wealth businesses.
Tom MacKinnon
Okay. Thanks, for that.
Kurt MacAlpine
Sure.
Operator
Our next question today comes from Nik Priebe of CIBC Capital Markets. Your line is open.
Nik Priebe
Yes. Okay, thanks. The Canadian retail flows have been pretty resilient in the context of the deteriorating trajectory of fund close in Canada. Are there any asset classes or strategies in particular or distributional relationships that are helping sustain that momentum or that the third-party demand for those funds?
Kurt MacAlpine
Great question, Nik. It’s not really one isolated event, I think it’s the combination of everything that we’ve done and worked so hard on strategically, right. If we start with the investment platform, one of the biggest drivers or the primary driver of your ability to drive flows is how are you performing on an absolute basis in relative to your peers, right. As I mentioned a little earlier, the number of funds that we have beating our peers from when we initiated the restructuring to today has doubled. So, as you could imagine that puts us in a much better position to drive sustained organic growth and when we started this in 2020. That combined with the distribution approach which is powered by the analytics and predictive models, the way that those work is you just get smarter-and-smarter on your clients as more inputs come in and more interactions take place.
So, it’s not necessarily call it distribution, new distribution relationships, the way you’re defining it is by third-party platform relationships that didn’t exist. The distribution landscape is the same for us. I think we’re serving clients a lot more effectively, a lot smarter, and a much more targeted way which is evident in our flows. And then the third pieces are our approach to product development. And we’ve really worked hard to make sure that we’re at the forefront of product development and launching relevant product strategies for clients that they won in today’s environment and looking forward. Related to that, we’ve also done a lot of work to clean up our product line up. A couple of years ago or even a year ago, we had several of our funds that still carry the legacy boutique names. A lot of them were designed to compete against one another. And there’s just a lot of complexity in our lineup as our clients looked to engage with us. We’ve cleaned all of that now as well.
So, I think when I look at just the inputs that have led to the improvement in our flows significantly better investment performance with a much more structured and disciplined investment platform, really reaping the benefits of integration. This distribution approach, product development and then sound product management puts us in a pretty good place and in place that we haven’t been in probably a decade.
Nik Priebe
Yes, okay. And those retail flows may have been kind of overlooked or overshadowed exposed by a few sizeable institutional redemptions lately that maybe we’re lower margin in nature. Is there anything else in the pipeline that might be a little bit chunks and could come out over the next quarter or two?
Kurt MacAlpine
We don’t believe so in terms of forward-looking. Look, anything could happen from a redemption standpoint. The institutional business which tends to be the lumpier of the flows with that large mandate that we mentioned kind of leaving is really around $5.5 billion of total assets today. Significantly de-risked from where it was a couple of years ago where we those assets where probably more than double. And they were predominantly held in bank and insurance platforms that competed directly with us in the asset management space. So, even despite the lumpiness in the redemptions we’ve seen in institutional, almost all of it has been repositioned by a bank or an insurance company to an internal mandate as well. So, when I look at where we’re at today and what’s planned in the pipeline? The answer is no we don’t anticipate anything lumpy. But obviously that could change but it’s off a very small asset base when you think of $5 billion in context of our $350 billion of total assets.
Nik Priebe
Yes, okay. And fair enough. Right, that makes it. I’ll re-queue. Thank you.
Kurt MacAlpine
Thanks, Nik.
Operator
[Operator Instructions] Our next question in the queue comes from Geoff Kwan of RBC Capital Markets. Your line is now open.
Geoff Kwan
Hi, good morning. Just wanted to ask just given to your comments on where leverage is and share buybacks and what not. Like how are you kind of thinking about with where you are from the leverage standpoint and the appetite between doing the share buybacks, keeping where the price is at as well as for the M&A and to help for other business?
Kurt MacAlpine
Sure. So, in terms of total leverage, so once again I just want to keep re-anchoring people to the leverage ratio increase was driven by the decline in the markets. It’s not a significant uptick in our spending. As I mentioned, Geoff, we looked at the PE multiple of 4.4 or pending IPO plans and the lease that we have on, where and how that should trade relative to comps and it felt like it was a very prudent decision to do that for our shareholders. Looking forward for the rest of the quarter, we have no transactions that we have planned to close in this quarter. So, no additional uses of capital. And then if you think about the buyback in the broader context, we have constraints in terms of how many shares we can buy back as outlined by our normal course issuer bid.
And if you look at current pricing today, we have about an 11 months or 10.5 months remaining on that buyback period. Current share price would be deploying a couple of $100 million over the next 11 months if we maxed it out completely. So, when I look at where we’re at, no current plan uses of capital. We’re certainly opened to buying our stock back at 4.4x PE given the pending upcoming IPO. But currently no intended uses of capital for the remainder of the quarter.
Geoff Kwan
Alright. So, I guess maybe as it differ, it sounds like the RIA M&A obviously if there’s an opportunity that comes up, you’ll you may pursue it. But it’s maybe lower frequency than what we’ve seen more recently out of CI.
Kurt MacAlpine
With slower frequency because the market environment is completely different. So, when we think about our approach to M&A, we want to transact with the highest quality firms in the industry period. And as we’ve talked about the M&A environment last year a lot of the uptick was driven by individuals looking to get in front of pretending — pending potential tax changes in the U.S. So, we saw a heightened level of activity through 2021 which I’ve described as a lot of stuff you would see. In 2022 and 2023, post forward a year. Now with that being said, we’ve announce three transactions so far this year. From an asset-based perspective, I believe we have acquired or aggregated. Since you have the fastest rate of aggregation again this year but yes we’re being as we always have been very structured, very disciplined, and exclusively forced on the highest-quality firms.
We do maintain a robust pipeline. We’re in active discussions today but just given the nature of M&A and the timing, none of that would be closing this quarter as I mentioned anywhere. It would be subsequent quarters in advance.
Geoff Kwan
Okay, done. And just my second question was the July course you mentioned with respect to the Canadian Retail business. Just wondering if you have any sense at that is similar to where the industry is tracking for the moment or whether or not this was the case of having relative to our performance versus the broader industry.
Kurt MacAlpine
I will comment on the industry in general, Geoff. But I think our performance given the market environment in the momentum that we have is very positive. So, our retail business has delivered really getting back to last year, a very considerable improvement even in Q1 when I mentioned a lot of those flows were driven by key metrics in EPS. So once kind of that shook out and those started to stabilize. If the flows have been absent some lumpiness here and there, pretty predictable. And I think when I look at our performance and how we’re positioned relative to peers. And I feel like the inputs are lining up for us to drive good outcomes on the floor front.
Geoff Kwan
Okay. Thank you.
Operator
Our next question today comes from Graham Ryding of TD Securities. Please go ahead.
Graham Ryding
Hi, good morning. On that theme, are there any sort of mandates and funds in particular that our driving the improvement inflows or the improvement fund to follow? So, you would flag and pull out?
Kurt MacAlpine
I mean, no it’s very balanced. Yes, no it’s on in terms of our performance improvement, it’s really performance improvement across the Board. And our investment team and has really worked very hard to create a Unified Investment Management platform in a way that we never had historically. So, we have a centralized approach to research, asset allocation portfolio construction, intergraded trading and I think we’re just reaping the benefits of lots of incredibly smart investment professionals having an opportunity to take down those legacy kind of walls and dividers we had in place and really worked together. So, it’s flowing through across our suite of products, not just to one or two mandates.
Graham Ryding
Okay. And there was some turnover departures in your Investment Management business you need to backfill there or are there any place to adjust or do you have the its new and the depth achieving right now?
Kurt MacAlpine
Sure. So just to put into context because it seems there is just a little bit of misconception about the departures. We did have three named PMs who are no longer with us, that collectively managed about less than 1% of our assets. That actually happened when was announced to our clients in April. The associated impact of those changes from a flow perspective was actually zero. We have been retooling our investment platform from boutiques to an integrated approach. So, we’ve been hiring all along as well. So, this was not a series of departures and then at a need to backfill. We’ve been retooling the investment platform all along. I feel great as this Marc-Andre our CIO about the construct the quality of the individuals and how we’re weighing in. And so, I just wanted to sorry just clarify that a little bit. There seem to be a little misunderstanding as it relates to the magnitude of portfolio managers the impact of the assets. But yes, this was well in the past and we’re fully staffed in our investment function.
Graham Ryding
Okay, perfect. And then my last question if I could. Just you talked about installing governance committees to and you should — integration and really in U.S. Wealth. I guess, that can you points to in terms of progress to-date and then integrating those firms and then where was the focus over the next year or so?
Kurt MacAlpine
Sure. So, one of the items I talked about a little bit in the past is how we set up our U.S. Wealth business. So, effectively CI Private Wealth or our U.S. entity is a private partnership that operates inside of our public company. Today we have a 180 partners that collectively own 100s or millions of dollars where the value of their partnership. They’re contributing on a local level as they had in the past. But it’s also creates a lot of step-up opportunities for people to weigh in on the national platform. So, we effectively have nine committees that oversee or govern our partnership. And as I mentioned, those things range from operations and technology, leadership and development, financial planning, client experience, business development and things of that nature.
So, if I were to take a segmented approach and say there’s really three different areas where we’re looking to drive more collaboration. The first one is how do we get more clients in the door and we have some very we made some very good progress on our business development efforts creating a much more unified approach. That includes things like cross border referrals from our Canadian business that includes our digital marketing and lead generation efforts, it includes revamped approaches to business developments where folks internal are sourcing best practices and knowledge from other people in the network. Custodian referrals in our network of senior advisor. So, a variety of different inputs that are leading to better a continued business development success which you’re seeing in our flows.
Once clients have started to do business with us, we’ve been expanding the services that we provide to them. So, we had our tax function up and running as of last tax season as I mentioned before. We did over a 1000 tax returns, we have increased demand on the back of a very successful launch. Last year where we anticipate that number will go up. As I mentioned earlier in the prepared remarks, we file for the South Dakota Trust, we’re hoping we have that approved this year. And we have 100s of trusts already queued up to be repapered. Our bill pay functions, accounts CI Service and other things like that are actively up and running. And we’re getting good adoption. And then on the platform itself, we’ve unified functions like marketing and finance, legal, HR, compensation benefits in compliance and are really starting to realize this scale benefits that we have of this integrated platform.
Graham Ryding
Perfect. That’s it from me. Thank you.
Kurt MacAlpine
Sure.
Operator
Our next question comes from James Shanahan from Edward Jones. Your line is open.
James Shanahan
Good morning. Thanks for taking my questions. I just have some questions about the weaknesses over our financial reporting controls and procedures that have been characterized as material and ineffective. I see that the Company has provided some information about remediation initiatives but it isn’t clear exactly what the issues are. Can you please describe them for us and is there a timeline to remedy these issues and what are the implications that the company is unable to address these concerns say by year-end 2022 or year-end 2023. Thanks.
Kurt MacAlpine
Sure. So, just to put so these were our weaknesses I’ve identified at the end of last year. Just to put this in context, I mean this is in light of the fact that cross listed on the New York stock exchange last year. And had to become SOX compliant. Companies typically have material weaknesses during their first year when they first have to become SOX compliant and if you think about a company like CI, that’s been in existence for many years. We — there it’s going to issues that we’re going to have to get it, we’ll be going to be identified. And there was two areas, one was related to some of our legacy systems that didn’t have sort of the controls and documentation that was needed from a SOX perspective and those we are well under way starting to remediate put in the proper documentation and test the controls. We have no concerns over whether there was any errors or the like, I mean, systems are operating as they showed.
It’s just a matter of documenting the controls in accordance with SOX standard. And we have a plan and that plan is progressing. The second was around the accounting for complex transactions given the breath and the speed that we have been modernizing and changing the business. We’ve had as we’ve seen in other markets the need for additional resources to help us navigate that. We brought on consultants, we are bringing on more staff to help us go through it. So, both of those weakness are well in the way of being remediated. And this lastly just to there was as you can see from the order and on the just on the ordered opinion of the year-end financial statements. We got a clean opinion. So, there was no statements or anything like that. So nothing, and none of these weaknesses had an effect on our financial results.
James Shanahan
Thank you.
Operator
[Operator Instructions] We have a follow-up from Nik Priebe of CIBC Capital Markets. Your line is open again.
Nik Priebe
Yes, thanks. Just want to squeeze one last one in. in the context of a volatile market environment, can you just talk about what proportion of SG&A expenses might be either discretionary or correlated with asset levels as such as it can be managed downward in a BM market as a mitigating factor on margins?
Amit Muni
Sure. So, let me walkthrough the three segments. So, obviously we’re overall all three segments will be affected by the markets. On the asset management side, you can see that there was a pullback in our margins. I would say when markets decline as quickly as they did, it does take time for us to pull levers to help manage that expense base. But we do believe that over time is markets stabilize, we can’t manage that cost base and then start to stabilize the margin. As markets rebound, we do expect to see operating leverage in the business. On the Wealth Management — on our wealth business in the U.S. because of the business model, our efforts to integrate we do expect to see expanding margins on that side of the business as well on the Canadian side particularly as we’re changing the business mile to act and bring more profits from the advisor advisors on the platform.
So, overall there is variability tied to AUM but I would say is yes there are leverage that we have in place that we can stabilize the cost base and stabilizing margins from there.
Kurt MacAlpine
And then just to add on, putting it in context with the market, right, it’s the worst start to our market in 50 years. And two of our three business units we experienced margin expansion. So, if you think about that in a market that’s declined as rapidly as this one has where we’re realizing market margin expansion. One, we’re early stages of obviously the U.S. Wealth strategy and putting the Canadian Wealth businesses together from a platform in perspective realizing those synergies. So, you could imagine the positive operating leverage that we’re creating in our business despite being able to manage our costs on a downward market like the one that we just experience. The other thing I would point to would be the increase in our expenses relative to peers as you’re looking at how we’ve managed our expense base relative to others, given we’re all dealing with a similar challenging market. And we’re very pleased with the flexibility that we have in the business and how responsive we’ve been to the markets and the impact on our financials.
Nik Priebe
Okay. That’s good color. Thank you.
Kurt MacAlpine
It appears, that’s the end of our questions.
Kurt MacAlpine
So, thank you all for your interest in CI. And we look forward to speaking with you next quarter.
Operator
This concludes today’s call. Thank you for joining. You may now disconnect your line.
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