|
Investors Group incurs commission expense in connection with the distribution of its financial services and products, particularly its mutual funds. Commissions are paid on the sale of these products and will fluctuate with the level of sales. Commission expense was $148.0 million in 2005, an increase of $39.2 million from $108.8 million in 2004. The increase in commission expense was due to:
- Increase in amortization of commissions totalling $25.1 million in 2005 related to prior year sales. This increase reflects the impact from the change in estimate, effective April 1, 2001, which increased the term of amortization on sales commissions to 72 months.
- Increase in amortization of commissions of $2.2 million related to higher commission payments in 2005 compared with 2004. The increase in commission payments results from higher mutual fund sales.
- Increases of $11.9 million in other compensation related to mutual fund operations, insurance, mortgage and banking products. Other compensation expense in 2004 included a reduction of $6.5 million due to a change in estimate related to mutual fund operations.
The asset retention bonus (ARB) and premium (ARP) expenses, which are based on the level of assets under management, are comprised of the following:
- ARB which is paid monthly and is based on the value of assets under management. ARB expense increased by $17.2 million in 2005 primarily as a result of the increase in assets under management.
- Asset retention premium (ARP) which is a deferred component of compensation designed to promote Consultant retention. The ARP, which is related to assets under management at each year-end, increased by $6.1 million to $22.4 million.
Non-commission expenses include: costs incurred by Investors Group in the support of its Consultant network; the administration, marketing and management of its mutual funds and other products; as well as all other expenses in the operation of its business.
Non-commission expense totalled $265.5 million in 2005 compared with $273.8 million in 2004, a decrease of $8.3 million or 3.0%. Decreases in expenses were primarily due to:
- Unitholder compensation of $28.8 million recorded in the fourth quarter of 2004 as discussed earlier.
- A reduction in expenses of $3.5 million arising from a change in estimate related to client claims settlements recorded in the fourth quarter of 2005.
- A reduction in expenses of $1.7 million arising from a change in estimate related to credit losses on Consultant financing programs recorded in the first quarter of 2005.
Decreases in expenses were offset by:
- Increases in Consultant Network support costs as a result of increased activity levels.
- Increases in expenses related to the administration of Investors Group’s mutual funds.
- Increases in amortization of capital expenditures related to the single shareholder system. Investors Group and Mackenzie merged their shareholder systems in November 2003, while preserving the integrity and privacy of their respective client bases.
Non-commission expense of $273.8 million in 2004 also included a reduction of $3.7 million recorded in the third quarter of 2004 which represented a portion of the general allowance for credit losses. This reduction of a portion of the general allowance resulted from the periodic review of the credit quality of Investors Group’s mortgage portfolio and the adequacy of the related general allowance.
Investors Group continues to benefit from the impact of synergies related to the transition work completed with Mackenzie. In addition, management continues to focus on both control of discretionary expenses and expense reductions beyond the opportunities created by the transition activities.
|
