CI Financial: Lowering Moat Rating to None on Competitive Pressures and Financial Headwinds

We no longer believe that CI Financial has an economic moat. As we look forward, we've become increasingly concerned that a greater-than-expected correction in the equity markets over the next five-10 years and/or an even more aggressive push by the Big Six banks—Royal Bank of Canada, Toronto-Dominion Bank, Scotiabank, Bank of Montreal, Canadian Imperial Bank of Commerce, and National Bank of Canada—to use price to drive growth and take more share of the Canadian fund market would leave firmwide ROICs below weighted average cost of capital in some years during the next decade. Poorer investment performance relative to benchmarks and peers, higher fees, and a reliance on third-party distribution outside of its own closed advisor network, in our view, leave CI Financial slightly more exposed to the secular headwinds facing the nonbank-affiliated asset managers in the Canadian market—especially with its fund manufacturing operations continuing to account for 60% of firmwide EBITDA.