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Northern Exposure - Investors Group expands into new distribution channels

Investors Group, which built its market leading share of the mutual fund industry through a captive sales force, has gained a toehold into the insurance and independent brokerage channels.

Investors, of Winnipeg, announced on Nov. 5 it has acquired London Fund Management, whose mutual funds are sold through third-party brokers and dealers as well as through London Life agents.

Operating under the MAXXUM brand name, the $713 million family of nine funds is a relatively modest acquisition for Investors, which had $31.7 billion (Canadian) in assets under management as of Sept. 30. Also, the acquisition can appear deceptively insignificant because both Investors Group and London Life are subsidiaries of Power Financial of Montreal, the holding company. The cost of the purchase was not disclosed. But Sanford Riley, Investors' president, described it as being a "fair market" price.

Although the acquisition is small, it is strategically significant. The newly acquired company, which will be renamed MAXXUM Fund Management, will operate as a separate subsidiary of Investors. It will continue to sell its products through London Life agents and independent brokers, but not through Investors Group agents.

"The primary focus of MAXXUM is now and will continue to be the relationship it has with London Life," said Riley. "It represents for us a way in which we can start to access other distribution channels."

London Life currently has an estimated 3,000 insurance agents, of which about 1,200 are also licensed to sell mutual funds. Riley expects that the number of London Life agents licensed to sell funds will increase, and Investors will provide education and training to support that growth.

In the meantime, the number of registered mutual fund salespeople at Investors who also hold insurance licenses will continue to grow. Riley estimated that 90 percent of Investors' 3,700 agents now are licensed to sell both insurance and mutual funds.

Despite the fact that the qualifications of the two sales forces are similar, they will not be combined, company officials say. By keeping London Life and its sales force separate, the benefits of its well known brand name will be retained, Riley said.

"We don't need to merge them to get the benefits we want to see," said Riley.

One of the benefits Riley has in mind is giving Investors Group clients access to some of the MAXXUM funds. But in keeping with Investors' practice of selling only funds it distributes exclusively, clones of the MAXXUM funds will be specially created for Investors to distribute. That way, clients will be able to switch free of charge between MAXXUM funds and those of Investors' five other fund families.

A new Investors-only series would be a logical move, since Investors already has similar arrangements with investment counselors Beutel Goodman and Sceptre Investment Counsel, and with Merrill Lynch. In addition, the $1.8 billion Rothschild Select series of funds, managed by Global Strategy Financial, an independent fund company based in Toronto, is distributed exclusively through Investors agents. At the same time, Investors will most likely develop new investment products for London Life agents.

"MAXXUM gives us a starting point," said Riley.

The MAXXUM funds' new owners say they will continue to use the same team of Toronto based fund managers. The sub-advisory arrangement with U.S. money manager Janus Corp., which manages a global equity and a U.S. equity fund for MAXXUM, will also remain unchanged.

Investors sees its takeover of the MAXXUM funds as part of its efforts to respond to increasing competition. Investors is feeling threatened by other powerful players including Merrill Lynch, which earlier this year took over the only remaining independently owned Canadian brokerage, Midland Walwyn. It is also threatened by pending bank mergers and large mutual fund companies like Fidelity.

The acquisition of the MAXXUM unit follows the announcement at the end of October of record earnings by Investors. It reported earnings of $136 million for the first nine months of 1998, up 27 percent from a year earlier. In contrast to the general slowdown in the fund industry, Investors sales rose by 4.4 percent to $5 billion in the first nine months. Riley said that while Investors tends to lag the industry's growth in bull markets, it tends to outperform the industry in tougher times.