iA Financial Group (IAFNF): A High-Conviction Buy as It Accelerates Wealth Management Growth and Hits ROE Targets Ahead of Schedule

In the ever-evolving landscape of financial services, iA Financial Group (IAFNF) stands out as a rare combination of disciplined capital allocation, strategic acquisitions, and operational excellence. With a core return on equity (ROE) of 17% already achieved ahead of its 2027 target, robust U.S. expansion, and a seamless integration of RF Capital, the company is poised to deliver outsized returns to shareholders. For investors seeking a high-conviction opportunity in a sector where undervaluation often masks long-term potential, iA Financial Group is a compelling case study in value creation.

Strategic Capital Allocation: Fueling Growth Through RF Capital and U.S. Expansion

iA's acquisition of RF Capital for $597 million in July 2025 is a masterclass in strategic capital deployment. By acquiring one of Canada's largest independent wealth management firms, iA added $40 billion in assets under administration (AUA), expanding its wealth management AUA to $175 billion. This move not only strengthens its position in the high-net-worth (HNW) segment but also aligns with its “iA way” model of scalable, sustainable growth. The acquisition is expected to be neutral to core earnings in year one and accretive to core EPS by at least $0.15 in year two, with meaningful synergies in technology, operations, and distribution.

The integration of RF Capital is being executed with a tailored, collaborative approach. RF Capital's advisers will retain operational independence under the Richardson Wealth brand, ensuring minimal disruption to client relationships. Meanwhile, iA's financial strength and digital capabilities will enhance RF Capital's offerings, creating a best-in-class platform for HNW clients. This balance of independence and scale is critical in a sector where adviser retention and client trust are paramount.

Simultaneously, iA's U.S. expansion is gaining momentum. In Q2 2025, U.S. individual insurance sales surpassed Canadian sales for the first time, reaching $103 million (US$78 million). This growth is driven by organic expansion in core markets and the successful integration of Vericity, a digital insurance platform. The U.S. Dealer Services segment also saw a 6% sales increase, supported by a strong product portfolio and distribution network. These results underscore iA's ability to replicate its Canadian success in the U.S., a market with significantly higher growth potential.

Earnings Momentum and ROE: A Track Record of Execution

iA's Q2 2025 results highlight its operational discipline. Core earnings per share (EPS) reached $3.49, a 27% year-over-year increase, while core ROE hit 17%, meeting its 2027 target three years early. This performance is underpinned by a solvency ratio of 133% and $1.5 billion in capital available for deployment, providing ample flexibility for further acquisitions or shareholder returns.

The company's ability to generate high ROE is a testament to its capital-efficient business model. Unlike peers that rely on asset-heavy strategies, iA leverages its diversified portfolio of insurance, wealth management, and U.S. operations to generate consistent returns. For example, the U.S. Insurance segment's core earnings surged 64% year-over-year, driven by favorable mortality experience and the integration of Vericity. This earnings momentum is not a one-off but a reflection of iA's long-term strategic focus on scalable, high-margin businesses.

Undervaluation Amidst Strong Fundamentals

Despite delivering a 99% return over the past year, iA's stock appears undervalued relative to its fundamentals. With a core ROE of 17% and a book value per share of $76.02 (up 9% year-over-year), the company trades at a discount to its intrinsic value. Analysts project a price-to-earnings (P/E) ratio that lags behind peers like Manulife and Sun Life, even as iA outperforms them in ROE and capital efficiency.

The undervaluation is further amplified by iA's aggressive capital return strategy. A 10% dividend increase and a $900 million share buyback program (on a pro forma basis with RF Capital) signal management's confidence in its earnings power. These actions are rare in a sector where companies often prioritize growth over shareholder returns, making iA an attractive option for income-focused investors.

Risks and Mitigants

While the outlook is bullish, risks remain. The integration of RF Capital could face challenges in aligning cultures or retaining key advisers, though iA's tailored approach minimizes this risk. Additionally, macroeconomic headwinds, such as rising interest rates or a slowdown in the U.S. insurance market, could pressure margins. However, iA's diversified business model and strong solvency position provide a buffer against such shocks.

Investment Thesis: A High-Conviction Buy

iA Financial Group's combination of strategic acquisitions, earnings momentum, and undervaluation makes it a high-conviction buy. The RF Capital integration and U.S. expansion are catalysts for long-term growth, while the company's disciplined capital allocation and ROE performance ensure sustainable returns. For investors seeking exposure to a financially robust, undervalued player in the wealth management and insurance sectors, iA offers a compelling opportunity.

In conclusion, iA Financial Group is not just hitting its ROE targets ahead of schedule—it is redefining its growth narrative through strategic execution and operational excellence. With a clear path to unlocking value through RF Capital and U.S. expansion, the stock is poised for a re-rating that reflects its true potential. For those willing to look beyond short-term volatility, iA is a must-own in a well-diversified portfolio.