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Integrated dealers have outperformed independent brokerages since the financial crisis, but the difficulties of institutional firms has overshadowed the success and staying power of independent retail firms, states Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), in his latest letter from the president.

In the letter, Russell details the strength of the big integrated firms for the past few years, noting that they have outpaced the independents in terms of both revenue and earnings growth.

“These firms have taken advantage of their broad business base, with investment banking and trading operations complementing record strong retail performance. Integrated firms also have the advantage of business scale to spread fixed costs,” Russell states.

The independents have struggled over the past several years. but much of the pain among these firms has been among institutional dealers. Independent retail firms, “have performed well, with revenue and earnings up strongly since 2012,” Russell states, pointing out that average operating profit rose 45% in the six-year period ended 2017.

While about 15 independent retail firms have been bought out, or shut down, over the past few years, “the remaining 90 or so firms … have competed successfully in the retail marketplace,” Russell states, even as the retail investment business is itself evolving.

Looking ahead, the IIAC forecasts that the wealth business “will remain fairly robust” for the foreseeable future. “Preliminary figures for the first half this year indicate a continued upward trend in retail revenue,” Russell states. “The baby-boomer generation will continue to move into retirement with related demand for wealth products and services, while the millennial investors will account for a growing share of income and savings, becoming a more significant factor in the wealth business.”

Against this background, the retail investment space, “will remain attractive for the independents to expand business and stay profitable,” the IIAC projects.

To compete, the independents will likely focus on specific markets, such as either the “mass affluent” segment, or high-net worth investors, Russell suggests. And, they’ll increasingly use third-party technology to help keep costs under control, while stepping up service, and maintaining compliance with evolving regulatory requirements.

“The challenge for the independents will be adjusting business focus towards the growing influence of the millennial investor base, deploying the right technology applications to meet customer demand and improve operating efficiencies, keeping a tight focus on overall costs and managing advisor training, transition and compensation arrangements,” Russell states.

The outlook is not as rosy for independent institutional firms. Investment banking revenue “is more likely to decline from current levels than increase, particularly financing activity in the resource sector,” Russell states, which will continue pressuring the independent institutional dealers in particular.

“These independent firms will continue to struggle, and further consolidation of the institutional boutique firms is likely,” Russell concludes.