With more than 50 retail and institutional boutique firms leaving the investment industry over the past three years, most investment dealer CEOs are expecting further consolidation in the industry, said Ian Russell, president and CEO with the Toronto-based Investment Industry Association of Canada (IIAC), at the Empire Club of Canada’s annual investment outlook luncheon in Toronto on Tuesday.

One-third of CEOs expect investment industry consolidation to intensify in the next two years while 23% said it will remain the same, according to Russell, who was presenting the results of IIAC’s 2015 survey of Canada’s investment dealer CEOs. The remaining survey participants felt that the rate of consolidation would slow.

“This pessimistic view comes as no surprise given that there are more than 50 investment dealers still operating with gross annual revenue of $5 million or less, a magnitude suggesting insufficient scale to operate under existing conditions,” Russell said.

This will lead to fewer firms, especially in smaller communities, and jobs — although larger firms will absorb the strong financial advisors who would otherwise lose their employment, he suggested.

And while investment firms are facing regulatory challenges that are leading to increased costs, the plurality of investment dealer CEOs surveyed said they expect their operating revenue to jump in 2016, with about 40% indicating they believe their revenue will increase at a faster rate this year than it did in 2015. In contrast, one-third of CEOs believe revenue growth will be in line with last year while one-quarter say revenue will increase but at a lesser rate compared with 2015.

The good news for advisors is that the largest percentage of investment dealer CEOs (40%) stated that the biggest contributor to their revenue in 2016 will be their retail business.

“Even though markets have been fairly difficult, the retail business has still managed to hold its own,” Russell said. “Because people are still saving, they’re willing to cut down on spending, they’re still concerned about retirement. There’s still a very strong demand in retail services largely because of demographics.”

The aging demographic is reflected in the services that are most in demand, such as discretionary managed accounts, financial planning and trust and estate planning, according to the results of the IIAC survey.

However, the research does note that the influence of millennials is growing — as is the subsequent disruption that robo-advisors are producing.

Regulatory changes and their ensuing costs was another big topic for investment dealer CEOs. More than 70% of survey participants deemed regulatory requirements as the biggest cost for their businesses, which are facing increased expenses resulting from compliance costs, consulting needs and technology requirements.

In fact, almost half of investment dealer CEOs anticipate operating costs will increase at a faster rate in 2016 than in 2015, whereas 20% said those costs will jump at the same rate and 30% said expenses will rise but at a lower rate than in 2015.

Operating costs are estimated to have risen by 6.8% in 2015 compared with 6.1% in 2014, mainly as a result of higher compliance and technology expenses.

The results are based on a survey of 144 investment dealer CEOs who are members of IIAC conducted between Nov. 3 and Nov. 25, 2015.