(March 16 – 12:15 ET) – The retail securities business is being credited with bailing
out industry performance in the most recent quarter, and indeed driving it
for the past two years, says the Investment Dealers Association in its latest quarterly report. However margins are tighter and an internal structural shift continues.
Retail earnings reached $4 billion last year, almost half of industry earnings. Commissions have been boosted, primarily due to the run-up in technology stocks and recovery among the resources. Share turnover on Canadian stock exchanges was up 4% in the year, commission revenues rose 8%. Commission earnings jumped 18% as a result, and it is primarily attributable to retail. Retail commission earnings totaled $3 billion in the year.
Revenue from fee-based products was up dramatically in 1999, about 67% to $1.4 billion. Paradoxically the IDA notes both an increase in cash balances held at dealers to $15 billion at year end, and increased margin debt. Aggregate margin debt at integrated firms was up 37% year over year to $7 billion.
Retail margins are being squeezed by the shift to online trading and a move to index and money market funds and away from pricier actively-managed funds. Online trading commissions now account for about 14% of retail commissions, up from 10% last year. However the IDA cautions that, “The shift to online trading may reverse once share prices resume a pattern more closely based on underlying fundamentals such as earnings and book value.” Mutual fund commissions have fallen 10% year-over-year, now accounting for 39% of retail commissions compared with a 44% in 1998.