The Canadian securities industry saw profits decline to just over $2.0 billion in 2015, according to the latest data from the Investment Industry Association of Canada (IIAC).

The IIAC reports that industry profits are down 13.4% from 2014, and essentially unchanged from 2013.

Investment banking revenue in 2015 was down 14.4% from the prior year, fixed income trading revenue declined 10.9%, and equity trading revenue almost dropped to zero. However, overall operating revenue only declined by 1.0% from the previous year, as commission revenue ticked up, amid a 10.2% increase in mutual fund commissions. As well, fee revenue jumped 15.8% to more than $5.3 billion.

Still, overall industry operating expenses increased 4.5% in 2015 from the previous year, which helped drive the decline in profits.

The IIAC data also shows that overall industry employment levels held steady in 2015, compared with the previous year, as head counts increased at the integrated and retail firms, offsetting a decline among the domestic institutional boutiques.

The domestic institutional firms took a hit to the bottom line, swinging to a $20 million loss in 2015 from a $52 million profit in 2014, and a $13 million loss in 2013. The large, integrated firms saw their profits decline by about 13.0% in 2015 to $1.75 billion, as a small increase in headline revenue was eroded by a 5.1% jump in operating expenses.

Similarly, the retail firms saw profits decline 22.1% to just over $100 million, as flat revenues were accompanied by a 5.4% increase in operating costs. Within the retail segment, introducing firms had their profits almost double in 2015, whereas the profits for self-clearing firms dropped by about two-thirds to $31 million.

In an industry letter accompanying the results, IIAC president and CEO, Ian Russell, points to rising regulatory costs, including the implementation of the second phase of the Client Relationship Model (CRM2) reforms, as the primary reason for the increase in operating expenses at the retail firms, and the diverging performance between introducing firms and self-clearers.

Rising compliance costs hit the self-clearing firms hard in 2015, Russell notes. Operating expenses increased by almost 10% during the year in the sector, as firms staffed up and implemented new technology to accommodate the new rules. By contrast, costs held steady at the introducing firms last year; although Russell suggests that they are in for a hit this year, as their clearing firms hike their fees in response to the new requirements taking effect.

The IIAC acknowledges that these reforms have improved industry transparency and conduct standards, but it calls on securities regulators to carry out cost-benefit analysis before launching any major new rule proposals, such as the possible introduction of a proposed “best interest” duty on financial advisors.

Indeed, the IIAC suggests that regulators carry out a cost-benefit analysis even before launching any consultation s on further reforms, “to confirm that the benefits of these reforms — incremental to the comprehensive CRM rule framework — justify the additional costs imposed on registered firms and advisors, and on clients,” the Russell letter says.

As for the hard-hit institutional boutiques, the IIAC sees some signs of optimism, as commodity prices rebound. “If oil prices demonstrate continued stability and further upside, financings will pick up and independent firms will benefit,” Russell says. “Second, the recent rise in gold and base metal prices, and corresponding upward share price moves for mining companies, also presages improving business conditions for the boutique sector.”

“We are hopeful that positive signs in the commodities and non-resource markets are laying a foundation for sustained recovery and improving business conditions for small players in the investment industry and capital markets,” he concludes.