Independent wealthmanagement firms in Canada are looking more like an endangered species. Australian powerhouse Macquarie Group Inc.’s recent sale of its Canadian brokerage arm, Toronto-based Macquarie Private Wealth Inc., to Toronto-based Richardson GMP Ltd., also of Toronto, is the most recent event in the consolidation trend that has been reducing the ranks of the independents.

Many independents face little choice but to merge with competitors to create economies of scale to counter the big banks’ competition and deal with increasing regulation, compliance and technology costs.

“Since the financial crash [of 2008-09],” says Ian Russell, president and CEO of the Investment Industry Association of Canada in Toronto, “the [financial services] industry has seen a decline in the number of dealer firms, with many of them consolidating business operations or even shutting up shop.”

With Macquarie’s exit from the Canadian scene, Richardson GMP will be the largest independent wealth-management firm on the Street. This will allow Richardson GMP to remain competitive in the independent wealth-management space; it also means the firm can “up its game” against the Big Six banks and their growing wealth-management divisions.

“We don’t create our own products, so we are always going to be smaller than the banks,” says Andrew Marsh, president and CEO of Richardson GMP. “But we can go toe to toe, in terms of providing great financial planning advice as well as wealth and estate planning and portfolio-management advice. The difference is we will be conflict-free and completely neutral in our service and advice to clients.” To learn more about the firm’s strategy, watch Richardson GMP CEO talks strategy on IE:TV.

The Richardson GMP/Macquarie deal follows several other deals involving independents:

– In 2011, Montreal-based National Bank Financial Ltd. acquired both Winnipeg-based Wellington West Capital Inc. and Toronto-based HSBC Securities (Canada) Inc.

– In 2010, Bank of Nova Scotia acquired DundeeWealth Inc.; although DundeeWealth still operates as a separate entity from the bank’s brokerage division, ScotiaMcLeod Inc., Tuula Jalasjaa, a longtime bank executive with Scotia Asset Management LP, was named DundeeWealth’s new managing director and head of its retail advisory network earlier this year.

DundeeWealth also will be renamed HollisWealth on Nov. 1. (The new name stems from Scotiabank’s historic head office on Hollis Street in Halifax.)

But unlike these previous acquisitions in the independent wealth-management space, Macquarie didn’t end up in the hands of a bank.

“These two firms [Richardson GMP and Macquarie] are significant, non-bank players,” says Russell. “And both provided differentiation in the marketplace. While it’s unfortunate that we lost one of those players, the positive outcome is that now we have a much stronger independent franchise that is able to compete with the Big Six banks.”

Prior to the deal, Richardson GMP had $14.7 billion in assets under administration (AUA). Marsh had planned to see that number climb to between $18 billion and $22 billion within the next three years. And although Richardson GMP had been working on growing its business organically, he says: “You also have to be nimble and ready for when opportunities arise for consolidation.”

Marsh says Richardson GMP’s AUA could hit $28 billion upon completion of the transaction. In addition, the number of financial advisory teams at the firm could jump to 300 from 116, depending on retention levels.

“Canada should have a number of strong, independent alternatives to the banks,” Marsh says. “However, we are going through some difficult times from a business perspective and, ultimately, scale really matters.”

Consolidation has been a hard fact of life in the independent small-dealer community recently. Firms such as Vancouver-based Union Securities Ltd. (acquired by PI Financial Corp., also of Vancouver) and Sora Group Wealth Advisors Inc. of Vancouver (acquired by Toronto-based Integral Wealth Securities Ltd.) were victims, Russell says, of a business environment characterized by weak earnings and overall fee increases.

The smaller retail investment firms are stuck in difficult situations in which they have to maintain a competitive suite of products and services to retain clients, he adds, so they face cutting costs in other areas of their businesses.

“They can’t cut corners with clients because that is their No. 1 focus; losses get taken [instead],” Russell says. “Then, [smaller firms] have to absorb those losses and try to run as efficiently and productively as possible. That has caused many firms to be in a losing position for quite some time. And, at some point, you have to make a judgment call because you can’t go on like that forever.”

The trend is not happening solely among investment dealers. This past August, Mississauga, Ont.-based Investment Planning Counsel Inc. (IPC) entered into an agreement to buy Ottawa-based mutual fund dealer Independent Planning Group Inc. The latter was seeking a partner with deeper pockets and additional services for its advisors.

IPG has been in the mutual fund business for 23 years. But current market conditions, combined with increasing regulatory costs and a need for advisors to set up documented succession plans, forced Vince Valenti, president of IPG, to consider his options.

“We have advisor demographics in which advisors will eventually be looking at selling their businesses and newer advisors will be wanting to buy those businesses,” Valenti says. “They’re going to look to a dealer to say, ‘Can you help me with financing?’ And this, of course, all costs money. For a small to mid-sized dealer, that is not an easy feat.” (See story on page 8.)

However, amid all the mergers and consolidations, there are a few optimistic players bucking the trend. Industry veteran Michael Lee-Chin, chairman of Mandeville Holdings Inc. of Burlington, Ont., launched Mandeville Private Client Inc., a securities dealer, and sister firm Mandeville Wealth Services Inc., a mutual fund dealer, this past spring.

“I’ve spent my life swimming upstream,” says Lee-Chin. “And I know there are a lot of frustrated advisors who lament the past. With the increased consolidation in the industry, many advisors are not happy where they are today and they are looking for a strong viable alternative, which I believe I can provide.”

Other smaller dealers have found ways to get a competitive advantage to sustain their businesses. “Our response to all of the business challenges in today’s environment has been to put more money into technology,” says Nelson Cheng, CEO of Windsor, Ont.-based Sterling Mutuals Inc., which launched its own internal back office and introduced electronic client statements ahead of most of its competitors.

Sterling, a mutual fund dealer, has grown since 1996 from just two advisors to more than 180 with about $1.5 billion in AUA.

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