Calgary-based aston hill Financial Inc. had been looking for more than a year to invest in an investment dealer. Aston Hill is looking no more, as, late last year, the diversified asset-management firm finalized a deal to purchase Halifax-based independent brokerage house Citadel Securities Inc.

Aston Hill offers its clients a suite of retail mutual funds, closed-end funds, private-equity funds, hedge funds and segregated institutional funds, and has approximately $6.5 billion in assets under management. But having a retail brokerage unit for distribution proved to be the “missing piece of the puzzle,” says Aston Hill CEO Eric Tremblay.

Thus, he says, adding retail services to the mix gives the firm, which also has a private wealth-management division in Toronto, the ability to attract more mainstream clients and create unique, in-house offerings.

The key, however, was finding the right investment dealer – and that proved to be trickier than anticipated. “We’ve been shopping,” Tremblay says. “We had a couple of false starts.”

Deals were almost inked with firms in Vancouver and Halifax, as well as in Ontario – although the last was not the preferred location for a purchase. “We thought it would be more cost-effective outside Ontario,” says Tremblay.

When the opportunity to buy Citadel came up, there was no hesitation; the entire deal went through in only a few weeks. It was, Tremblay says, “remarkably quick.”

The transaction is all the more notable because Citadel co-owner and CEO John Hanrahan had no plans to sell. In fact, he already had turned down numerous offers. “We were approached every year by somebody, usually a national firm,” Hanrahan says. “We never started [this regional dealer] firm to sell to a national firm.”

That said, two factors tipped the scales in Aston Hill’s favour. First, Citadel, which has offices in Charlottetown and Toronto, as well as Halifax, would be the first retail brokerage arm of Aston Hill, not a branch reporting through to a retail head office. “We didn’t want to be just another office of brokers for a bigger firm,” says Hanrahan, now CEO of Aston Hill Securities Inc.

With Aston Hill, Hanrahan says, he and his team will be building the parent’s retail brokerage business: “I expect to have a Toronto office, a Calgary office. [But] we’re in at the ground floor, as opposed to being taken over.”

The second tipping point that persuaded Hanrahan to sell the firm he launched in 2006 is the regulatory burden. It had proved too much for the smaller Citadel to juggle operations and regulatory requirements. “We offered the same services as a big, national firm,” he says. “That’s the nature of the business in Canada. But we’re regulated the same way as big national firms. It can be a challenge.”

@page_break@In particular, Hanrahan points out, Citadel staff all wore two hats. “Everybody had more than one job,” says Hanrahan, who also served as Citadel’s chief compliance officer. “The second job was usually regulatory.”

Hanrahan, who hails from Antigonish, N.S., doesn’t believe Citadel was unique in buckling under today’s regulatory demands: “The increasing challenges of the regulatory environment are going to make it more and more difficult for small dealers. You are going to see more and more consolidation.”

That doesn’t bode well for provinces, such as Nova Scotia, that have few, if any, independent brokerage houses left. “There is a usefulness to having an independent firm [based] in Atlantic Canada, but it is very difficult,” says Hanrahan. “You would have to have a firm that could develop enough scale so the regulatory challenges wouldn’t overwhelm. It would be difficult to see that happening in the immediate future.”

For Citadel clients, he adds, nothing changes – it is business as usual: “It’s not a merger [in the traditional sense]. Citadel has simply changed its name.”

The sale of the independent brokerage firm is not indicative of overall trends in Nova Scotia’s financial services sector, however. In fact, things are going very well, says Stephen Lund, president and CEO of Nova Scotia Business Inc. (NSBI), the province’s business-development agency: “It’s surprising to most people across Canada – and it’s surprising to most people across Nova Scotia – how big the financial services sector is. It’s bigger than fishing, farming and forestry combined.”

The financial services sector, which is an area of focus for NSBI, accounts for 5% of that province’s gross domestic product and employs more than 18,000 people. The numbers aren’t happenstance, says Lund: “We are positioning Halifax as a global financial services centre. We found a niche that competes with every place in the world, and that niche is hedge fund administration work.”

Four factors contribute to making Halifax the go-to location for hedge funds and other financial services: it’s an affordable place to do business; there is access to an educated talent pool; the province also is geographically well positioned for doing business with the U.S. and Europe; and the province also has strong marketing.

“We know how to sell Nova Scotia better than anyone else in the world,” says Lund. “Halifax is being recognized in New York and London.”

Aston Hill is likely to capitalize on that recognition. “There are not that many big, successful [brokerage] operations out of Halifax,” says Tremblay. “We can be the premiere brokerage house in Halifax.”

Growth is certainly part of Aston Hill’s longer-term plans for its new brokerage subsidiary, but there is no rush, he adds: “Performance is the best way to attract brokers and their clients.”

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