Toronto-based Bank of Nova Scotia has bolstered its asset-management business by snapping up iconic Montreal-based investment firm Jarislowsky Fraser Ltd. in a move that positions Scotiabank as Canada’s third-largest active asset-management firm.
Scotiabank announced in mid-February that it would acquire Jarislowsky Fraser for approximately $950 million. The deal is the latest example of consolidation in the wealth-management industry. The scale of the Big Five banks continues to expand while the number of independent players in the market are being pared back.
Stephen Jarislowsky founded Jarislowsky Fraser in 1955. The firm has accumulated more than $40 billion in assets under management by catering to institutional clients, such as pension funds, foundations and endowments, as well as to private investors.
“Jarislowsky Fraser was one of the few sizable independent firms left in Canada,” says Dan Hallett, vice president and principal with Oakville, Ont.-based HighView Financial Group. “The risk is that [Jarislowsky Fraser] may lose the cultural benefits of being an independent firm. Maintaining that unique small-company boutique culture will be really difficult under the ownership of a large financial [services] institution.”
The acquisition helps Scotiabank establish a presence in the institutional asset-management business – something the bank had lacked relative to its banking peers.
“We’ve been saying for a few years now that we really needed to beef up our institutional offering for our clients,” says Glen Gowland, senior vice president and head of asset management, at Scotiabank. “We were looking to build that out, and Jarislowsky Fraser was well known to us. It’s a great firm and an iconic brand; it has been in this space for a long time. [Jarislowsky Fraser] has an excellent reputation and fantastic investment processes, so it is a perfect fit.”
Most of the Big Five banks have established hefty institutional asset-management businesses, either organically or through acquisitions. Toronto-based Royal Bank of Canada, for example, gained substantial institutional capabilities through its acquisition of Phillips Hager & North Investment Management Ltd. in 2008.
There’s only so much room for growth on the mature retail side of the Canadian wealth-management industry, so the institutional market presents another avenue of growth for the banks.
“The institutional market is an area in which Scotiabank hasn’t had any significant penetration yet,” says Hallett. “If you look at all of the avenues [through which the bank] could grow and build a sizable business, [Scotiabank] has all of the other pieces in place.”
Following completion of the acquisition, which is subject to regulatory approval and expected to close in the third quarter of fiscal 2018, Scotiabank plans to continue operating Jarislowsky Fraser as a separate unit, with its management team continuing to lead the business and the office remaining in Montreal.
“We want to maintain the integrity of the Jarislowsky Fraser investment capabilities [and] its very disciplined investment process – that was the real reason to acquire [the firm],” Gowland says. “It will remain completely intact.”
Scotiabank also will keep the Jarislowsky Fraser name attached to the business. Keeping the firm’s partners and investment managers on board following the deal also is a priority, Gowland says. The transaction received the support of all of Jarislowsky Fraser’s partners, including Stephen Jarislowsky, who will continue his association with the business.
“We know that these businesses in wealth management and investment management are ‘people businesses’,” Gowland says. “That’s why ensuring we had [Jarislowsky Fraser’s partners’] unanimous acceptance of the transaction was so critical for us.”
However, Scotiabank may have a hard time retaining all of Jarislowsky Fraser’s clients and staff, says Scott Plaskett, CEO and senior financial planner with Ironshield Financial Planning Inc. in Toronto. He notes that some investment managers were drawn to Jarislowsky Fraser specifically for its independent boutique culture and, as a result, working for a bank may not sit well with them.
“The challenge is going to be retaining that talent,” Plaskett says. “I think there’s going to be a lot of money in motion.”
Even if Jarislowsky Fraser’s investment-management team remains largely intact, Plaskett adds, the firm losing its independence is unfortunate: “It’s kind of sad when you see a well-respected name like Jarislowsky Fraser go by the wayside and get amalgamated into a conglomerate like that because it’s nice to have that unique solution available in the marketplace.”
The continued consolidation in the wealth-management industry has resulted in fewer options available to investors and financial advisors, on both the institutional and retail sides of the business. For example, CI Financial Corp.’s acquisition of Sentry Investments Corp. and Sun Life Global Investments (Canada) Inc.’s acquisition of Excel Funds Management Inc. last year scaled back the number of independent mutual fund providers available to investors. (All firms are based in Toronto except for Excel, which is based in Mississauga, Ont.)
That trend is likely to continue, Plaskett says: “I think this is just the beginning. There is going to be more [consolidation] because other firms need to make their own acquisitions to stay competitive.”
Scotiabank, for its part, intends to continue expanding its wealth-management business, Gowland says: “We want to continue to grow.”
The bank plans to turn its attention to international markets as it embarks on further growth. Specifically, Scotiabank intends to add investment-management services where it already offers retail banking, such as Latin America and the Caribbean. Says Gowland: “We want to have investment capabilities in the areas where we have our customers.”
Despite the consolidation trend, Hallett is confident new independent firms will emerge and certain existing ones will choose to maintain their independence.
“There’s always going to be a certain number of smaller independent boutique firms that survive,” he says, “because they really want to stay that way.”