Despite projected overall profits of a record $7.1 billion for the investment industry last year, the number of independent investment dealers in Canada is expected to drop in 2019, says the president of the Investment Industry Association of Canada (IIAC).
In a letter to members, Ian Russell predicts that the weaker economic and market conditions that plagued the industry in the fourth quarter will likely drag on through 2019 and put pressure on operating margins and the viability of the small- and mid-sized dealers who are having trouble coping with changing retail markets.
Amalgamation and takeovers
In the past five years, more than 50 small- and mid-sized independent dealers have left the business through amalgamation and takeovers. The shrinkage slowed down for a few years but was back again in 2018 when 11 dealers joined with other firms or shuttered operations.
And the same is likely to continue for 2019. “We anticipate even more firms to leave the business in 2019, given the ratcheting up in operating costs and [the] prospect of an extended period of depressed market conditions and decelerating growth in retail and investment banking revenues,” wrote Russell.
“If history is a guide, the number of independent investment dealers could fall below 100 in a year or two.”
Record profits in 2018
The record profits of 2018 stem from an accelerating demand for wealth management services, profits that will be shared by independent retail firms, institutional companies and corporate advisory businesses at boutiques. Not so much though for the investment banking area that showed only modest gains during the first three quarters of 2018.
Growing demand for services like hybrid online wealth models and online self-directed discount trading models is expected to continue this year and add to profits, wrote Russell.
“This has been spurred by competitive pressure from online wealth providers or independent robo-advisors’ attempting to diversify business into new customer channels,” Russell wrote. “The number of advisor offerings from these fintech firms will likely continue to expand in 2019, further altering the fabric of financial advice.”