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Toughtimes,risingcostshavechewedup25%ofCanada's
smallinvestmentfirms:IIAC
business.financialpost.com /news/fpstreet/toughtimesrisingcostshavechewedup25ofcanadassmall
investmentfirmsiiac
BarbaraShecter 1/5/2016
TORONTORestructuringandconsolidationinatougheconomyandescalatingregulatorycostshaveledtothe
disappearanceorreconstitutionofafull25percentofinvestmentfirmsinCanadaduringthepastthreeyears,
accordingtotheInvestmentIndustryAssociationofCanada.
Morethan50boutiquefirmsaregone,includingsomethathavebeenoverhauledtooperatesolelyinCanadas
lessonerous,lowercostexemptmarket,IanRussell,theIIACschiefexecutive,toldaluncheonTuesdayinToronto.
Othersmallandmidsizedfirmshavefoldedoutrightorbeenamalgamated.
Despitetheconsolidationthathasalreadytakenplace,significantcontractionisexpectedduringthenextcoupleof
years,saidRussell,whobasedhisviewonarecentsurveytheIIACconductedbytappingthechiefexecutivesof
theassociations144investmentdealermembers.
DearSanta:Independentdealersneedabreak
Canadianinvestmentdealersreboundfromfinancialcrisis,butboutiquefirmsfallbehind
Thispessimisticviewcomesasnosurprisegiventhattherearemorethan50investmentdealersstilloperatingwith
grossannualrevenueof$5millionorless,amagnitudesuggestinginsufficientscaletooperateunderexisting
conditions,Russellsaid.
Ashasbeenthecaseduringthepastfewyears,thefirmsarerequiredtospendmoremoneyontechnologyand
compliancetosatisfynewregulatoryrequirementsatatimerevenueisbeinghammeredbylacklustreeconomic
growthandlowcommodityprices.
InDecember,TorontobasedOctagonCapitalshutitsdoors,andVancouverbasedSalmanPartners,whichhas
operatedformorethan20yearsandemploysabout40people,signaleditsplanstowinddownoperationsbymid
February.
Thisfollowedasteadystreamofclosuresduringthepreviouscoupleofyearsthatcasusedsomeobserversto
questionwhetherdealerscansurvivecurrentconditionsiftheyarentpartofabigfullservicebank.
Thatsafairquestiongiventheprolongeddoublebearmarketsinenergyandmining,whichmanyoftheboutique
firmsreliedonfortradingandfinancingactivity,saidJohnTurner,apartnerintheglobalmininggroupatlawfirm
FaskenMartineauDuMoulinLLPinToronto.
Russellsaiditiscleartheindustrywillhavetocontinuetocopewithweakeconomicconditionsinthecomingyear.
TheCEOs[surveyedalso]expecttherelentlessriseinoperatingcostsrelatedtocomplianceandtechnologyto
continue,hesaid.Thiswillfurthersqueezeprofitability.Italsomeanstheindustrywillcontinuetoconsolidate,with
firmsmergingorshuttingdownoperations.
JustafewmonthsbeforeOctagonwasshuttered,TorontobasedEdgecrestCapitalCorp.,whichhadscoopedup
strugglingStonecapSecuritiesInc.justlastyear,closeddownandlaidoff22staff.
EdgecrestfounderDavidBeatty,whowasoneoftheoriginalbackersofWestwindPartners,whichwassoldin2007
forUS$155million,saidtheprolongedbearmarketinminingandenergyhadstarvedEdgecrestofthecapital
neededtomeetregulatoryrequirements.
RisingregulatorycostsandtoughtimesinthejuniorresourcesectorcausedindependentTorontoinvestmentdealer
FraserMackenzieLtd.toshutteroperationsin2013afternearlyadecadeinbusiness.
9/5/2017 Tough times, rising costs have chewed up 25% of Canadas small investment rms: IIAC | Financial Post
Thatsameyear,veteranindustryplayerLoewenOndaatjeMcCutcheonLtd.resignedfrommembershipwithits
principalregulator,theInvestmentIndustryRegulatoryOrganizationofCanada(IIROC).Industryobserverssaidthe
moveallowedthefirmtooperateoutsidethepurviewandattendingfeerequirementsofIIROC.
Despitethebleaktrendandstatistics,FaskensTurnersaidthereareafewbrightspotsonthehorizon.
FirmssuchasTorontobasedMaxitCapitalhavedoneverywellrelyingonstrongadvisoryrelationships,hesaid,
notingthattheirbusinessisbasedontransactionalworkratherthanequityissuesandtrading.
HeaddedthatveteranindustryplayerssuchasBeattyhavedefiantlyvowedtocomeback.
Whileitsbleakatpresentwithseeminglynoendinsight,pastexperienceindicatesthatwhenthisbecomesthe
perceivedwisdom,changeisaroundthecorner,Turnersaid.
bshecter@postmedia.com
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