Boutique firms should buy their competitors or poach their customers, says IIAC president and CEO Ian Russell.
Those suggestions are on a list of ideas for strengthening boutique investment firms published by the Investment Industry Association of Canada.
Boutiques should “target clients of independent financial planners,” and widen their prospect lists to include those with less than $100,000 in investable assets, Russell states.
The firms should also “focus on building scale” by buying other independent retail and institutional boutiques.
The recession’s been hard on small firms, as they’ve dealt with less business from retail and institutional clients, as well as technology, compliance and other cost increases, he writes.
Such firms have yet to restore their operating profits to pre-recession levels, while integrated firms caught up in late 2012 and have seen their profits continue to rise.
There are 169 boutique investment firms in Canada, and Russell says it’s likely they’ll continue to consolidate.
“The open question for industry observers is the eventual size and dynamism of the boutique sector over the long haul,” he writes. “The answer will depend on broader recovery in resource markets, the vigour of structural adjustment among the firms, and the efficacy of remedial measures taken by the regulators and governments to stimulate financing in the small and mid-sized business sector.”
The full list of suggestions:
- Expand discretionary money management and fee-based services.
- Differentiate wealth management services from the integrated firms by emphasizing […] the importance of taking risk to generate return, but underline that risk must be kept within the bounds of individual risk tolerance limits.
- Focus on building scale through acquiring small retail-focused firms.
- Broaden customized wealth management service to less affluent investors (less than $100,000 in investable assets). Target clients of independent financial planners.
- Find the right balance between outsourcing service through a carrier broker and internal compliance.
- A) Build out broker teams to offer a broad array of investment techniques and strategies including portfolio management and third party funds, and B) train and develop younger advisors to transition from aging advisors and to target millennial and Gen X investors.
- Acquire independent institutional boutiques to build financing scope in exempt markets and add scale.