Big firms shine as boutiques suffer: IIAC

The Canadian investment industry’s operating profit rose 27% to $4.8 billion last year, but almost all of these gains were made by the big-eight integrated firms, Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC) says in his most recent letter to members.

Read: Tough year ahead for firms, says IIAC

Highlights of the letter include:

• Integrated firm operating profit rose on average 43% in the last five years, with steady gains for most of the period.
• Operating profit in the retail sector declined 39% in the same period, with steep losses in 2012 accounting for much of the earnings fall-off.
• Causes of the earnings collapse in the boutique sector include: depressed market conditions; cautious investors; predatory algorithmic trading; compliance costs of the mounting regulatory burden; and rising costs of technology and systems for securities execution and clearing/settlement.

Consistent gains in fee revenue at the integrated firms—46% in five years, and more than double in the past eight years—account for the difference in earnings performance, Russell explains. “Fee revenue has expanded at a 13% clip in the past two years. Fee revenue as a share of retail revenue at the integrated firms has risen to account for nearly one-half.”

Read: Tax-efficient advice critical: IIAC

Russell adds that the rise in fee income stems from “the expanding client shift to discretionary managed accounts and the offerings of specialized services, such as tax and estate planning for aging clients.”

Read the rest here.

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