‘Scale is what makes this thing work’: IA executive on Hollis purchase

Carl Mustos, head of the IA Financial Group division merging with HollisWealth, says scale is increasingly important for wealth management firms as they deal with the cost pressures of technology and regulations.

This week, insurer IA Financial announced a deal to purchase HollisWealth from Scotiabank. The agreement, to close next year, will make IA Financial one of the largest non-bank wealth management advisory firms in Canada with $75 billion in AUA. IA Financial will absorb HollisWealth’s $34 billion in AUA, 800 licensed advisors, 400,000 active client accounts and 300-plus locations.

“I think scale is what makes this thing work, where we can continue to build out the services to support a wide range of Canadian investors,” Mustos, president of IA Clarington, tells Advisor.ca. “There’s technology costs, there’s compliance and infrastructure, there’s lots that goes into this business and scale is increasingly becoming very, very important.”

Read: IA Financial buys HollisWealth

IA’s financial advisory strategy has been to grow through mergers, having made 25 acquisitions in wealth management since 2000.

“This gives us a nice breadth nationally, and across both MFDA and IIROC. It’s very complementary to us,” Mustos says.

Advisory firms are increasingly competing for high net worth clients and consolidating for economies of scale as they deal with higher costs. North American player Raymond James acquired 3Macs in May, absorbing an independent dealer with $6 billion in client AUA. In January, Dundee Goodman advisors were acquired by Echelon.

As of fiscal 2015, the ranking of total AUA base by firm was as follows:

RBC: $297.4 billion

BMO: $140 billion

Scotiabank: $128 billion

TD: $125.1 billion

CIBC: $124 billion

National Bank: $88.4 billion

Raymond James: $26.9 billion (pre-3Macs)

Richardson GMP: $26.3 billion

Canaccord Genuity: $9 billion

Echelon Wealth Partners (formerly Euro Pacific Canada): $4.2 billion

IA’s acquisition of HollisWealth would put it below National Bank’s AUA and above that of Raymond James, and would potentially bring Scotiabank below TD.

Smaller, independent firms are closing shop or selling, with the IIAC predicting a decline of 50 more small investment houses over the next few years.

Read: No sale for Richardson GMP: GMP Capital

Mustos says he hopes to differentiate IA’s business on its independent model and tap into an acceleration of Canada’s wealth transfer from older generations. CIBC estimates $750 billion will change hands over the next decade.

“They need individual help, and that’s where the advice channel plays in,” Mustos says. “Before and after this acquisition, we are in large centres and small, all across the country.”

Read: Industry struggles with hurt feelings, debates principles at CSA roundtable

All 800 advisors will be joining the firm and none will be “left behind,” Mustos says, noting IA Clarington is targeting a range of clients, not just the affluent.

Through the sale of HollisWealth,* Scotiabank wanted to simplify its advice platforms, Mustos suggests.

“My understanding is that it was becoming increasingly difficult for them to run two types of models on their platforms, so the independent model and the more consolidated [one],” he says. “The policies and procedures to run, basically, two different MFDA and two different IIROC [platforms] becomes increasingly more difficult. As you know, we’re not seeing a reduction in regulation.”

James O’Sullivan, Scotiabank’s group head of Canadian banking, said in an emailed statement that the decision to sell came after strategic review of operations. “Over the last few years, Scotiabank’s strategic focus for wealth management and addressing evolving client needs has been shifting to an integrated, team-based model. iA’s strategic growth platform is complementary to HollisWealth’s investment advisor model,” he said.

The transaction, subject to regulatory approvals, is expected to close in calendar Q3 2017.

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*An earlier version of this story said HollisWealth was an MFDA-only dealer. It is MFDA registered but not under IIROC; however HollisWealth is a division of Scotia Capital, which is registered with IIROC.