If Macquarie’s able to achieve what it has set out to do with the recently purchased Blackmont Capital – effectively create a boutique broker/advisor shop with an international deal flow – it could drastically alter the way brokers do business in Canada.
The transactional nature of broker businesses have generally ridden out the storm much better than mutual fund selling financial planners, at least some brokers can be paid to sell. The IIROC-licensed broker channel is also increasingly the home to higher net worth clients who seem to be drawn to the idea of individual security selection for customized portfolios. All of this bodes well for this distribution network.
Last week, Macquarie, the Australian-based wealth management giant, purchased Blackmont from CI. The three men who will head up the new organization explain where they see opportunity in this market and how they can differentiate themselves from the large bank-owned broker/advisor networks that dominate the Canadian market.
Peter Maher, the group head of Macquarie’s Banking and Financial Services Group, which oversees more than $100 billion in assets under management, says Canada’s wealth management industry has a huge sustainable upside in growth.
“It’s a market where people prefer to use an advisor, it’s a market well capitalized and regulated, and it’s a market with underlying growth because of market incentives to encourage long term savings,” Maher says. “The government is trying to encourage long- term savings through favorable taxation, so that means there’s likely to be a continual pool of client money entering the wealth management market.”
Unlike other international markets, individual wealth distribution seems to be fully entrenched in the wealth channel. Despite recent setbacks, Canadians still prefer to work with advisors when it comes to their personal wealth.
“Compared with other places, Canadian clients already have a strong affinity with advisors. In Canada 65% of clients use an advisor, in Australia the number’s 25% to 30%. This is a market where the general population, broadly speaking, appears to value advice,” Maher says.
For this reason, Maher outlined that it’s imperative any dealership model has to be accommodating to the needs of advisors. Maher was adamant Macquarie will not port a new business model onto it’s newly acquired group of 130 advisors.
Blackmont will be re-branded Macquarie Private Wealth. The business will continue to be run by Blackmont CEO, Bruce Kagan, while Macquarie executive director and former Head of Macquarie Full Service Broking, Earl Evans, will relocate to Canada and become president of the business.
Maher says he likes how the existing Canadian business model allows for diversity of compensation and business models. He highlighted how he visited a Toronto-based team where one advisor was dealing in transactional-based option strategies to mitigate risk while his partner offered fee-for-service financial plans. He wants Macquarie to support all advisor business models as long as they demonstrate success for the client and advisor.
“The picture of success is that we’ll have experts in particular client segments, and experts with particular client relationship management strategies feeling like they’re part of a team that’s supporting them in the work they’re doing, and strong risk management that allows them to grow their business,” he says.
It will be up to Kagan and Evans to grow the business in Canada. Kagan has set forth a somewhat ambitious goal of doubling the number of the firm’s advisors over the next few years and increasing the firm’s assets under management to $20 billion.
Pitted against domestic bank brokerages this would seem like an insurmountable task, but Evans points out the new firm can attract top talent from other brokerages because it’s going to offer the same volume of deal flow, but with more exclusive distribution.
One of the strong value adds the bank dealers offer over other independent shops is the ability to flow their underwriting deals on new issues to brokers. In-house brokers typically get a first crack at new issues the firm has brought to market. Evans points out that given the number of brokers the banks employ the pie gets sliced fairly thin.
“If you look at the Canadian banking market, they are powerful groups, we don’t want to compete in that space, we’re not going to have corner shops all over the place. RBC for example has 1400 advisor/brokers; we have 131 and want to grow to 250. If you’re one of 1400 advisors or you’re at Scotia and one of 800, one could say – and I’m not saying that – but one could say you’re just a number. You really don’t hold much relevance unless you’re in the top 100 or 200 advisors at those firms,” Evans says.
He adds,“On the capital markets side, it gets to a point where you can be diluted out of the game. [Globally] our deal sizes tend to be on par with RBC, but we’re spreading our deals to around 200 to 250 advisors. They’re spreading the same amount of deal flow through more than 1000 advisors.”
Add to the mix the fact that Macquarie will be offering about 90% analyst coverage of the Canadian market, and the firm becomes a compelling spot for advisors disaffected by the large size of the bank brokerages or those in the independent space concerned about their firm’s economy of scale.
“Macquarie’s entry into Canada will shake things up,” Kagan says. “We’ll fit just under the banks but above the independent firms given our sheer financial strength. We’re offering global research, not just Canadian, and it’s an entirely new market of issue flow. Leveraging all of that should enable us to achieve our goals.”
In fact, Kagan boast that they may not even have to do whole lot of work in recruiting new brokers from other dealers.
“Earl and I have been meeting a number of people who called us last week when the deal was announced. I’m not even going to tell you how many phone calls we’ve gotten from advisors across the country wanting to sit down with us,” he says.