‘Death by a thousand cuts’ for independent IIROC firms?

The number of firms registered to trade securities has continued to fall, reaching 167 this month. And one industry group predicts an additional decline of 50 more investment houses over the next few years.

IIROC, the self-regulatory group that registers securities dealers and dealer firms, tells Advisor.ca the number of regulated firms is down from 174 last year and from 210 in 2008, the year of the financial crisis, as smaller outfits have been pushed out of business or swallowed in consolidation.

The IIROC data indicate the wealth management business has continued to grow since 2008, if only slightly. The number of IIROC professionals has climbed 2.3% since 2008, to 27,402 registered individuals, while the number of firms dropped by 20.5% over the same period.

“That number’s probably going to go down by another 50 firms in the next two [to three] years,” says Ian Russell, head of Investment Industry Association of Canada, noting that small houses of 10 to 15 people will be most affected. “They’re very, very small firms, and we still have quite a few of them in our membership.”

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Lower commodities and resources prices have affected many boutique firms at the same time as they’re under higher regulatory and technology cost pressures.

The industry saw further consolidation this year after Raymond James acquired 3Macs and former Macquarie, RGMP, Dundee advisors found their fourth home at Echelon Wealth Partners, formerly Euro Pacific Canada. There’s now speculation about a takeover of Richardson GMP, should it go up for sale.

“The [public] venture exchange, and I would say IIROC as well, are both dying slow deaths, or deaths by a thousand cuts,” adds Craig Skauge, head of the National Exempt Market Association, whose members use the exempt markets—exempted from the prospectus requirement—to raise capital for businesses and attract investors.

“The big banks can survive; the large fund companies can survive, because they have the economies of scale to afford it, but the little guys can’t,” Skauge says. “We used to have venture markets that were the envy of the world, but the rules are so large now that companies can’t afford to be listed anymore. So they stay private.”

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He says advisors are using the exempt markets more to gain more options. “There [are] fewer and fewer listings, and if you look at the listings, the vast majority of them are funds. They’re not even actual companies,” Skauge says.

In the U.S., meanwhile, independents are flourishing. Bloomberg reported this month that independent registered investment advisors more than doubled their AUM — to US$2.8 trillion — in the last eight years ending in 2015. Big firms, on the other hand, saw their assets grow only 12%, to US$6.4 trillion.

Russell says the Canadian wealth management business is growing largely on baby boomers seeking to secure their retirements, investments and estate plans.

He says Canada’s public ventures market has been under stress as many investors in the area have moved to private equity. Private equity deals rose to 85 in Q1 2016, up from 55 in Q1 2013, according to the Canadian Venture Capital & Private Equity Association.

While some advisors are active in private equity investment, acting on behalf of sophisticated, wealthy investors, most advisor activity remains in the public markets, Russell adds.

IIROC-registered firms and individuals, 2008-present

Calendar year	Registered individuals (RR & IR)	IIROC-regulated firms
2016 to date*	27,402	167
2015	27,122	174
2014	26,705	181
2013	26,560	191
2012	26,522	200
2011	26,549	208
2010	26,372	207
2009	26,445	204
2008	26,774	210

* Received October 16, 2016. Source: IIROC

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