Hub Financial’s purchase of Daystar won’t be the last MGA acquisition, say industry players.
“We’ll be doing some announcements hopefully very soon,” says John Hamilton, president and CEO of Financial Horizons.
He adds his firm has recently completed some smaller asset acquisitions, including one in Quebec and another in Ontario.
“Whatever MGA you are, whether large or small, you’ve got to decide: are you going to buy or be bought?” he says. Financial Horizons, PPI Solutions, IDC Worldsource and Hub plan to continue expanding, he adds.
“The top four or five all have four or five different deals in play,” he says, noting there’s likely some overlapping negotiations.
“This is the tip of the iceberg. Daystar wasn’t small,” agrees Byren Innes, senior vice president and director of the NewLink Group in Toronto. “If one of the reasons that they’re saying they’re doing this is because they don’t want to take on the increased expense [of] increased compliance requirements, then what does that say about the tier-two and tier-three firms?”
While Innes declined to name names, he says, “There are certain firms that don’t have the scale to manage an agency in an increased compliance world.”
Hub Financial’s president, Terri DiFlorio, also sees more mergers on the horizon.
“We’ve worked hard to position ourselves well for the compliance changes we saw coming, and I think that will pay off in spades. And because we made some of the harder choices early on, it means that now, when some other players are in chaos, it’s just business as usual [for us],” she told Advisor when the deal was announced Dec. 4.
DiFlorio also said carriers have signaled their intentions to trim down the number of MGAs they work with.
“Carriers are putting more pressure on volume requirements and that’s going to mean some of these smaller agencies are going to need to work together, or perhaps consider an acquisition,” she added.
The market for MGAs has been shrinking for several years. In February 2012, Financial Horizons Group bought Force Financiere Excel, making it the country’s largest MGA at the time. Financial Horizons also owns Audis Canada, which it scooped in September 2012, and Optio Financial Facilitators.
And in July 2012, RBC Insurance cancelled contracts with 69 of its 83 MGAs. Hub, Daystar and Financial Horizons Group were among the remaining. That represented RBC’s second round of consolidation, as they’d halved their MGA list a few years prior.
Having one less MGA to deal with without losing any advisors is a plus for insurers, notes Innes.
Insurers are also facing increased compliance burdens, says Hamilton, and they’re slimming down the number of MGAs they deal with to cope.
Hub has acquired 19 MGAs, including Daystar, in the past year. While Innes says their newest purchase won’t change the landscape, it could send a message to Hub’s remaining competitors.
“They may even be able to leverage this, saying ‘See, even someone the size of [Daystar] had to re-think their strategy going forward. You’re only a little guy, you should be thinking about it too,” says Innes.
Larger firms have been working together to update their technology by sharing information, says Hamilton, giving them another edge over smaller competitors.
“The mid-sized smaller ones, for whatever reason, have not invested the same. It’s creating a separation,” he says.
For healthy MGAs, the Daystar purchase provides an opportunity to poach top advisors, adds Innes.
“There’s going to be some raiding going on for sure,” he says. While Hub has said it will keep most of Daystar’s staff, Daystar’s Calgary office opted not to move over.
Two people will be leaving the Vancouver office, along with three in Alberta and three in Winnipeg.
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— With files from Advisor Group staff