Boutique and retail investment firms see profits rise in Q1

By The IJ Staff | June 22 2020 12:30PM

Photo: Freepik

Operating profit for Canadian investment dealers Industry was predictably weak in the first quarter, down 27 per cent quarter-over-quarter to $1.6 billion, but still within the range of the quarterly average over the past three years, says the Investment Industry Regulatory Organization of Canada (IIROC).

In a letter to members, Ian Russell, president and CEO of IIROC, says the fall in industry profits was almost fully accounted for by integrated firms that experienced trading losses in the derivatives markets during the COVID-19 crisis. Operating profit for the boutique firm group was up for the first quarter, with solid profit gains at the retail firms offsetting a modest profit downturn at the institutional firms. Even in the crisis-month March, the number of firms with losses on a net basis was roughly the same as in January and February.

Retail revenue up during Q1

Retail revenue was up in the first quarter, driven by active brokerage share trading from portfolio repositioning as the stock markets fell steeply and then reversed course in late March and April. Retail revenue will likely come back into the range over this year as client brokerage trading tapers off and markets stabilize, says Russell.

At the same time, Russell believes retail revenue across the industry will likely resume its upward trend in previous years driven by strong demand for wealth services to accumulate retirement savings. That suggests revenue and profit will likely move even higher.

Client-focused reforms will lead to higher operating costs for some dealers

Russell says higher operating costs, particularly for small and mid-sized dealers, will continue this year as the Client-Focused Reforms (CFR) rules and compliance-related technology and systems are implemented to meet the year-end deadline.

“The first quarter results signal a more precautionary business approach emerging from the eye of the COVID-19 storm, both dealers and clients alike, given the uncertainties about the direction of financial markets and extent of economic recovery.”

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