Independent securities firms expected to take action to lessen negative impacts of client-focused reforms

By The IJ Staff | August 21 2018 11:30AM

Ian Russell

The head of the Investment Industry Association of Canada (IIAC) is warning that proposed reforms on issues such as “know your client” rules and conflict of interest will be expensive for investment dealers to implement and could change the shape of firms down the road.

Ian Russell, IIAC president and CEO, says the higher compliance costs, along with ongoing pressure on fees and charges will mean tighter operating margins for all dealers.

While markets have done well recently and kept many dealers afloat, these “client-focused reforms” will start to eat away at performance especially for independent firms.

Securities firms look to cut costs

“Firms will respond to the cost increases from the client-focused reforms as they typically have: by cutting costs, finding operating efficiencies and savings and building business scale through mergers and acquisitions,” Russell said in a statement.

The higher costs, he predicts, could force some dealers to move from a full-service model to a narrower, more focused package of wealth-management products and services. Others may opt to include robo-advisor/hybrid self-directed accounts or online robo-advisor platforms. There will also be those who decide to specialize in high net-worth or ultra-high net-worth clients only.

“More likely, though,” he said, “these firms will shift their business focus to middle-income Canadians with investible assets in the $100,000-$250,000 range to reduce compliance costs and risks by limiting portfolio complexities.”

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