Industrial Alliance to buy DundeeWealth’s Quebec fund and insurance distribution operations

On Nov. 3, Industrial Alliance announced that it had entered into an agreement to buy DundeeWealth’s Quebec-based financial planning, mutual fund dealer and life insurance sales operations. DundeeWealth is retaining its investment dealer platform (IIROC members) in Quebec.

Upon completion of the deal, which is subject to regulatory approval and expected to close Dec. 31, the mutual fund business will be merged with one of IA’s mutual fund dealer subsidiaries Investia Financial Services.

The deal, which includes about $2.6 billion in assets under administration (AUA) and a network of approximately 340 mutual fund licensed and 70 insurance-only licensed advisors, is another demonstration of IA’s continuing appetite for acquisitions.

"You can grow organically and … when the price is right, you can grow through acquisitions," said Jacques Carrière, Industrial Alliance’s, vice-president, investor relations, in an interview with The Insurance Journal. The price of this particular transaction has not yet been disclosed by IA.

He says the goal of the acquisition is to bring more good sales people into the company, but also to achieve scale and efficiency for Investia. In 2008, IA has aggressively expanded this mutual fund dealer subsidiary.

Mr. Carrière pointed out that as of last June, Investia had $4.1 billion in AUA. Then, in July, it completed the acquisition of AEGON Dealer Services which added another $2.8 billion in AUA. With the addition of the AUA from the DundeeWealth deal, Investia will have more than doubled in size in the past year.

Mr. Carrière says that with the combined assets of Investia and its other fund dealership, FundEX Investments, IA is positioned in the top five of non-bank owned mutual fund dealerships in Canada.

In addition to growing Investia through acquisitions, in early November, Industrial Alliance also announced the completion of its acquisition of Sarbit Asset Management which will be controlled by IA’s subsidiary,

IA Clarington Investments. Also, at the end of 2007, IA acquired L’Excellence, a Quebec life insurance company.

In the press release announcing the deal, there was no comment on what would become of DundeeWealth’s Quebec insurance distribution operations. In the interview with The Insurance Journal, Mr. Carrière, said he could not comment on this issue. He added that Normand Pépin, executive vice-president of IA, would know more on this subject, but Mr. Pepin was not available for an interview before press time.

Why did DundeeWealth sell these operations?

Contacted by The Insurance Journal, DundeeWealth declined to comment on the sale. Others, however, have theories of their own.

Gabriel Dechaine, an analyst with Genuity Capital Markets in Toronto, told The Insurance Journal

that, "The cost structure of DundeeWealth is relatively high compared to its peers." They needed to cut costs and Quebec was a good target. "This was a bit of an underperforming asset."In terms of numbers, Mr. Dechaine says average funds under administration per Quebec mutual fund advisor is around $8 million, whereas it is about $15 million across the company.

Meanwhile, DundeeWealth advisor, Adrian Chomenko of Montreal had his own idea why the company is shedding its Quebec advisors. As reported in the October edition of The Insurance Journal, DundeeWealth issued an internal memo announcing a new policy whereby its financial advisors will no longer be permitted to do their insurance business with managing general agents outside of Dundee. Although this memo was not supposed to be sent to Quebec advisors, Mr. Chomenko did receive a copy. He says he was very concerned by the new policy. With the long history of insurance brokerage in Quebec, he doubted that DundeeWealth’s independent-minded, entrepreneurial Quebec advisors would follow this rule like "sheep."

Mr. Chomenko, who says he is among DundeeWealth’s top 400 advisors in Canada, says "I am pleased, very pleased" by the sale to Industrial Alliance. He adds that since the sale was announced, he has been approached by two other dealers looking to win over his business, but he is happy to go with IA. He thinks it is a solid company that will respect his independence.

Mr. Chomenko does 80% mutual funds and 20% insurance sales. For various reasons, he has not wanted to put his insurance business through Dundee Insurance Agency Limited (DIAL). Instead he has worked through a direct arrangement with Canada Life and through an MGA. He says he values these relationships greatly and doesn’t understand how DundeeWealth can oblige independent advisors to drop their other business relationships and work exclusively through DIAL. "I don’t think anyone has the right to tell advisors to turn their backs on the people who have helped them over the years."

DundeeWealth’s stock price has been hit hard this year. The stock was trading at $5.01 on Nov. 17 down from a high of $22.31 reached last November, a decline of 77.5%.

Also, the company has undergone a leadership change in recent months.

 Jim McClocklin and Dan Brintnell, co-heads of DundeeWealth’s retail division for both Dundee Securities Corp. and Dundee Private Investors Inc., left the company this fall after two years in their positions. An internal memo stated that John Panneton will move into the new role of executive vice-president, distribution and investment. Mr. Panneton also remains chairman of Goodman Private Wealth Management, said the memo.