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9/5/2017 Tough times, rising costs have chewed up 25% of Canadas small investment rms: IIAC | Financial Post

Toughtimes,risingcostshavechewedup25%ofCanada's
smallinvestmentfirms:IIAC
business.financialpost.com /news/fpstreet/toughtimesrisingcostshavechewedup25ofcanadassmall
investmentfirmsiiac
BarbaraShecter 1/5/2016

TORONTORestructuringandconsolidationinatougheconomyandescalatingregulatorycostshaveledtothe
disappearanceorreconstitutionofafull25percentofinvestmentfirmsinCanadaduringthepastthreeyears,
accordingtotheInvestmentIndustryAssociationofCanada.

Morethan50boutiquefirmsaregone,includingsomethathavebeenoverhauledtooperatesolelyinCanadas
lessonerous,lowercostexemptmarket,IanRussell,theIIACschiefexecutive,toldaluncheonTuesdayinToronto.

Othersmallandmidsizedfirmshavefoldedoutrightorbeenamalgamated.

Despitetheconsolidationthathasalreadytakenplace,significantcontractionisexpectedduringthenextcoupleof
years,saidRussell,whobasedhisviewonarecentsurveytheIIACconductedbytappingthechiefexecutivesof
theassociations144investmentdealermembers.

DearSanta:Independentdealersneedabreak
Canadianinvestmentdealersreboundfromfinancialcrisis,butboutiquefirmsfallbehind

Thispessimisticviewcomesasnosurprisegiventhattherearemorethan50investmentdealersstilloperatingwith
grossannualrevenueof$5millionorless,amagnitudesuggestinginsufficientscaletooperateunderexisting
conditions,Russellsaid.

Ashasbeenthecaseduringthepastfewyears,thefirmsarerequiredtospendmoremoneyontechnologyand
compliancetosatisfynewregulatoryrequirementsatatimerevenueisbeinghammeredbylacklustreeconomic
growthandlowcommodityprices.

InDecember,TorontobasedOctagonCapitalshutitsdoors,andVancouverbasedSalmanPartners,whichhas
operatedformorethan20yearsandemploysabout40people,signaleditsplanstowinddownoperationsbymid
February.

Thisfollowedasteadystreamofclosuresduringthepreviouscoupleofyearsthatcasusedsomeobserversto
questionwhetherdealerscansurvivecurrentconditionsiftheyarentpartofabigfullservicebank.

Thatsafairquestiongiventheprolongeddoublebearmarketsinenergyandmining,whichmanyoftheboutique
firmsreliedonfortradingandfinancingactivity,saidJohnTurner,apartnerintheglobalmininggroupatlawfirm
FaskenMartineauDuMoulinLLPinToronto.

Russellsaiditiscleartheindustrywillhavetocontinuetocopewithweakeconomicconditionsinthecomingyear.

TheCEOs[surveyedalso]expecttherelentlessriseinoperatingcostsrelatedtocomplianceandtechnologyto
continue,hesaid.Thiswillfurthersqueezeprofitability.Italsomeanstheindustrywillcontinuetoconsolidate,with
firmsmergingorshuttingdownoperations.

JustafewmonthsbeforeOctagonwasshuttered,TorontobasedEdgecrestCapitalCorp.,whichhadscoopedup
strugglingStonecapSecuritiesInc.justlastyear,closeddownandlaidoff22staff.

EdgecrestfounderDavidBeatty,whowasoneoftheoriginalbackersofWestwindPartners,whichwassoldin2007
forUS$155million,saidtheprolongedbearmarketinminingandenergyhadstarvedEdgecrestofthecapital
neededtomeetregulatoryrequirements.

RisingregulatorycostsandtoughtimesinthejuniorresourcesectorcausedindependentTorontoinvestmentdealer
FraserMackenzieLtd.toshutteroperationsin2013afternearlyadecadeinbusiness.
9/5/2017 Tough times, rising costs have chewed up 25% of Canadas small investment rms: IIAC | Financial Post

Thatsameyear,veteranindustryplayerLoewenOndaatjeMcCutcheonLtd.resignedfrommembershipwithits
principalregulator,theInvestmentIndustryRegulatoryOrganizationofCanada(IIROC).Industryobserverssaidthe
moveallowedthefirmtooperateoutsidethepurviewandattendingfeerequirementsofIIROC.

Despitethebleaktrendandstatistics,FaskensTurnersaidthereareafewbrightspotsonthehorizon.

FirmssuchasTorontobasedMaxitCapitalhavedoneverywellrelyingonstrongadvisoryrelationships,hesaid,
notingthattheirbusinessisbasedontransactionalworkratherthanequityissuesandtrading.

HeaddedthatveteranindustryplayerssuchasBeattyhavedefiantlyvowedtocomeback.

Whileitsbleakatpresentwithseeminglynoendinsight,pastexperienceindicatesthatwhenthisbecomesthe
perceivedwisdom,changeisaroundthecorner,Turnersaid.

bshecter@postmedia.com

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