Canaccord Financial’s recent decision to shutter half of its 32 branches in Canada underscores just how competitive the wealth management business in Canada has become—at a time when there’s not a lot of money to be made from it. The obvious culprit is persistent uncertainty about the global economy, which has kept nervous investors on the sidelines. At the same time, it has also caused companies to hold off on share offerings, creating a sort of double whammy for firms like Canaccord, one of the country’s last remaining independent full-service brokerages.
Under normal circumstances, however, none of this would be a particular cause for concern since stock markets are cyclical. Once the bull market returns, so too will investors. But Canaccord has also found itself squeezed by Canada’s big banks, which have used their giant war chests to pile into the wealth management space—a business that is seen as relatively low risk (unlike investment banking) because of its fee-based compensation structure. The result? Too many advisors chasing too few clients, which is eating into everybody’s profits.
But that doesn’t mean the business model is broken. Far from it. And Canaccord indicated as much by buying the private wealth management division of the U.K.’s Eden Financial Ltd. on the same day it made its Canadian cuts. It also purchased another U.K. firm in December. In other words, for Canaccord, there’s still money to be made in wealth management. Just not in Canada.