Small- and medium-sized retail brokerage firms are finding favour with investors, as the size advantage of the bank-owned firms lessens, according to a new report from the Investment Dealers Association of Canada.

The July 2004 issue of the IDA’s Wealth Watch report focuses on non-bank owned dealers. It concludes that these firms have survived the past couple of years quite well, despite suffering through a period that saw revenues fall and profits squeezed from the market bubble heights of 2000. “Amid turbulent market conditions, our study shows that mid and small-sized dealers have been able to weather the storm,” the report says.

It also reports that its study of these independent dealers, “shows that both mid and small-sized dealers are succeeding in growing client assets, indicating perhaps that investors are becoming more attracted or more aware of these “alternative” service providers.”

The independent side of the business has been a strong source of industry growth at the IDA. There are currently 141 retail focused firms, employing 11,000 people. This is up from 120 firms and 8,400 employees at the end of 2000. As well, of the 39 new members to join the IDA over the past two years, 32 have been retail with 18 of them having capital of less than $5 million.

The IDA’s study focused on retail firms with at least $500 million in assets under administration; excluding the bank-owned firms. It then chose a sample of 27 firms from this group.

Of the firms in its sample, total client assets have increased from approximately $66 billion to $106 billion since the end of 2000, a 60% increase. During the period, only one of the 27 firms in the sample ended with a decline in their client asset base, while eight firms more than doubled their client assets during the period.

“These are very encouraging numbers for the industry considering the analysis period spans most of the bear market. This evidence shows that independent firms have been able to project their advisory business and despite difficult market conditions have been able to compete head to head with the bank-owned dealers,” the report finds.