The back-office business for Canada’s investment dealers is already a very competitive space, with only a handful of powerhouse providers. So, the introduction of a new player has caused the industry to take notice. In fact, with Fidelity Clearing Canada ULC already establishing itself, existing back-office providers will likely have to put an even greater focus on differentiating themselves.

Toronto-based Fidelity Clearing Canada, launched on Sept. 24, 2009, is already seeing an increase in trade executions as well as additional clients coming its way, despite the challenging economic climate.

“The downturn has had very little effect on us,” says Richard Ness, CEO of Fidelity Clearing Canada and former president and CEO of back-office provider Penson Financial Services Canada Inc. “We think the combination of an innovative platform, the size and scale of [parent firm] Fidelity [Investments of Boston] and the fact we are a non-banking entity coming into Canada really differentiates us from the other competitors out there.”

The new firm offers clearing, custody and back-office support services to Canadian brokerage firms, as well as to the Canadian arms of U.S.-based brokerage firms. However, this is not the first time Fidelity has tried to enter the back-office space serving Canadian investment dealers.

In 2000, Fidelity launched a subsidiary company, Fidelity Intermediary Service Co., which decided to develop a clearing technology platform along with a third-party provider. But two years later, the firm decided that the likelihood of achieving a scalable goal in the back-office industry was slim to none and left the market altogether.

“In the early 2000s, the Canadian brokerage market realized consolidation and structural changes, forcing us to rethink our strategy,” says Richard Hart, senior vice president of new business and initiatives for Fidelity’s U.S.-based clearing organization, National Financial Services LLC. “Since that time, the market has evolved, and we see a growing demand from U.S. broker/dealers for a provider to support their Canadian brokerage units as well as an expanding opportunity to service Canadian [brokerages].”

The difference this time around is that instead of creating its own back-office platform, Fidelity has decided to join an existing platform — and one that is highly reputable within the industry: New York-basedBroadridge Financial Solutions Inc.’ s Dataphile.

“As a new, non-banking entrant with a fresh approach and set of ideas, a state-of-the-art technology platform, as well as the strength and capabilities of Fidelity Investments, we believe we are well positioned in a marketplace looking for additional options when it comes to clearing,” Hart adds. “Based on our past experience in this market, we were able to learn and readjust our strategy by working with an experienced consulting firm that has built clearing businesses before and knows the Canadian brokerage landscape.”

Fidelity Clearing Canada has surpassed its trading expectations, says Ness, handling approximately 123,000 trades a month. In addition, the firm has established relationships with Toronto-based Integral Wealth Securities Ltd. and Montreal-based execution specialist Jitney Group Inc. Fidelity Clearing Canada has three more potential clients in the pipeline.

Two aspects that make Fidelity Clearing Canada stand out are the size and brand of its counterparty, Ness says. He hopes to finish the year by adding eight to 12 more clients — despite the established competition.

“When I was at Penson, I didn’t focus on my competition; and neither does Fidelity,” adds Ness. “If you get it right for your customer, and make your customer happy, then everything else will fall into place. So, I’m sure we represent ‘a disturbance in the force,’ but it hasn’t played in my mind.”

But the competition will be fierce for Fidelity Clearing Canada, as powerhouse providers such as National Bank Correspondent Network, TD Waterhouse Insti-tutional Services and Ness’s former home, Penson, are all well established. So, with everyone playing in the same sandbox, each firm is quick to differentiate itself in the highly competitive business.

In the unseen world of trade execution, clearing, cash custody, compliance, margin-financing loans and bookkeeping, financial advisors are quick to criticize if things don’t run efficiently and smoothly — and just as quick to offer praise when they feel their dealer has made a smart decision in choosing a back-office provider.

With more than 100 independent financial services firms with $50 billion in assets under administration in the retail space for potential clients, NBCN, a subsidiary of National Bank Financial Ltd., is one of the biggest players in Canada’s back-office industry.

@page_break@Among NBCN’s retail clients are 67 members of the Investment Industry Regulatory Organization of Canada — approximately one-third of the self-regulatory organization’s non-bank-owned membership.

The news that Fidelity has re-entered the Canadian marketplace does not concern David Burnes, NBCN’s chief operating officer in Toronto; and although he respects Fidelity’s clearing operations in the U.S. and what that firm has accomplished, he does not see its Canadian counterpart as a big player just yet: “It has a very good brand, and it is obvious that the company wants to be a big player. It started by taking a different approach this time around, with leveraging [an existing] platform instead of bringing a new platform up to Canada.”

Burnes is staying focused on his own clientele and growing the wealth-management side of NBCN’s business. His ideal client is a boutique wealth-management firm that includes investment-counsel portfolio managers.

Burnes says NBCN’s parent bank’s brand is a big part of his business development: “A Canadian bank is an easy sell because so many Canadians are very comfortable with their banks and the stability behind them.”

In addition to expanding NBCN’s business, Burnes also has had a number of changes this past year. During a time when many firms were looking to outsource their back-office operations, Mississauga, Ont.-based Edward Jones’ Canadian operation announced in May 2009 that it would be going the self-clearing route — meaning it would no longer be on the NBCN platform.

In addition, the merger of GMP Pri-vate Client LP and Richardson Partners Financial Ltd. (both based in Toronto) resulted in another lost client for NBCN. At the end of 2009, Richardson Partners moved its back office over to GMP’s back-office system, which runs off Dataphile. With two major clients gone, NBCN was able to balance the year out by gaining one of its largest clients to date — a medium-sized Canadian brokerage firm.

Also known for its big bank brand is Toronto-based TD Waterhouse Institutional Services, which also works off the same IBM Corp. platform as NBCN. It has been around since 1989 and prides itself on being one of the largest retail trade-clearing firms on the Street.

Like its competitors, the effects of the economic downturn weren’t all negative. In 2009, TD Waterhouse Institutional Services more than doubled the number of clients it usually signs on in any given year.

“Clients come to us for peace of mind,” says Patrick Primerano, senior vice president with TD Waterhouse Institutional Services. “They want the safety and security of TD. They know that we have a very sound and conservative risk-management philosophy, and they know the way we manage our assets and protect our clients.”

Primerano says the increase in clients could also be the result of the fact that his team has been out in the marketplace much more than in the past, attending conferences, seminars and events to showcase the firm’s services.

The other main provider, which doesn’t carry a bank brand along with it, is Penson. It has been a major player since 1999, when Penson Worldwide Inc., a major international clearing firm based In Dallas, purchased ECE Electronic Clearing Inc. from founder Ness and Raymond Desormeaux. Penson Canada has been steadily growing over the past 10 years and now has 40 IIROC clients and is clearing more than 800,000 trades a month.

This past January, the firm announced it will be converting its back office from the IBM platform to Broadridge’s platform — a bold move in the competitive back-office world.

“We think that it is important that we have the best technology for our customers,” says John Skain, Penson’s president in Toronto. “We went through an exercise last year to identify what the best technology for our customers would be and decided to make that move.”

For Penson’s competitors, this could equal business opportunities. “It’s a feeding frenzy for us,” says Burnes, “as we can approach its clients and let them know that we can offer them the same back office that they have with much less change.”

Penson will also be launching a new fixed-income trading platform to go with the foreign-exchange platform it introduced last year. It is a big year in technology for the firm and, despite having to convert all of its clients over to the Broadridge platform, Skain is confident of the future: “We are the only firm that is independent and that is focused on this business only. All of our competitors have other priorities in their businesses; but we are focused solely on working with our correspondent business, and that gives us a unique place in the market.”

Differentiating services will be even more crucial for back-office providers in the near future. Toronto-based Univeris Corp., which is widely known for its Mutual Fund Dealers Association of Canada back-office services, has announced it will be launching its own IIROC platform soon. IE