QUEBEC CITY-BASED INDUSTRIAL ALLIANCE Insurance and Financial Services Inc. (IA) has completed its acquisition of Fin-XO Securities Inc. of Montreal. The transaction, which was subject to regulatory approval, closed on Oct. 1.
IA says the move is part of its strategy to expand the firm’s affiliated distribution network and accelerate its growth across Canada.
Following the transaction, Fin-XO will be merged with Industrial Alliance Securities Inc. (IAS), a wholly owned subsidiary of IA.
Fin-XO, with more than $700 million in assets under administration (AUA) and 30 financial advisors, was Quebec’s second-largest independent, full-service investment dealer. It was formed through the merger of Investpro Securities Inc. and Demers Securities Inc., both of Montreal, in 2009.
The IA/Fin-XO transaction gives IAS more scale in AUA and additional advisors, as well as the ability to manage costs in areas such as operations, compliance and systems, says Richard Legault, president of IAS. “It comes with very little additional cost,” he adds – and, therefore, lowers IAS’s unit costs.
Legault says IAS’s goal is “to grow its business to about $10 billion to $12 billion over the next three years – organically by adding new advisors, and probably through small acquisitions.” Excluding the Fin-XO transaction, IAS has $6 billion in AUA and 240 advisors.
IA is Canada’s fourth-largest insurance company and third-largest non-bank distributor of financial products and services. The company trades on the Toronto Stock Exchange and has a market capitalization of $4.04 billion (as of Sept. 30) and $113 billion in AUA (June 30, 2015).
Outside of IA’s diversified insurance product lines, the company has been actively building its investment funds and asset- and wealth-management businesses. IA’s most recent major transaction prior to the Fin-XO acquisition was Toronto-based Jovian Capital Corp. in October 2013, which added $7 billion in AUA and brought into IA’s fold such established Toronto-based firms as Leon Frazer & Associates Inc., T.E. Investment Counsel Inc., and Hahn Investment Stewards & Company Inc. (the last has been renamed as Forstrong Global Asset Management Inc)., among other companies.
While Fin-XO is registered to operate in Quebec, Ontario, Alberta, Manitoba, British Colombia, Saskatchewan and New Brunswick, the majority of the firm’s business is concentrated in Quebec and Ontario, serving primarily retail clients.
Since 2009, Fin-XO’s AUA has more than doubled, says François Demers, chairman of the board of Fin-XO. “The merger between Investpro and Demers took place right after the financial crisis [of 2008-09],when banks were not quite as popular,” Demers says, “[providing] an opportunity to pick up larger chunks of business in the marketplace.
“Fin-XO fits the game plan of IA,” Demers adds, “and is a fantastic transaction for them, especially since there are not too many independent brokers left on the street. [Fin-XO] is one of the good little companies, with good profitability and a good clientele.”
Legault points out that IAS and Fin-XO are compatible: “We have similar business models and a similar payout structure, as well as the same back office, National Bank Correspondent Network, which makes the transition fairly straightforward from here.”
The product lines of IAS and Fin-XO also are largely similar, including mutual funds, segregated funds, equities and fixed-income securities, RRSPs, RRIFs, RESPs, tax-free savings accounts, wealth-management services, loans and mortgages.
Legault attributes IAS’ success to serving the needs of independent advisors – as opposed to a corporate model, in which advisors work in a physical branch of an institution such as a bank. He says IAS’ independent advisors have more autonomy in product selection from various companies once those products are approved by IA’s compliance. IAS advisors also benefit from higher commission payouts but must pay their own expenses, compared with a bank-owned model, in which payouts are lower but the bank covers advisors’ expenses.
Says Legault: “[IAS] Advisors have control over their earnings since they can determine how much they want to spend to build their businesses.”
The independent advisors are registered with IAS, which provides trading, settlement, compliance and reporting in collaboration with its back office.
Once the dust is settled following the acquisition, the relationship between Fin-XO advisors and their clients shouldn’t change, Demers says. Fin-XO’s employees also will retain their jobs. “It is actually a better opportunity for them,” he says, “since they have the choice of a career path [with a larger company].”
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