It seemed a match made in heaven: two major consolidators, Dundee Wealth Management Inc. and IPC Financial Network Inc., both committed to serve the independent financial advisor.
“The fit between Dundee and IPC is excellent,” Steve Meehan, CEO of Mississauga, Ont.-based IPC, said in a December 2002 press release announcing the merger. “We are Dundee now,” one Ontario IPC advisor said when surveyed in mid-April.
But, after several postponements, the Dundee-IPC merger was terminated May 2 over regulatory concerns about an IPC office in Montreal. Trading discrepancies at the former KPLV Securities Inc., acquired by IPC in 2001, were first noticed by IPC in late 2002.
“We found some irregularities in account trades that were done off-book,” says Chris Reynolds, president of Investment Planning Counsel of Canada, IPC’s planning arm. “We notified the Quebec regulators, the Mutual Fund Dealers Association and the Investment Dealers Association of Canada.”
The Montreal office in question has since closed and IPC continues to work with regulators regarding the situation. “We’re comfortable with all the information that’s out there,” says Reynolds. “Dundee wasn’t, and that’s its prerogative.” He notes Dundee was fully informed of the situation at the onset of the merger. “It wasn’t anything that came as a surprise.”
But the failure of the merger did surprise IPC advisors, many of whom were hoping the sum of the two companies would be better than their independent parts. “Assuming the Dundee deal does go through, I’d have no reason to leave IPC,” said one Alberta IPC advisor.
Advisors at both firms appear to be less than happy. Both firms’ scores slid significantly in Investment Executive’s 2003 Financial Planners’ Report Card. IPC and Dundee, which claimed fourth and fifth place, respectively, in the 2002 survey, fell to eight and ninth place, respectively, in 2003.
IPC suffered its greatest point losses in mutual fund research, strategic focus and stability, while Dundee saw significant drops in scores for back-office technology, advisor training and advertising.
Mutual fund research is IPC’s biggest drop, falling 2.3 points to 4.8 this year. Reynolds admits in-house research is not a top priority. “We think fund companies give more than enough information,” he says. What is paramount to IPC is restoring advisor confidence in its stability and strategic focus.
“We’ve been distracted over the past six months and it has been detrimental, especially to our focus,” says Reynolds.
The merger distraction translated into scores of 6.9 and 6.6 at IPC for stability and strategic focus this year, down 1.3 and 2.1 points, respectively, from 2002.
Some IPC advisors believe the merger with Dundee would bring much-needed stability to their company. One Ontario advisor gave his firm top marks in both strategic focus and stability “now that we’ve been bought by Dundee.”
Reynolds dismisses rumours that IPC needed Dundee’s financial backing to continue in the industry. “It wasn’t as if IPC needed to do the Dundee deal; it was that we wanted to do it,” he says. “We are actually in a better financial situation this year than last.”
There is no doubt most IPC advisors supported the Dundee merger, but Reynolds says that morale has not declined since the deal was cancelled. “Our advisors are encouraged that they now have a direction,” he says. “The failed merger was disruptive to our overall business plan and we couldn’t afford to spend any more time on it.”
Dundee executive vice president Don Charter concedes acquisitions are disruptive to any business: “You get delayed on what you are doing, but I don’t categorize that as detrimental.” The stability and strategic focus of Dundee Private Investors Inc., the company’s financial planning arm, scored well in the 2003 survey at 8.7 for stability and 7.7 for strategic focus.
Of more concern to Dundee advisors is the company’s RPM-run back office, advisor training and lack of a national advertising campaign. “There are too many new, inexperienced personnel in the back office,” complains one Ontario advisor. “The back office is antiquated,” says another Ontario rep. “I’d move for better back-office support,” says yet another. The complaints led advisors to rate their back office a 6.1, a 1.8-point decrease from 2002. Charter says the company is currently increasing its technology spending to ensure compatibility between the back offices of its financial planning and securities arms: “We are looking at a better client name back-office system than what currently exists.”