What the GMP Capital deal means for Richardson GMP

Richardson Financial Group holds between 23% and 24% of GMP Capital and is its biggest shareholder. “We’re very supportive of [the Stifel] transaction because it allows there to be a renewed focus on Richardson GMP,” said Sandy Riley, president and CEO of Richardson Financial Group, in an interview. “It gives us the ability to focus on a strategically important business, and to provide capital to that business so it can grow.”

Riley also offered a window into the process for having GMP Capital own all of Richardson GMP. Richardson Financial Group currently owns about 33% of Richardson GMP, and financial advisors own the remaining 33%.

In essence, Riley said, Richardson Financial Group “would exchange our shares in a private company, Richardson GMP, for shares in a public company, GMP Capital. We would end up with a combined interest that is yet to be determined, because it depends upon the way in which the numbers work out.”

Regardless of how the numbers work out, Richardson Financial Group would be “the most significant shareholder in GMP Capital, which would then own 100% of Richardson GMP.”

Further, “The employees will be treated exactly the same way we are,” Riley said, meaning that the share exchange would result in advisors remaining equity owners in Richardson GMP.

Richardson GMP president and CEO Andrew Marsh said in an interview that the Stifel transaction marks “an exciting new era for our company,” allowing the firm to become a “pure play” in wealth management as a publicly traded company.

The move clarifies Richardson GMP’s ownership, he said, and sends a firm signal that it’s not for sale. It also offers a “path to liquidity for a lot of our advisors.”

The sale of the capital markets business also frees up funds for recruitment and acquisitions to expand the wealth management business, Marsh said. The conversations advisors are having with clients will determine the firm’s focus.

“As we’ve changed the conversation to be focused more on value-added advice, on complexity of wealth, it’s led us to believe that our clients need more from us than just investment management,” he said. “What we see is opportunities to expand into a more focused, solutions-based approach with insurance.”

Riley said the capital will provide opportunities for Richardson GMP to grow its business, “whether it’s through recruiting or through growing complementary businesses or doing acquisitions. That, to us, is important.”

Richardson GMP manages roughly $30 billion in client assets.

The brokerage has always touted the strength of having advisors who are also owners. “That remains the case,” Riley said. “We have what I think is a robust internal market, but this [would] give us a platform to provide for liquidity at market-determined prices going forward, also addressing a concern that [advisors] would have had.”

Charlie Spiring, founder and chairman of Winnipeg-based Wellington-Altus Private Wealth Inc. and a former chairman of the Investment Industry Association of Canada, says advisor equity ownership is “a massive advantage. I think whoever drives the value should own the value. You need advisors to have important roles in the firm, you need advisors who do business to multi-task. That’s how you can get the extra premium, the extra value, out of the business.”

Riley said the GMP board has been focused on the Stifel transaction, so negotiations regarding Richardson GMP’s ownership are still ongoing. “We still have a lot of issues to identify and address,” Riley said, “but there’s lots of agreement that [the Richardson transaction] is what is in the best interest of both companies.”

When asked if there was any scenario where Richardson Financial Group exits the business, Riley responded with an emphatic “no.” “We will figure something out,” he said. “We are not exiting the business. Our name is on the door, and we’ve been doing this for over a century.”

Riley said “it was never on the table” for Richardson Financial Group to sell its shares in Richardson GMP to Stifel. “We’ve heard so many rumours over the years about our interest in the business, but we’ve always had a strong interest. These initiatives provide us with the platform that we can now lean in and support this business the way we want to. We want to make it really clear, in the context of this decision, that we have always been a big supporter and committed to the business.”

Spiring added that “the industry really needs more independents to champion the industry, and that’s for the sake of the clients, the sake of the IAs, and even for our domestic banks — they don’t need to own more of this business, to have control and sway over where it’s going.”

Riley agrees. “We need non-bank owned points of access for clients to do wealth planning,” he said. “There is a requirement for an organization that offers a different perspective and a different voice.”

And his message for advisors and clients? “They can look on this firm now with the confidence that it’s well-sponsored, well-financed and well-positioned to grow.”

The GMP transaction

Harris Fricker, CEO of GMP Capital, and other key personnel have agreed to join Stifel.

“The unfortunate part is that it has been hard to sell the capital markets business, which at one time was GMP’s gem,” Spiring said. “I know when I sold my capital markets business to National Bank [of Canada in 2011], there was no one left after that. So finally [GMP Capital] got an interest, although it’s not an overpayment for that asset. [Fricker] and those guys are pretty bright, pretty smart people, and probably [the business] would have been worth a lot more than that in a different time.”

GMP Capital Inc. reported a net loss of $22.9 million for the first quarter of 2019 after recording a $28.5-million non-cash goodwill impairment charge in its capital market segment.

GMP’s capital markets revenue of $34.1 million was down 21% from the same period a year ago after lower investment banking fees and lower commission revenue, the firm said.

The wealth management side of the business at Richardson GMP performed better, increasing net income by 12% in Q1 compared to the previous year. The wealth manager’s revenue decreased 10% year over year, to $68 million, due to lower management fees, but total expenses were down 12% from the same period in 2018, the firm said last month.