CI Fund Management Inc. CEO William Holland said that he expects more consolidation in the fund business as the banks have come to dominate sales.

In a question and answer session with analysts following the release of CI’s latest quarterly results on Wednesday, Holland suggested that many of the independent fund companies are struggling, and that these struggles can’t go on forever. Ultimately, further consolidation will likely occur, he noted.

The independents are facing very stiff competition from the bank-owned firms, he pointed out, as the banks are doing a very good job of selling funds through their branch networks. Holland said that the in-branch advisors appear to be quite competent, and they are proving effective at capturing sales.

At the same time, overall industry sales have become very concentrated. Holland noted that during RRSP season, the top 10 selling firms essentially account for 100% of the sales. In the non-RRSP season, he suggested, five companies may account for all of the sales.

With many independents having a hard time, Holland expects them to eventually sell out. He suggested that in this environment the only compelling competitive advantage firms can have is size. He indicated that to compete effectively, independent fund firms have to be as big as the banks, and able to spend as much as they do on distribution and marketing.

Holland said he isn’t sure how this consolidation will play out, particularly as the climate for bank mergers and bank-insurance mergers also remains unclear.

The other big mystery in the fund business, Holland noted, is how the eradication of the Foreign Property Rule will affect the business. He said, the move is a huge event, and that he’s not sure what will constitute a Canadian equity fund several years down the road, as a result.

As for CI, Holland also indicated that it will not consider converting to an income trust again until the federal government clarifies how it will treat these structures. The firm had contemplated trust conversion earlier, but ultimately backed away.

He noted that the latest budget pledges to examine the issue further, so CI won’t entertain conversion until it has clarity from the government on whether these structures will be allowed to persist.