In an effort to remain relevant, mutual fund dealers are tacking together humble imitations of the financial services conglomerates the big banks are building. But in the race to offer one-stop shopping, do they have what it takes to compete?

It’s no secret the big Canadian banks — and, indeed, many of the world’s biggest financial institutions — are trying to be all things to all people in retail financial services.

The banks each bought investment dealers, steadily built up their asset-management capabilities and pushed as far into the insurance business as Ottawa would allow.

In the past few years, the banks also have been moving into financial planning. After starting out with in-branch fund sales, then introducing third-party fund sales, the banks are now assembling internal financial planning forces to bridge the gap between front-line bank personnel and full-service investment advisors.

The plans are ambitious. Bank of Montreal, for example, has assembled a 700-person force of investment specialists in just two years, and it plans to build its capability aggressively in the next couple of years. CIBC expects this year to be fielding 700 advisors who can offer products on both sides of the balance sheet.

The response from several traditional fund dealers has been to meet the banks head-on by playing the same game. Rather than simply focusing on the fund distribution business, several dealers have added securities and insurance capabilities, and are now repackaging white-label banking services for their clients.

The industry consolidators have been leading the charge. Firms such as Winnipeg-based Assante Corp., IPC Financial Network Inc. of Mississauga, Ont., Cartier Partners Financial Group of London, Ont., and Dundee Wealth Management Inc. of Toronto have all made plays to put a full suite of investment products in front of their reps. Industry giant Investors Group Inc. of Winnipeg has taken the same direction.

A few years ago such an incursion into the banks’ business would have been unthinkable, but the failure of the big bank mergers, the redrafting of financial services legislation and the emergence of the open-architecture product philosophy have all helped create opportunities for the dealers. Firms such as CIBC’s Amicus Financial division and Laurentian Bank of Canada‘s B2B Trust have made it all possible.

While the emergence of white-label banking products has lowered the barrier to entering that line of financial services, the burden of operating a full-service investment dealer has become more bearable. With revenue under siege as fund sales tail off from their mid-1990s highs, fund dealers are keen to pick up some of the slack and hang on to clients with different needs. They want to be able to offer alternatives such as exchange-traded funds, along with equities and bonds.

“There’s pressure from clients [to offer a full suite of products], not from the firm,” says a rep from the Prairies who works for Winnipeg-based IQON Financial Inc. “We do insurance and funds. I don’t feel the pressure to expand that right now, but I can see it coming down the line, for sure.”

While offering a broader range of products is appealing, assembling a full slate of products doesn’t come cheap. In the past, it may have seemed like an overwhelming jump in compliance costs to go from the unregulated fund-dealer business to the tightly controlled world of investment dealers. But with the creation of the Mutual Fund Dealers Association, the fund dealers have had to accommodate much tougher compliance regimes anyway. From this vantage point, the move to Investment Dealers Association of Canada compliance does not seem as onerous.

While upstart fund dealers clearly cannot match the scale or scope of the banks, they don’t necessarily need to do so. The banks have no problem buying all the tools; they can afford whatever they want. However, cross-selling different product lines has proven to be an enormously tough challenge, as has effectively delivering advice within the confines of the bank.
The fund dealers, however, are approaching the financial conglomerate model from the other side of the equation. They’re starting by building advice-centred relationships and then adding new products to the mix.

They would seem to be poised to do a better job than the service-challenged banks in integrating and deploying the various product capabilities.

However, while fund dealers may have the jump on the banks when it comes to service and advice, there is nothing to say the advantage is guaranteed.

On the one hand, the banks are getting better. They are figuring out ways to tie successful, high-quality advisors to their systems.

While they may take a while to do it, they often end up overwhelming the competition in businesses in which they are trying to dominate.

On the other hand, there is risk in the fund dealers properly implementing and integrating different product lines into their businesses. “They’re trying to create the Earth in one day. They have, like, 147 priorities and they can’t get it done,” says an Ontario-based rep with Cartier Partners. “It’s frustrating. They’re doing their best, but it’s slow. Rome wasn’t built in a day.”

An Investors Group rep from Ontario also complains about the integration of his firm’s securities business with its mainstream fund business. “Investors Group really has to decide what it wants to do with its securities business,” he says.

Part of the execution risk is in ensuring that the reps have the knowledge and mindset to deploy all the tools effectively throughout the client base.

“If you’re not able to offer everything a client needs in a plan, you’re leaving yourself wide open,” says a planner with IQON Financial in Western Canada. “Because of that, it requires an incredible amount of knowledge on both sides of the fence.”

It’s not enough for dealer firms just to sign up a bunch of product providers to feed their sales forces; they must also do the training necessary to ensure that the products can be effectively deployed throughout their systems.

At the same time, the planners also harbour some fear that other industry trends — such as the pressure to discriminate between high-value clients and lower-value clients — could end up pushing their clients toward their competition, even if the dealers are offering a full slate of products.

“You’re just steering them back to the banks. It’s kind of two-faced,” warns a planner on the Prairies with TWC Financial Corp. of Radville, Sask.

While there is certainly risk to the fund dealers in trying to make themselves into financial services conglomerates, there may be a bigger risk in not trying. Some planners at firms that haven’t made the move in that direction wonder how they will survive without such capabilities.

“What we need from them is a fully integrated platform of stocks, bonds and GICs — a strategic plan,” says an Ontario-based rep with CMG-Worldsource Financial Services Inc. of Markham, Ont. “Right now, I need to know whether I want to be with this firm.”

Companies that don’t give their reps all the tools they need to compete may find that these reps will move to where the tools are readily available. IE