A natural fit for IA

“[IA] certainly is a very significant player [in wealth management],” says Dan Hallett, vice president and principal of Oakville, Ont.-based HighView Financial Group. “With this deal, IA will be one of the larger ones on the distribution side.”

The acquisition is part of a broader effort by IA to expand its wealth-management business, according to Yvon Charest, president and CEO of IA.

“We continue to believe that the best way to grow our wealth-management operation is through the support of independent advisors, and this is why we made that acquisition,” Charest says. “Having those relations with independent advisors is extremely successful for us because that is helping us tremendously to grow our mutual fund operations and securities business.”

HollisWealth (formerly DundeeWealth Inc.) oversees about 800 advisors, including those licensed in mutual funds, securities and life insurance. Approximately 75% of those advisors will join IA’s securities subsidiary, Industrial Alliance Securities Inc. (IA Securities), while 25% will join Investia Financial Services Inc., one of IA’s mutual fund dealers.

HollisWealth is a natural fit for IA, according to Charest: “[The HollisWealth] business model is quite similar to our own model – in terms of compliance; in terms of compensation. We don’t have to adapt our operation or the HollisWealth model because both are quite close to each other.”

Bank of Nova Scotia acquired HollisWealth as part of its acquisition of DundeeWealth in 2011 – a transaction that also included major mutual fund manufacturer Dynamic Funds. Scotiabank rebranded the advisor network under the HollisWealth banner in 2013, and maintained the fund manufacturer as a separate division rather than integrating the advisors into the bank’s existing distribution channels.

Scotiabank’s decision to sell HollisWealth “was based on a strategic review of our operations,” says James O’Sullivan, group head, Canadian banking, adding that the bank remains committed to wealth management through other channels.

Hallett suspects that HollisWealth did not fit in with Scotiabank’s other distribution channels, partly because HollisWealth operates on a model with a higher payout structure than bank-owned brokerages such as ScotiaMcLeod Inc., and as a result, has lower margins.

“I suspect [Scotiabank sold HollisWealth] because it wasn’t profitable enough,” he says. “I think the real thing [Scotiabank was] after was the fund-management business [that is, Dynamic Funds].”

However, from IA’s perspective, Hallett says, HollisWealth is an attractive asset because it meshes with IA’s existing model and adds scale that will bolster the profitability of the parent company’s independent distribution business.

“Because the margins are lower, there is a real benefit to [scaling up.] IA has become a pretty big dealer, and so I think, strategically, [IA] probably is a better fit,” Hallett says. “This helps IA achieve the kind of scale it needs and wants to bring its profitability up.”

As advisory firms grapple with rising compliance costs amid initiatives such as Phase 2 of the client relationship model, Hallett adds, economies of scale are increasingly becoming important.

The HollisWealth acquisition also is geographically complementary for IA. Whereas a high concentration of IA’s business is in Quebec, 95% of HollisWealth advisors are based outside of Quebec, which helps to strengthen IA’s national presence, according to Charest.

(In 2008, IA acquired DundeeWealth’s mutual fund dealer and insurance distribution operations in Quebec, which included more than 400 advisors throughout the province.)

Bruce Cumming, an independent insurance advisor in Oakville, Ont., who operates under HollisWealth’s umbrella, says he wasn’t shocked by the acquisition: “This sale had long been rumoured, so there was no surprise.”

However, Cumming adds, he is perplexed about why Scotiabank would let go of such a large volume of AUA: “Maybe [AUA] is not as important as it once was thought to be. Maybe making profits now is more important than having a wonderful pile of investment assets.”

The HollisWealth deal is the latest move by IA to expand its wealth-management operations, including a string of 25 acquisitions in that industry in the past 16 years.

“We realized a decade ago that demographic changes would be such that wealth management would be a good platform for us in terms of growth potential,” Charest says.

IA now operates a hefty wealth-management business that includes: mutual fund provider IA Clarington Investments Inc.; a major segregated fund business; two mutual fund dealers, Investia and FundEX Investments Inc.; a full-service securities brokerage arm (IA Securities); and a sizable group savings and retirement business, among a variety of other operations.

Although insurance still comprises the bulk of IA’s revenue and profits, the firm’s wealth-management operations now comprise approximately 35% of net income.

“We would like that percentage to improve,” Charest says. Within five years, he adds, wealth management could provide half of IA’s profits.

The company’s insurance operation, however, remains its core business.

“The heart of IA is retail insurance,” Charest says. “We will continue to develop that operation.”

IA plans to maintain the HollisWealth brand, according to Charest: “Those guys are very proud of their brand, so the intention is to keep the brand.”

HollisWealth also will maintain a relationship with Scotiabank as a distribution partner for Dynamic Funds.

According to Charest, those funds make up about 25% of AUA at HollisWealth.

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