Insurance: Funds offered

“Our plan is to become more of a full-service financial institution, with various divisions that would support our brokers. Mutual funds is one of those,” says Charles Cuffari, Financial Horizons’ senior vice president, retail, and president of the new mutual fund division, called Excel Private Wealth Inc. “The long-range plan is to be the largest independent mutual fund dealer in Canada. We’re not going into this to be a small dealership.”

Financial Horizon’s expansion into mutual funds was likely inevitable for the firm in order to position itself as a competitor in an industry in which firms now offer increasingly broad sets of financial services.

“I don’t think there’s any question that that’s the way you have to go if you’re in the MGA business,” says Jim Ruta, president of AdvisorCraft Media and Consulting in Toronto and a video columnist for Investment Executive. “I think you’re obliged to do that if you want to be a major player.”

Financial Horizons made its first foray into mutual funds through two acquisitions last year. First was Perth, Ont.-based Certika Investments Ltd. (formerly Family Wealth Advisors Ltd.), a mutual fund dealer registered in Ontario and Quebec, which Financial Horizons purchased as part of its acquisition of R.G. Packman & Associates Ltd. in March 2015. Then, in June, Financial Horizons acquired Excel Private Wealth, a mutual fund dealer, exempt market dealer and group savings provider based in Sherbrooke, Que., with operations in Ontario and Quebec.

Since then, Financial Horizons has consolidated those two entities into a single dealer with the Excel Private Wealth name with approximately 360 mutual fund reps. Financial Horizons has incorporated the merged dealer in all provinces, and now is in the process of becoming licensed in every province – a task Cuffari expects will be completed this summer.

Once licensed, the firm plans to explore the possibility of adding exchange-traded funds (ETFs) to its product shelf. That’s an initiative other mutual fund dealers are considering as well, as ETFs continue to gain popularity among investors as a low-cost alternative to mutual funds. Longer term, Cuffari says, Financial Horizons also will consider launching a securities platform.

In the meantime, the company plans to expand its mutual fund subsidiary through both organic growth and further acquisitions.

Given that Financial Horizons already works with approximately 10,000 advisors on the life insurance side of its business, organic growth should come easily. Many of those brokers are dually licensed, according to Cuffari, and have long been requesting a platform that will enable them to conduct their mutual fund business through Financial Horizons.

“[Brokers] have been asking for it,” Cuffari says. “They know our culture and how we operate. I think that’s going to attract them.”

A more meaningful source of growth for the Excel Private Wealth, however, will be acquisitions. “Organic growth is going to take us so far, and it will give us a presence, but it’s not going to give us the size that we’re ultimately going to look for,” Cuffari says. “We are going to be aggressively looking at acquisitions of other dealerships.”

The mutual fund dealer space is undergoing widespread consolidation, as growing compliance responsibilities and operating costs squeeze out firms without sufficient scale to accommodate these added administrative burdens.

However, there probably still is room for further consolidation, says Dan Hallett, vice president and principal with HighView Financial Group of Oakville, Ont.

“I think there’s still a lot of potential left to consolidate some of the smaller players,” he says. The challenge, he adds, will be finding owners who are ready to sell.

“There may be instances in which a lot of the dealers who are owned by people who have a book of business themselves or owned by people who want to stay in the game and not necessarily sell to somebody else,” Hallett says. “But, at a certain point, those people will be ready and willing to sell.”

Such an aggressive acquisition strategy will not be easy, considering the challenges associated with consolidating different cultures and systems under one roof. Given the extensive roster of acquisitions Financial Horizons has made in the insurance industry, however, that’s a challenge the company has tackled before.

“[The firm has] been one of the consolidators,” Hallett says. “I’m sure they’ve learned from that evolution how to make this successful.”

Financial Horizons also faces a challenge in adapting to a more stringent regulatory environment in the mutual fund industry, particularly with the final rules kicking in under the client relationship model, Phase 2 (CRM2).

In some ways, however, Financial Horizons has an advantage in joining the industry at a time when many major regulatory reforms have already taken effect.

“It’s been a painful and costly endeavour for a lot of dealers to adapt their systems to what’s happening,” Hallett says. “Financial Horizons is coming in after all of that is done.”

Financial Horizons advisors also may feel the impact of changing regulatory regimes, even if those advisors operate on the insurance side only, as regulatory reforms could result in higher minimum compliance standards across the entire company, Ruta says: “If I’m only an insurance guy, but I work under an organization that now has to account for all these rules, then my rules are going to be a lot different.”

Generally, however, Ruta says, the prospect of a new product offering should benefit the firm’s advisors, so long as the level of service isn’t compromised by the firm’s rapid growth.

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