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CI deal with Scotiabank, Sun Life could spur consolidation Add to ...

For a moment, let's assume CI Financial is able to do a deal that sees Sun Life Financial share minority ownership of what becomes Canada's largest mutual fund manager with Bank of Nova Scotia.

Sources at all three of these fine institutions, and their rivals, spent Friday pointing out the virtues of such a ménage à trois. As one rival CEO put it: "The interesting part of CI allied with Scotiabank is the broad links a deal would build between banks and insurers."

If this trio ends up in bed, CI's proven management team comes away with far more assets to manage and a whole new distribution channel to exploit, in the form of staff at Scotiabank's branches and in its Scotia McLeod brokerage unit. (Rival bank-owned dealers would move CI funds to the back of the shelf, but this is already an issue.)

Sun Life emerges from the encounter with a slightly diluted stake in a far larger fund manager, and ties to a Canadian bank's sales network full of stockbrokers and financial planners who sell insurance products. It gets easier access to banking products for its own agents. With two directors on the fund company's board, Sun Life has been very aware of every serious chat that CI boss Bill Holland has with potential partners. Sun Life seems willing to get a little kinky with this holding.

Scotiabank vaults, indirectly, to the top ranks of fund managers, with a stake in CI to bookend with an existing 18 per cent stake in DundeeWealth. It will take time, but Scotiabank CEO Rick Waugh would have laid the groundwork for a premier wealth management franchise.

Consolidation in Canadian financial services is inevitable. A three-way link between an insurer, a bank and a mutual fund company would draw a competitive response from rivals, and bring cross-ownership that much closer.

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