Industrial Alliance Insurance and Financial Services Inc. is on the hunt for acquisitions as it plots more growth in Canada’s wealth-management industry, while also pursuing targeted expansion in niche insurance markets in the United States.
The Quebec City-based investment company, also known as iA Financial Group, manages and administers approximately $173-billion in assets. It is also Canada’s fourth-largest insurer, but is increasingly expanding beyond that legacy business to pursue more growth in the lucrative wealth segment.
As baby boomers age into retirement and millennials acquire higher earning power, a greater number of Canadians will begin to look for more access to financial products and services providing the perfect opportunity for iA Financial to position itself as a key competitor in the wealth-management sector against Canada’s Big Five banks. That strategic shift was largely fuelled by acquisitions in recent years. And after two months on the job, new president and chief executive Denis Ricard is on the hunt for more deals.
Specifically, iA is scouting for assets in the Canadian market that can expand its distribution power in the wealth-management market, while also increasing its U.S. presence, especially in the final-expense and extended-warranty markets. Final-expense insurance covers an individual’s cost at the time of death such as a funeral, while the extended-warranty market is auto insurance that would prolong a vehicle’s standard warranty coverage for a certain period of time for repair coverage or auto parts. These are two areas in which iA does not directly compete with the big U.S insurers and would be able to penetrate more easily, Mr. Ricard says.
“Scale is what matters,” he said in an interview with The Globe and Mail. “We see a lot of opportunities, in both Canada and the U.S. The key here is distribution."
Toward that end, the company recently created iA Wealth, a new unit consisting of iA Clarington Investments Inc., mutual fund dealers Investia Financial Services Inc. and Fundex Investments Inc. and securities dealer Industrial Alliance Securities Inc.
Currently, 34 per cent of the company’s net income is coming from its wealth-management division, a number that Mr. Ricard wants to boost to 40 per cent over the next five years. At present, iA has 3,000 licensed advisers within the mutual fund and investment securities sectors. This compares with Manulife Financial Corp. which has 1,200 licensed advisers, and Sun Life Financial Inc., with approximately 4,000 advisers (including Sun Life representatives who are insurance-only licensed).
Growing the number of independent advisers in both the insurance and investment segments differentiates iA from its competitors. Dual-licensed financial advisers are able to provide clients with both financial and insurance product and gives the company an advantage over the Canadian banks, which are not allowed to sell insurance products in bank branches.
Growth through acquisition was a strategy that began under former CEO Yvon Charest, who oversaw the acquisition of more than two dozen companies under the iA umbrella within the past decade. "We decided that there would be a lot more growth potential in the wealth management space versus the insurance industry so we decided to shift our emphasis,” says Mr. Charest, who will formally retire Jan. 1 after almost 40 years with the firm.
Under his leadership, iA scooped up Hollis Wealth from the Bank of Nova Scotia in 2017 – adding 800 financial advisers and $80-billion in assets under administration. The deal gave iA “equal footing" among its largest competitors, said Paul Holden, a research analyst with CIBC World Markets.
“As I look at the landscape of wealth management versus investment management, wealth is seen as more sticky and defensible, so I like the fact that iA now owns more distribution," Mr. Holden said in an interview. “Distribution is becoming more valuable and the key to unlocking that value for them is getting iA product into the Hollis channel.”
Similar to his predecessor, who hired him 33 years ago, Mr. Ricard places acquisitions as one of his top priorities. During a quarterly conference call in June, he commented that perhaps the company has been a bit too “cheap” when it comes to how much it is willing to pay for assets in the past.
But competing against the banks is no easy task, especially during a time when they, too, have begun to pay closer attention to their overall wealth segments. To succeed, Mr. Ricard points to his profitable segregated-fund business – a product that is sold by licensed insurance agents and legally cannot be sold directly by banks. Also, among the $80-billion in assets the firm holds in its direct distribution channel, only 4 per cent is held in iA product. Mr. Ricard wants to increase that to 7 per cent.
“When I look at the banks, a lot of their mutual funds are sold from their in-house offerings,” Mr. Ricard says. "It would be the same idea with our own distribution and so far we have had very good traction so it is quite promising ... especially now that we have Hollis Wealth.”