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opinion

Wealth manager Richardson GMP Ltd. is a dormant volcano these days, with only the occasional puff of smoke in the form of a few employee departures, to signal the pressure that’s building within a firm that manages $27.4-billion.

For the company’s 166 financial advisers and their clients, the question is whether Richardson GMP eventually resolves its internal tensions in one explosive event or a prolonged venting of talent. This business is either going to get sold or it’s going to see an increasing number of its top performers head out the door. The status quo isn’t sustainable.

Founded in 2009, Richardson GMP has three owners with three different takes on the firm’s future. Winnipeg’s Richardson family owns approximately a third of the company and tends to take a generational approach to building businesses, which comes naturally when your great-grandparents socked away millions from grain trading and your grandparents and parents grew that fortune into billions.

Investment dealer GMP Capital Inc. owns a third of the wealth manager and it usually takes a different view. The firm is run by traders and bankers who evaluate their holdings by quarters, days or minutes, not by generations.

GMP Capital faces serious structural problems. Its core equity sales, trading and research business faces shrinking profit margins. Bank-owned dealers, foreign firms and rival independents compete for every transaction. The cyclical downturn in mining and energy stocks hammered many of the firm’s best clients. GMP Capital’s stock price has been trending downward for eight years, a source of personal pain for employees, who own 24 per cent of the dealer (the Richardson clan owns another 24 per cent).

For strategic reasons, GMP Capital values its stake in Richardson GMP. The wealth manager gives the investment bank another avenue for distributing securities on behalf of corporate clients. But that strategic value only goes so far. At the right price, the financiers who run GMP Capital would be sellers of their stake in Richardson GMP.

For that matter, at the right price, GMP Capital would be a seller of itself. In recent months, there have been rumours that U.S. players such as Jefferies Financial Group Inc. and Wells Fargo & Co. are sniffing around the Canadian investment dealer. GMP Capital executives have dismissed all that speculation, to date. As of Tuesday, GMP Capital had a market capitalization of $163-million – a figure that doesn’t ascribe much value to the investment-banking business.

The third group of owners at Richardson GMP is the most important. It’s the employees, who own approximately one-third of the firm. Most joined because they saw an opportunity to buy equity, help build the business, then cash in by selling all or part of their holdings.

Nearly three years ago, Richardson GMP was put on the auction block as part of a shareholder agreement meant to put a value on the business and potentially allow all three owners to cash in. A number of bidders came calling, including Toronto-Dominion Bank and Raymond James Ltd., and the business was expected to fetch up to $600-million. That valuation would have translated into a serious payday for financial advisers.

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To the surprise of virtually all concerned, Richardson GMP announced in April, 2017, that no deal would take place; the firm would remain independent. The reasons were never made entirely clear.

But sources at TD Bank, which made the final round of bidding, have explained there were concerns about blending the two cultures and retaining Richardson GMP employees. For the staff, being close to a big score, only to have the payday postponed or even cancelled, translates into frustrations that have only intensified over time.

When the auction ended in the spring of 2017, Richardson GMP was home to $28-billion of assets and 200 financial advisers. Since then, assets under management dropped $600-million and the head count is down by 15 per cent. With a once-growing business now shrinking in size and scale, a number of experienced Richardson GMP advisers have been jumping to rivals such as Raymond James and Canaccord Genuity Group Inc.

The Richardson family can afford to take a long-term view on fixing their wealth management. That’s not the case for GMP Capital and the advisers at Richardson GMP. These two owners need to either see the value of their business increasing or they will push hard for an exit. The volcano is beginning to rumble.