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Canadian bank headquarters stand on Bay Street in Toronto.Brent Lewin/Bloomberg

With commodity prices rebounding and stock markets popping since the U.S. election, Bay Street is finally feeling more optimistic. But the industry's own expectation is that the recent shift still won't be enough to benefit all dealers – particularly the smallest of the bunch.

In its latest annual survey of 132 member firms, the Investment Industry Association of Canada (IIAC) found a "general optimism" amongst investment dealers, with executives less concerned about the impact of a major market shock – such as the oil price crash, which began in 2014. A year ago, the oil rout had a devastating effect on morale.

But the outlook remains tough for small dealers, providing little solace for firms that have already endured several years of hardship. Many Canadian boutiques specialized in advising and investing in energy and mining firms, but the commodity-price rout that started in 2012 forced much of their business to dry up.

"Even with greater optimism about the coming years' prospects, we remain concerned that many small firms will not benefit much from the improving outlook," IIAC head Ian Russell said in a speech to the Empire Club of Canada on Thursday.

Canada has already lost 60 boutique firms since 2012, and 50 more are currently losing money, many of them regularly, according to IIAC. More than half of the CEOs surveyed this year expected even more firms to fold in the next two years. As for those that survive, there is an expectation that many will need to merge with competitors to be able to do so.

One of the glaring issues driving these trend: soaring costs. New rules imposed on investment dealers in the wake of the global financial crisis require heavy investments in new technology and monitoring systems. Dealers of all sizes have also felt pressure to spend heavily on new IT systems that boost efficiency in an era of low revenues.

A new worry has also emerged. Security measures to protect against cyberthreats have sent tech expenses soaring. "Our member firms have become increasingly aware of the scope and sophistication of cyberattacks and the large reputational risks at play," Mr. Russell said.

On the revenue front, the commodity price rebound – or in oil's case, stabilization – has been beneficial because it should provide more deal flow to the boutiques. Yet industry executives are still concerned about the venture market, which has been particularly hard hit. "CEOs confirmed in our survey that these weak conditions are unlikely to change this year," Mr. Russell said.

Despite the woes, some firms have found a way to thrive, and their success demonstrates a clear bifurcation across the industry. Those best situated operate retail businesses, which executives stress will be the largest source of industry revenue this year. Large integrated firms – mainly the Big Six banks – can tap their retail networks to help sell wealth-management products to an ever-aging population.

However, IIAC stressed that some smaller dealers have found a way to stay competitive. "We also observe that a core group of smaller firms, a critical mass of some 70 to 80 firms, have built strategic niche businesses, cut operating costs to the bone and adapted technology to compete effectively and compensate for lack of scale," Mr. Russell said.

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