Anyone launching a retail brokerage business in Canada must believe this is the bottom of a trough for the business.
As Streetwise reported exclusively Monday, a group with deep experience in the investment business is planning to bring the E.F. Hutton name to Canada as the brand for a new brokerage network to serve high net worth clients. So what are they facing? A business where most people are struggling to make any returns.
Figures released earlier this month by the Investment Industry Association of Canada give a good sense of how tough it is out there.
Retail firms, which IIAC defines as those that get most of their revenues from servicing individual retail clients, lost money in the first nine months of last year.
In the third quarter, the most recent for which there are figures, commissions at the 107 retail firms were down 18 per cent from the year earlier period. Fees, the second biggest source of revenue, were down 15 per cent. The result is that operating revenue was down 19 per cent, while expenses didn't fall as fast, at about 17 per cent.
For the quarter, the retail brokerages lost $13-million, after losing $29-million in the second quarter and $26-million in the first. The four full years prior the industry hovered around break even.
Richardson GMP, which has been working for years on building a high net worth brokerage business, saw an 8 per cent decrease in revenue in the first nine months of last year, leaving the firm with a small loss.
Chief executives in the brokerage business are optimistic that they can eke out more money next year, a recent IIAC survey found. They are not expecting a big pickup in capital markets, but they do foresee increased profitability as firms learn to deal with the state of markets.
(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)
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