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Pedestrians are seen at the intersection of King and Bay streets in the heart of Toronto’s financial district.

Kevin Van Paassen/The Globe and Mail

To the survivors go the spoils – that is the tale of the institutional brokerage business in Canada.

It's still not a great business, but the trends are moving in the right direction. According to the Investment Industry Association of Canada's report on the first-quarter, profits are on the rise yet again and so are returns for the owners. (The report was released last week, but I'm just catching up post-holidays, and nobody else really wrote about it.)

The steady rationalization of the industry in the past year has cut to 74 from 81 the number of institutional firms (so named because they deal with only corporate and institutional clients, not retail investors). That, of course, is about to shrink by one more with the pending closure of Toll Cross Securities.

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So while the operating profits for the institutional group already look healthier at $298-million in the first quarter (an 18 per cent increase from last year), they are even better when you consider that there are seven fewer firms splitting the pie. Similarly, with employment down 3.4 per cent in the group since last year even as the business improves, revenue per employee is jumping. It's up 18 per cent.

But, like I said, it's still not a great business for the owners. Annual returns (net profit as a percentage of shareholder's equity) are still weak. Like, low single digits weak: 3.7 per cent as of the first quarter. But if revenue per employee keeps climbing on this trajectory, that's going to improve in a hurry thanks to the operating leverage built into these firms.

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