Sco­tia­bank beefs up

Investment Executive - - FRONT PAGE - BY MEGAN HAR­MAN

toronto-based bank of Nova Sco­tia has bol­stered its as­set-man­age­ment busi­ness by snap­ping up iconic Mon­treal-based in­vest­ment firm Jaris­lowsky Fraser Ltd. in a move that po­si­tions Sco­tia­bank as Canada’s third-largest ac­tive as­set-man­age­ment firm.

Sco­tia­bank an­nounced in midFe­bru­ary that it would ac­quire Jaris­lowsky Fraser for ap­prox­i­mately $950 mil­lion. The deal is

the lat­est ex­am­ple of con­sol­i­da­tion in the wealth-man­age­ment in­dus­try. The scale of the Big Five banks con­tin­ues to ex­pand while the num­ber of in­de­pen­dent play­ers in the mar­ket are be­ing pared back.

Stephen Jaris­lowsky founded Jaris­lowsky Fraser in 1955. The firm has ac­cu­mu­lated more than $40 bil­lion in as­sets un­der man­age­ment by cater­ing to in­sti­tu­tional clients, such as pen­sion funds, foun­da­tions and en­dow­ments, as well as to pri­vate in­vestors.

“Jaris­lowsky Fraser was one of the few siz­able in­de­pen­dent firms left in Canada,” says Dan Hal­lett, vice pres­i­dent and prin­ci­pal with Oakville, Ont.-based HighView Fi­nan­cial Group. “The risk is that [Jaris­lowsky Fraser] may lose the cul­tural ben­e­fits of be­ing an in­de­pen­dent firm. Main­tain­ing that unique small-com­pany bou­tique cul­ture will be re­ally dif­fi­cult un­der the own­er­ship of a large fi­nan­cial [ser­vices] in­sti­tu­tion.”

The ac­qui­si­tion helps Sco­tia­bank es­tab­lish a pres­ence in the in­sti­tu­tional as­set-man­age­ment busi­ness — some­thing the bank had lacked rel­a­tive to its bank­ing peers.

“We’ve been say­ing for a few years now that we re­ally needed to beef up our in­sti­tu­tional of­fer­ing for our clients,” says Glen Gow­land, se­nior vice pres­i­dent and head of as­set man­age­ment, at Sco­tia­bank. “We were look­ing to build that out, and Jaris­lowsky Fraser was well known to us. It’s a great firm and an iconic brand; it has been in this space for a long time. [Jaris­lowsky Fraser] has an ex­cel­lent rep­u­ta­tion and fan­tas­tic in­vest­ment pro­cesses, so it is a per­fect fit.”

Most of the Big Five banks have es­tab­lished hefty in­sti­tu­tional as­set-man­age­ment busi­nesses, ei­ther or­gan­i­cally or through ac­qui­si­tions. Toron­to­based Royal Bank of Canada, for ex­am­ple, gained sub­stan­tial in­sti­tu­tional ca­pa­bil­i­ties through its ac­qui­si­tion of Phillips Hager & North In­vest­ment Man­age­ment Ltd. in 2008.

There’s only so much room for growth on the ma­ture re­tail side of the Cana­dian wealth-man­age­ment in­dus­try, so the in­sti­tu­tional mar­ket presents an­other av­enue of growth for the banks.

“The in­sti­tu­tional mar­ket is an area in which Sco­tia­bank hasn’t had any sig­nif­i­cant pen­e­tra­tion yet,” says Hal­lett. “If you look at all of the av­enues [through which the bank] could grow and build a siz­able busi­ness, [Sco­tia­bank] has all of the other pieces in place.”

Fol­low­ing com­ple­tion of the ac­qui­si­tion, which is sub­ject to reg­u­la­tory ap­proval and ex­pected to close in the third quar­ter of fis­cal 2018, Sco­tia­bank plans to con­tinue op­er­at­ing Jaris­lowsky Fraser as a sep­a­rate unit, with its man­age­ment team con­tin­u­ing to lead the busi­ness and the of­fice re­main­ing in Mon­treal.

“We want to main­tain the in­tegrity of the Jaris­lowsky Fraser in­vest­ment ca­pa­bil­i­ties [and] its very dis­ci­plined in­vest­ment process — that was the real rea­son to ac­quire [the firm],” Gow­land says. “It will re­main com­pletely in­tact.”

Sco­tia­bank also will keep the Jaris­lowsky Fraser name at­tached to the busi­ness. Keep­ing the firm’s part­ners and in­vest­ment man­agers on board fol­low­ing the deal also is a pri­or­ity, Gow­land says. The trans­ac­tion re­ceived the sup­port of all of Jaris­lowsky Fraser’s part­ners, in­clud­ing Stephen Jaris­lowsky, who will con­tinue his as­so­ci­a­tion with the busi­ness.

“We know that these busi­nesses in wealth man­age­ment and in­vest­ment man­age­ment are ‘peo­ple busi­nesses’,” Gow­land says. “That’s why en­sur­ing we had [Jaris­lowsky Fraser’s part­ners’] unan­i­mous ac­cep­tance of the trans­ac­tion was so crit­i­cal for us.”

How­ever, Sco­tia­bank may have a hard time re­tain­ing all of Jaris­lowsky Fraser’s clients and staff, says Scott Plas­kett, CEO and se­nior fi­nan­cial plan­ner with Iron­shield Fi­nan­cial Plan­ning Inc. in Toronto. He notes that some in­vest­ment man­agers were drawn to Jaris­lowsky Fraser specif­i­cally for its in­de­pen­dent bou­tique cul­ture and, as a re­sult, work­ing for a bank may not sit well with them.

“The chal­lenge is go­ing to be re­tain­ing that tal­ent,” Plas­kett says. “I think there’s go­ing to be a lot of money in mo­tion.”

Even if Jaris­lowsky Fraser’s in­vest­ment-man­age­ment team re­mains largely in­tact, Plas­kett adds, the firm los­ing its in­de­pen­dence is un­for­tu­nate: “It’s kind of sad when you see a well­re­spected name like Jaris­lowsky Fraser go by the way­side and get amal­ga­mated into a con­glom­er­ate like that be­cause it’s nice to have that unique so­lu­tion avail­able in the mar­ket­place.”

The con­tin­ued con­sol­i­da­tion in the wealth-man­age­ment in­dus­try has re­sulted in fewer op­tions avail­able to in­vestors and fi­nan­cial ad­vi­sors, on both the in­sti­tu­tional and re­tail sides of the busi­ness. For ex­am­ple, CI Fi­nan­cial Corp.’ s ac­qui­si­tion of Sen­try In­vest­ments Corp. and Sun Life Global In­vest­ments (Canada) Inc.’ s ac­qui­si­tion of Ex­cel Funds Man­age­ment Inc. last year scaled back the num­ber of in­de­pen­dent mu­tual fund providers avail­able to in­vestors. (All firms are based in Toronto ex­cept for Ex­cel, which is based in Mis­sis­sauga, Ont.)

That trend is likely to con­tinue, Plas­kett says: “I think this is just the be­gin­ning. There is go­ing to be more [con­sol­i­da­tion] be­cause other firms need to make their own ac­qui­si­tions to stay com­pet­i­tive.”

Sco­tia­bank, for its part, in­tends to con­tinue ex­pand­ing its wealth­man­age­ment busi­ness, Gow­land says: “We want to con­tinue to grow.”

The bank plans to turn its at­ten­tion to in­ter­na­tional mar­kets as it em­barks on fur­ther growth. Specif­i­cally, Sco­tia­bank in­tends to add in­vest­ment­man­age­ment ser­vices where it al­ready of­fers re­tail bank­ing, such as Latin Amer­ica and the Caribbean. Says Gow­land: “We want to have in­vest­ment ca­pa­bil­i­ties in the ar­eas where we have our cus­tomers.”

De­spite the con­sol­i­da­tion trend, Hal­lett is con­fi­dent new in­de­pen­dent firms will emerge and cer­tain ex­ist­ing ones will choose to main­tain their in­de­pen­dence.

“There’s al­ways go­ing to be a cer­tain num­ber of smaller in­de­pen­dent bou­tique firms that sur­vive,” he says, “be­cause they re­ally want to stay that way.”

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