Brokers enjoyed solid gains in 2003

(March 8, 2004) Canada’s securities industry was firing on all cylinders in 2003, says the IDA, with operating profits rising 21% from the previous year to $3.3 billion.

“The year marked a dramatic turnaround in industry fortunes following a 23% earnings drop in the previous two years,” the IDA said in its quarterly securities industry performance report. “Strong profit results were fuelled by consecutive earnings gains through the last nine months of the year.”

The return of the retail investor allowed retail firms to significantly improve their performance for the third straight quarter, the brokerage industry association said.

Profits for retail firms were up 72% in the fourth quarter of last year to $98 million, bringing the yearly total to $174 million, more than four times higher than 2002.

Integrated firms earned $2.6 billion last year, up 52% from 2003, and close to the record level of $2.8 billion reached in 2000. Institutional firms earned $570 million last year.

A stock market rally helped Q3 commission revenues rise 10% from the previous quarter to more than $1.1 billion. Mutual fund commissions were up 9% and investment banking revenues rose 21%.

The only sour note in the fourth quarter came from the fixed income sector, which saw declining revenues “principally reflecting difficult trading markets for fixed income derivatives,” the IDA said.

The financial advisory business benefited from robust investor participation in debt and equity markets throughout the year, the report concluded.

While investors have come back strongly into the equity markets, they have also exercised caution and discretion, says IDA senior vice-president Ian Russell.

“The reckless pattern of momentum investing, the hallmark of the late 1990s tech boom, has mostly dissipated,” he says in the report.

With the exception of dividend and income funds, Russell says investors have mostly turned away from mutual funds and moved aggressively into various types of discretionary managed product and fee-based advisory accounts.

Funds of funds, fund wraps and high-end wrap accounts have all gained popularity, he added.

“The explosion in new product offerings in the financial advisory business reflects the increasing sophistication of the investor and their advisors in focusing on prudent risk-managed investment, taking full advantage of available product offerings.”

Last year, the securities industry had 37,262 employees, down 2% from 37,949 in 2002. The number of IDA firms held steady at 207, compared to 206 the previous year.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com