MFDA says no to consolidation

Three weeks after the MFDA board voted not to accept an invitation to merge with the IDA, a letter has been released to members explaining the MFDA’s controversial decision.

On Friday, the MFDA sent out a three-page letter to its members laying out nine reasons for rejecting the overture from the IDA (although it added this should not be considered a complete analysis of all of the issues under consideration). Those reasons ranged from the different focus and structures between the two organizations to the lack of any material cost savings that would result from consolidation.

The MFDA also contends that a merger discussions with the IDA would “create significant…confusion and concern on the part of members that the extensive time, effort and cost that has, to date, been directed at making the MFDA an effective regulator, was wasted.”

Based on these reasons the MFDA board concluded that a merger “is not in the public’s interest at this time.”

Joe Oliver, president and CEO of the IDA, isn’t convinced. “I’m still waiting to hear the public interest justification for not doing the merger,” he says, noting that in his view the letter doesn’t explain why a merger is not in the public interest.

The only point in the letter that specifically addresses how the merger would impact the public is a reference to small retail investors in small remote communities across Canada. “A concern exists that a merger would risk lessening access to Canada’s capital markets by such retail clients,” states the MFDA letter.

As for the MFDA’s argument that there are too many differences in the roles and members of the two organizations to make a merger worthwhile, Oliver again disagrees. There are no real cultural or managerial differences between the two, he says, pointing out that the IDA comprise a third of the MFDA board and that he was the CEO for the first few years of its operation.

Still he feels the door is still open. “I think it is inevitable, but not in the near term,” he says, although in his view it would make more sense to do it sooner rather than later.

As far as MFDA president Larry Waite is concerned, the idea of consolidation is dead, at least for now, although he concedes that could change in a few years. Speaking to Oliver’s concerns, he says the public would be affected since consolidation talks might draw attention away from the MFDA’s regulatory responsibilities.

Waite also dismisses the notion that MFDA members would like to see where discussions with the IDA might lead. “The majority of them don’t [favour consolidation] from the consultations that we’ve had.”

That’s true, for some members. Vincent Valenti, president and CEO of the Independent Planning Group based in Ottawa, a mid-sized mutual fund dealer with $2 billion in assets, is pleased with the MFDA’s stance on consolidation. He fears all of work that has gone into the creation of the MFDA, including the investor protection fund, would be lost in consolidation.

While Valenti doesn’t believe there would be enough support amongst the MFDA members to charge ahead with consolidation, he says the most convincing point is that the IDA and the MFDA are just too different. Mutual fund dealers need to have a regulator that understands their business model, he says.

Valenti, however, has another worry that doesn’t appear in the MFDA’s letter. “There is in our MFDA industry a concern that the IDA might be heavily influenced by the chartered banks,” he points out. “One has to wonder if some of that potential influence might spill over if there was a merger.”

Not all MFDA members agree with Valenti, however.

“In my view [consolidation] would be a good thing,” says Doug Lane, president of the Odyssey Capital Corporation in St. Catharines, Ont. “It is certainly the direction that the industry is heading.” Some of the larger members are already paying fees to the IDA and the MFDA, he says, so he’s sure they would want to pay just one fee and have a common investor protection program.

Another MFDA member warns that the longer these two organizations stay apart, the more entrenched the MFDA will become, making it more difficult for the two bodies to merge later.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(11/16/05)

Mark Brown