More consolidation forecast for independent fund dealers

(January 8, 2003) The vice-chair of IPC Financial Network, which was recently acquired by Dundee Wealth Management, says he expects further consolidation among the country’s independent mutual fund dealers. Chris Reynolds says the main companies in the sector need to get bigger to become more competitive.

“If you look at the top five players, all of them need more scale to really become noticed and do all the things we want do for advisors and clients,” Reynolds told Advisor.ca. Economics will dictate that the industry shrinks to just a few large firms, Reynolds believes. “Costs continue to rise and top-line revenue continues to fall so you need critical mass,” he says.

Analyst Dan Hallett of Sterling Mutuals agrees more consolidation is inevitable, but likely involving the smaller dealers. Hallett thinks the major acquisitions are finished, at least for now. “In an environment like this, consolidation occurs because dealers are having a tough time remaining economically viable,” he says. “When the financial markets eventually improve, consolidation will not be as much a necessity.”

Dundee announced a friendly stock and cash takeover bid for IPC on Boxing Day that is estimated to be worth more than $100 million. The merged firm would have $23 billion in assets under management, and 1,300 advisors in 340 branches. The deal is expected to close in March, pending shareholder and regulatory approval.

Dundee operates Dynamic Mutual funds while IPC runs Counsel Funds, which will continue as a stand-alone fund group. The IPC name will stay for now, but Reynolds expects the merged company to eventually adopt the Dundee brand.

Reynolds calls the Dundee-IPC merger a “natural evolution” in the fund industry. “We built our company through acquisition and consolidation so we thought the next logical phase would be consolidation among the consolidators,” he says. Dundee was the obvious choice for IPC, Reynolds believes, because both firms are advisor focused.

IPC is contacting its network of advisors about the change and will hold a road show later this month to provide more details. So far, Reynolds has found the reaction to be positive. “Our advisors see the natural progression. It’s something we’ve talked about in our meetings and conferences so they do see the strengths of both companies.”

“I think it’s a logical step for both firms and on the surface it seems like a good fit,” Hallett adds. “Both firms have distribution and money management divisions, though Dundee is much more well established in the latter while IPC has a stronger history in the former. Both firms are publicly traded and used their shares for acquisitions as well as to increase retention among advisors.”

Reynolds, who will remain with the company in a yet-to-be-determined senior management position, says he’s pleased with the deal. “It puts us in a very good position and builds a good platform for further consolidation down the road.”

Is consolidation the future of the financial advice industry? What will be the fallout from the Dundee-IPC merger, if any? Share your views with your peers in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca