Sizing up the competition: Peak Financial in a buying mood

(June 9, 2003) Montreal-based Peak Financial is in talks with several rival mutual fund dealers which have recently been put up for sale, says the company’s president. And even though Peak is relatively small with $2 billion in assets, Robert Frances insists his firm is a potential buyer.

“We are a buyer, we have financing available, we have good reserves and capital,” Frances told Advisor.ca, although he would not specify which companies Peak might be interested in purchasing.

There are a number of options. Cartier Partners went on the block last month while Assante confirmed last week that it is talking to potential buyers. Dundee Wealth Management’s bid for IPC Financial Network collapsed earlier this year due to regulatory complications, however IPC has said it’s not interested in another suitor.

Frances concedes cost issues could derail Peak’s ambitious acquisition plans. “I’m very concerned about the prices some of these firms are asking,” he said, suggesting that companies with in-house products would first have to shed that line of business before Peak would get involved. “If the dealer is willing to sell at fair value, given that we will not force reps to sell in-house products, then we may be a very interesting contender in that acquisition.”

Despite its small overall asset size, Frances notes that Peak’s revenue in assets per advisor is “quite sizeable, in some cases double than other companies.” He points out that in 1994, BPI Mutual Funds bought out Bolton Tremblay. At the time, BPI was about one-tenth the size of Bolton Tremblay (BPI was subsequently acquired by CI Mutual Funds).

But industry analyst Dan Hallett, with fund dealer Sterling Mutuals, thinks it’s unlikely Peak will make a play for its larger competitors. “Both Cartier and Assante seem way too big for Peak to buy,” he says. “There are so many small dealers and many of them are unofficially on the block for the right circumstance, so that may be the universe in which they’re hunting.”

Hallett says Peak might in fact be a takeover target for Assante, noting Assante has said that even though it is assessing an unsolicited proposal from a mystery buyer, it is also open to new acquisitions.

Frances blames poor markets combined with a focus on in-house products for the current environment of consolidation. “A lot of companies were willing to lose money in the short term in the hope that their in-house products would take off, but they underestimated the level of independence of their planners and the planners’ need to be perceived as conflict free,” he says. “Secondly, they underestimated the length of the bear market. So the two together created an environment of mounting losses.”

Even if Peak can’t make a deal, the firm is taking steps to make itself more attractive to advisors interested in acquiring new business or switching dealers, Frances says.

Peak recently announced details of a financing program to help advisors who want to grow by purchasing a book of business. “We think the next consolidation phase will be at the client level, where reps will be buying each other,” Frances says. “There’s more talk in the industry that if you don’t have a certain size of book it becomes difficult to compete.”

Peak is working with a bank that provides the actual loan to the advisor, with the firm acting as a guarantor, Frances explains. “Banks will rarely lend to reps directly without the dealer getting involved, so that’s where we come in.”

Although the financing program was initially intended for Peak’s own planners, it has attracted interest from advisors at other firms. “Our phones have been ringing off the hook,” Frances says. “Our timing could not have been better. People are saying we’re opportunistic, I says thanks for the compliment but we’re not that bright,” he joked.

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