Investment dealer Canaccord Genuity Group Inc. sees opportunity amid the chaos in Australia, where the wealth-management industry is being reshaped by a government inquiry that was critical of the country’s biggest financial players.
Canaccord is paying $23-million to acquire Patersons Securities Ltd. in a deal that is scheduled to close on Tuesday. The Toronto-based brokerage house, which has $68-billion in client assets under management, is buying the Perth-based firm with 100 investment advisers and $13-billion in its care. Canaccord already has an investment-banking unit in Australia with 72 employees, but the Patersons purchase marks its first major foray into wealth management Down Under.
The Canadian firm is expanding as Australia’s wealth-management community, which was historically dominated by four large banks, deals with the fallout from a wide-ranging review by former High Court judge Kenneth Hayne, who ran a royal commission into misconduct in the banking, superannuation and financial-services industry. Mr. Hayne published his report last February.
Ernst & Young summed up his recommendations and the government’s response by saying: “They herald sweeping changes to current operating models in the financial services market – reshaping the financial advice, life insurance and superannuation sectors.”
From Canaccord’s point of view, Mr. Hayne’s review highlighted the value of independent advisers and the conflicts of interest that can come when banks with multiple lines of business try to serve wealth-management clients. Stuart Raftus, president of Canaccord’s wealth-management group, said Mr. Hayne’s report increased customer awareness of conflict-free advice, and is shaking loose advisers from large institutions.
Canaccord and Patersons share a culture based on independent service, and plan to stress this with potential clients and new employees, Mr. Raftus said.
“We are open to other acquisition opportunities in Australia, but we expect most of our growth will be organic, and come from recruiting,” he said.
Employee-owned Patersons, founded in 1903, was open to a takeover that gave the firm increased international heft. In a news release, executive chairman Michael Manford said joining Canaccord “provides additional breadth and depth of services for our clients, who will benefit from access to globally integrated wealth management, corporate finance and equity research capabilities.”
As part of the transaction, the Canadian firm plans to roll out a retention program in which Patersons employees are awarded approximately $3-million in Canaccord shares that vest over up to five years. In Australia, the wealth-management business will be called CG Patersons.
Last year, Canaccord turned a $2-million profit on revenue of $31-million at its existing Australian investment banking division. Patersons posted a $3-million profit last year, with revenue of $57-million.
Mr. Raftus said combining the two operations is expected to improve profitability for the entire Australian business, as the merged investment banks can take a larger role in selling stock and debt offerings from Australian companies. Canaccord’s over all profit last year was $16.6-million on revenue of $285-million.
Canaccord’s roots are in junior resource stock financings in Vancouver, and Patersons has a similar history as a firm that raised money for mining and oil companies in Western Australia. Mr. Raftus said part of the logic behind this takeover is the shared history, and the similar compensation schemes it spawned for advisers at both firms.
Canaccord and Patersons both pay the majority of their teams on a fee-based system, which is widely used at firms catering to high-net-worth clients. However, stock brokers at both dealers can also sign up for a compensation scheme that partly reflects the transactions they do for clients, an approach that used to be common, and can suit the needs of customers and advisers who focus on trading stocks.
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Andrew Willis