Toronto-based CIBC announced plans late last week to buy Merrill Lynch & Co.'s Canadian retail brokerage and asset management units. The deal, expected to close by January, would bring CIBC 1,000 brokers and 41 mutual funds with $2.96 billion of assets.
Royal Bank of Canada, by contrast, has steadily expanded its mutual fund business in Canada through internal growth. It has hired wholesalers and salespeople and in October launched a mutual fund family, RBC Advisor Funds, to be sold through advisers.
CIBC and Royal Bank were ranked seventh and second, respectively, by the Investment Funds Institute of Canada among that country's mutual fund families at Oct. 31. And in a market that is contracting, this positions them well for growth.
"Basically, in terms of market share, this acquisition gives CIBC a chance to vault into the No. 1 spot in the Canadian market," said Ray Liu, an analyst at Toronto's Investor Economics, a research firm that specializes in Canadian financial companies.
George Lewis, CEO of Royal Mutual Funds Inc., said Royal Bank has chosen a different avenue for growth. Though the company, which has $21.6 billion of assets under management, will "never say never" to acquisitions, it is looking to grow internally first, he said.
"We are coming at this industry from a different angle," Lewis said. "We are a large company in the Canadian industry with a good product and well-recognized brand. We don't feel that we have to acquire in order to grow."
He said Royal Bank of Canada could triple the $1.89 billion of assets it has in the advisory channel within five years. "Half of the market buys their mutual funds through broker/dealers. We are barely skimming the surface when it comes to selling through this channel," he said.
Analysts said that, with bank-owned mutual fund companies expanding, whether through acquisition or by other means, fund companies with less than $5 billion of assets under management will fall by the wayside.
"Four billion to $5 billion in assets under management used to be a good break-even point [in Canada], but that number has just gone higher and higher as the big firms have gotten larger and larger," Liu said. "Many midsize firms are choosing to put themselves up for auction rather than do system upgrades."
Lewis said some small "specialized" fund companies, such as Clarington Funds Inc. and Synergy Asset Management, that handle specific diversification styles have nothing to worry about but that mid-level companies will continue to be gobbled up.
"Brokers and financial planners want choice," he said, "but when they can get plenty of choices from one provider, it makes most of the others unnecessary."