Charles Schwab will not be wasting any time building on its new Canadian foothold to take on the bank owned firms that dominate the Canadian discount brokerage industry.
Last month Schwab announced it had acquired Priority Brokerage, a privately owned discount brokerage, and Porthmeor Securities, a full service broker, both of Toronto. With its new acquisitions, Schwab's early agenda includes expanding to all provinces of Canada, new hiring and the addition of new technology and services.
But it is unlikely the U.S. giant will wage a price war against its indigenous competition. Instead, the main area of competition will be service.
Under the leadership of Paul Bates, an experienced discount brokerage executive appointed president and ceo of Charles Schwab Canada, the new operation will focus on what Bates describes as the "mid-tier investor." These are people who want to make their own decisions, but with access to a full range of products, investment research and account services.
The new Schwab subsidiary, based in Toronto and formed as a result of the two acquisitions last month, starts out with a couple of gaps in its coverage. It currently is absent from Quebec, the second largest province by population, and from Manitoba in western Canada.
But that should change soon, said Bates, who was president and ceo of Priority and Porthmeor and has previously been president of the largest Canadian discount brokerage, Green Line Investor Services. Bates said Schwab's applications for licenses in Quebec and Manitoba are pending, and Schwab expects to have full national coverage by February.
Meanwhile, Schwab is hiring to increase its current Canadian staff of 28 people. Though Bates said he does not know how fast or quickly the staff will grow, he expects it to at least double over the next year.
At first, Schwab will provide services 12 hours a day, Monday through Friday. That is much less than the seven day, 24-hour service of the Toronto Dominion Bank's Green Line. Gradually, Schwab's hours will increase, said Bates.
Since the acquisitions are still awaiting regulatory approval, Bates disclosed few specifics on what new programs Schwab will offer its Canadian clientele. But he said that Schwab's highly successful OneSource program is among the potential U.S. services that will be replicated.
So far, the pioneer in no transaction fee supermarkets, comparable to Schwab's OneSource, among major financial institutions is Canada Trust, which introduced its OneStop Fund Solutions program in April, says Cerulli Associates of Boston.
Schwab's entry into Canada is a natural extension of its efforts to expand elsewhere internationally, said Andrew Guillette, a Cerulli consultant. Schwab International, of which Canada is the newest component, also includes operations in the United Kingdom, Hong Kong and Britain.
The brokerages owned by Canadian banks have all the "building blocks" available to do what Schwab has done in the U.S., says Guillette. Nonetheless, Schwab's northern expansion should attract more international attention to the Canadian financial services market.
"When Schwab does something, it's very closely watched. Often it can be a barometer of things to come," said Guillette.
Schwab is not bringing anything "dramatically new," to the Canadian marketplace, says Dennis Gallant, a co-author of a Cerulli study on distribution trends in the Canadian mutual fund market. Nor does Schwab have the advantage of being able to market through large retail branch networks, as the banks do. However, Gallant said that Schwab does have the advantage of being seen by consumers as more independent and less biased than the bank-owned discounters.
The takeover of the two small Canadian brokerages by Schwab was announced on Dec. 14, the same day that the Canadian government rejected merger proposals from four of the five largest Canadian banks. The banks had argued that the mergers were necessary to enable them to compete effectively against other banks internationally and against foreign owned financial services giants looking to grab lucrative chunks of the Canadian financial services market.
Stymied in their efforts to achieve greater advantages through size at home, the banks will be increasingly looking internationally for growth opportunities.
Just three days after the merger rejections, Royal Bank of Canada, the largest Canadian bank announced a modest but strategically significant acquisition of Bull & Bear Securities, a discount broker based in New York. The purchase price of $6 million includes rights to the Bull & Bear name.
Bull & Bear is one of the discount industry's smaller players, with 25,000 accounts and $300 million in assets under administration. Royal Bank said it sees excellent growth opportunities for discount brokerage in both Canada and the U.S., and Bull & Bear is regarded as a good strategic fit with the bank's recent acquisition of Security First Network Bank, an Internet based bank whose head office is in Atlanta.
Hain heads AIM unit
Rob Hain is the new president of AIM Funds Management, the Toronto based subsidiary of AMVESCAP PLC. Hain is a former senior executive with Investors Group of Winnipeg. Before joining AIM, he was most recently a consultant in Toronto with Ernst & Young.
