Industry


The investment industry is composed of a wide variety of firms. The main players include independent full line brokerage firms, investment bank subsidiaries of chartered banks, and discount brokers. Independent full line brokerage firms offer a wide range of services, including underwriting, trading of stocks, advice and research. In essence, the full service brokerage subsidiaries of chartered banks offer the same services, however, banks\' brokerage firms may have a larger pre-established clientele. Finally, the discount brokers are basic stock brokers that perform trades for clients who do not want investment advice. Usually, this service is targeted toward the sophisticated investor who does his/her own research to incur minimal commission fees.
Banks entered the investment industry in 1987, whereby they took over full-service brokerages, introduced mutual funds to the banking industry and became part of discount brokering. From this time on, chartered banks have expanded their dominance in the industry by acquiring key players in the industry or branching off into full brokerage services. For example, the brokerage firms for CIBC, Royal Bank, Toronto Dominion Bank, Bank of Nova Scotia and Bank of Montreal are Wood Gundy, RBC Dominion, Evergreen, Scotia McLeod and Nesbitt Burns respectively. In addition, the aforementioned chartered banks have also branched into the discount brokerage sector.
As of December 1994, the Securities Industry as a whole included 158 firms, directly employs over 24,000 people, has operating revenue of $5.1 Billion and operating profit of $1.2 Billion (Appendix A). Within this industry the largest firms ranked by revenue are: RBC Dominion Securities ($1 Billion), Midland Walwyn ($480 million), Burns Fry ($416 million) and Nesbitt Thomson ($335 million) (Appendix B). It is evident that the industry is highly concentrated in a small number of companies. The top 4 leaders in the industry accounted for 44% of revenue, while the top 8 was 51%.
Industry information from 1993 displays further segregation, between retail, institutional and integrated firms. Integrated retail-institutionalized firms (RBC Dominion Securities, Scotia McLeod, Nesbitt Thomson, Wood Gundy) made up 66% of the industry\'s revenue, while strictly institutional firms (First Marathon Securities, Gordon Capital Corp. and Loewer Ondaatje McCutcheon Ltd.) made up 21% and Retail firms (Green Line Investor Services Inc.), 15% (Appendix C). The following analysis will outline the investment dealer\'s industry, specifically the life cycle, critical success factor, strengths, weaknesses, target markets and profitability.
Life Cycle
The demand for investment financial services is expanding. This becomes evident by examining the average increase in revenue which has occurred over the 1990-1994, 5 year span. This amounts to a 114% increase in revenue, ($2.4 Billion and $5.13 Billion), (Appendix A). An additional indication of growth in the investment industry is the fact that the number of firms in the industry has increased from 119 in 1990 to 158 in 1995, and 163 by the second quarter of 1995 (Appendix A). Furthermore, firms are entering the market because they realize the increasing need for investment services as well as the potential for profits.
It is obvious that the industry is growing, however the cause for this growth must also be addressed. Firstly, demographics of the Canadian society point towards an aging population. This aging society is comprised of active retired and semi-retired individuals who have knowledge, time and disposable income for investing purposes.
Moreover, younger generations who fear the elimination of the existing CPP because of the aging population, are interested in "building a retirement nest egg." (Fine, p. B21) Secondly, the fact that people want to be more educated about the investments industry, ties into an additional cause for growth in the industry. The market is offering more information to those who want to be part of it. This additional information reduces investors\' fear of not knowing enough, and if they choose to take advantage of the available information they can capitalize on it. Also, more information gives people the perception that they are able to make an increased number of higher quality investment decisions.
Finally, the entrance of banks into the industry has increased public interest. First of all, banks carry a great deal of trust which is extremely important to the average investor. Second, banks are higher profile marketers so they reach a larger number of people. In addition, the large number of branches makes the product readily available and easily accessible.