Sell at the Top?

When one of the best know Wealth Management firms in Canada sells itself to a Bank at the height of the cycle, it may be a signal of things to come. Stephen Jarislowsky (JF) is regarded as one of the most storied Canadian investors in recent time. His firm has been a top notch brand in the investment industry going back to the 1950’s. This morning they announced a sale to Scotiabank, it is a known fact that given the recent slowdown in the Canadian real estate sectors and further anticipated weakness in the mortgage business for the foreseeable future, the Canadian banks are in a mad rush to shore up their business, and the Wealth & Asset Management business is their primary target. But this deal in particular comes as a surprise to many, the group at JF has been staunchly independent since their beginning and have never seemed very interested in being a part of a bank. JF has always had great culture and have spawned some great managers over the year. These folks are long term investors, not part of the trend following crowd and they are well recognized for their independent approach. So why sell now?

Sell at the Top
It seems quite intriguing that the JF group is selling to a bank, considering that the senior management team always had the first right if the Jarislowsky family ever decided to sell their stake. Although it’s never an easy take to pick a top, in some ways this might just be a sign of things to come, from some of the smartest minds in the business. Think of the brilliance of this deal, the banks are desperately trying to diversify, and are willing to pay top dollar to accomplish their objective as well and the JF team probably feeling that we’re at a market Top…

This might just be a great signal for others as well.

Anyone who has been in the business long enough knows that market volatility starts when investor’s comfort levels with risk is dwindling, and it can sometimes lead to a pile-on situation really quickly. Let’s face it, this market has done nothing but go up for almost a decade. And we haven’t seen valuations this high in a long time, really long time.

A piece in the Economist referenced Abhijit Rawal a PWC Consultant, who in a presentation last summer point to a set of interesting trends in the Asset Management business, and suggested that the sector maybe ripe for consolidation. He pointed to the sector’s problems as the “four Rs”:
1. Returns are low
2. Revenues are being squeezed
3. Regulations are being tightened
4. Robots are coming to take away business.

Now some of these may not have been a direct driver to JF, likely they were not as worried about the Robos. But Advisor are being impacted in a big way by these four trends.

So what’s an Advisor to do?, well if you are one of those in a position where you do not want to live through the agony of another market correction, this might be your cue to find an exit strategy, that is probably what the JF folks were thinking. Because let’s face it, it really sucked being a advisor during the last market correction. What if you are a younger Advisor, well my friend, this is a good time to buckle up, but you may want to also start looking at the old guys for opportunities, because if you play your cards right you may have a good chance of growing you book in a big way, just don’t pay too much for the asset.

Bottom line, this industry is consolidating and you need to figure out how you’re going to play it.




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