Retail Trading Surge Stresses Canadian Advisers, Firms

Since early November, a frenzy of retail investing activity has hit Canadian firms hard. While the surge has been felt most by discounters, ramifications are rippling throughout the industry.The rush came in the fourth quarter, but the heavy volumes continue because many investors, seeking tax relief, make adjustments to retirement accounts throughout the first quarter."Around Nov. 1, business began

Since early November, a frenzy of retail investing activity has hit Canadian firms hard. While the surge has been felt most by discounters, ramifications are rippling throughout the industry.

The rush came in the fourth quarter, but the heavy volumes continue because many investors, seeking tax relief, make adjustments to retirement accounts throughout the first quarter.

"Around Nov. 1, business began to skyrocket," says Michael Bastian, CEO of Royal Bank Action Direct, the discount arm of the Royal Bank of Canada. "We've never seen anything quite like it." Between Nov. 1 and New Year's eve, the firm's volume of customer calls increased by 80 percent.

Other firms experienced the same demand. "Typically December is one of our slowest months, but this year it has unexpectedly been our busiest," says a spokesperson for TD Waterhouse in Canada.

Further complicating the situation is Canada's strict suitability rule. Certified investment advisers must review every transaction--even at discount firms. The heavy volume has created a bull market for IAs.

"It's been just plain exhausting," says an adviser at TD Waterhouse in Toronto. Many are working overtime. TD Waterhouse has hired 250 advisers since December, bringing its Canadian total up to 750.

National Discount Brokerage (NDB) in Montreal has made similar hires but reports it can't get enough people. "I would spend whatever I could to get the people we need, but they're just not out there right now," says Richard Morin, vice president at NDB.

Brokerage firms are in discussions with regulators to seek relief from the suitability rule. They say that firms shouldn't be required to review trades of customers who don't ask for advice.

In the meantime, every licensed member of Action Direct is on the phone and reviewing trades, Bastian says. "Everyone, senior management included," he says.

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