Canadian banks win round in battle with stockbrokers
Canadian stockbrokers are about to face some high-powered competition. The Ontario Securities Commission (OSC) has told Canadian Banks that they can buy and sell stocks for their customers, something the established Canadian brokers have opposed. Brokers are concerned that the huge banks may take their business, while the bankers are smiling because they have won a round in the battle to keep the brokers out of banking. The banks could now attract deposit money that has been increasingly going to brokers.Skip to next paragraph
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Because more than 80 percent of equity trading in Canada is done on the Toronto Stock Exchange, the ruling by the Ontario Securities Commission is as good as an edict for the whole country.
Negotiated commissions replaced fixed-brokerage commissions in Canada on April 1 of this year. So far, five companies have entered the discount-brokerage business, offering commission discounts of up to 85 percent.
The OSC has approved a plan by the Toronto Dominion Bank to offer the services of a discount broker through a plan called Green Line Service, a rudimentary form of the total financial package, or ''financial supermarket'' offered by brokers in the United States. There will be some heavy restrictions placed on the banks. The major one is that banks will not be allowed to offer their customers investment advice.
Because it will not be allowed to give advice, it is thought the bank service will appeal mainly to sophisticated investors, those who know what they want to buy but who want to save money on commissions. This could be just what the banks are after.
''It is a loss leader for the banks,'' says James Pitblado, chairman of Dominion Securities Ames, the biggest brokerage house in Canada. He says the banks are after the ''high-net-asset individual,'' the rich person who will use the bank for everything - checking account, mortgages, business loans, and now stockbroking.
Some analysts agree. They say that in the 1970s, with inflation and rapidly rising interest rates, people put their savings in short-term deposits at banks rather than investing in equities or bonds.
''People are getting out of short-term deposits and into equities. If the banks are in the brokerage business, they will reap the benefits,'' says Thomas Starkey, an analyst with Bell Gouinlock. He adds that the banks may not make any money on the brokerage accounts, but they will keep deposits with the banks.
The Canadian Bankers Association has long maintained that the brokers are moving in on its territory. The brokers pay interest for noninvested money kept on deposit.
The Toronto Dominion Bank is negotiating with the OSC on terms for a new Green Line Investor Service it will be launching soon. The bank plans a massive ad campaign, complete with a toll-free number to attract customers from across the country. The Toronto Dominion is the only bank going into the brokerage business, for the time being.
Banks have been allowed to buy and sell stock in the past, but this was generally a courtesy service for people in rural and remote areas where the brokerage firms did not have offices.
The 97 brokerage firms in Canada are afraid that the banks will use their considerable financial muscle to take over the brokerage-commission business. Toronto Dominion is only the fifth-largest bank in Canada, but its assets of $45 billion dwarf the total assets ($8.5 billion) of the brokers. Last year $22 billion worth of stock was bought on the five Canadian stock exchanges, generating about $330 million in commissions. That commission income is almost peanuts for the banks. But getting into the brokerage business may indeed help them to get their hands on all the business being done by the rich clients they hope to take away from the brokers.
But at least one of the big five will not be rushing into the brokerage business - and for an old-fashioned reason: ''It doesn't look like much of a moneymaker,'' a bank official commented.