Canadian brokers uneasy over inroads by banks
Discount brokers started in Canada on April 1 and the old-line brokers are getting anxious. It isn't the new discount brokers who make them uneasy, but the prospect of banks developing into full-service financial institutions by using discount brokers as middlemen.
Canadian chartered banks are eyeing the brokerage business, and the Toronto Dominion Bank is leading the way. The T-D - its nickname has become its trade name - announced plans to offer its customers a service by which they could call a toll-free number and order stocks, and the bank would give them a break on brokerage commissions by placing the order through a discount broker.
The brokerage community, represented by the 97 members of the Investment Dealers Association and the five Canadian stock exchanges, is up in arms. It sees the T-D move as the thin edge of a wedge, with the banks gradually expanding into the brokerage area.
And the banks certainly have the muscle to do it. While there are more than 14,000 banks in the United States, there are only 14 Canadian chartered banks. And the five biggest do more than 90 percent of the banking business in Canada.
The Toronto Dominion - the fifth-largest bank in the country - has assets of 5 billion.
Since negotiated commissions came to Canada, three discount brokers have set up business, offering discounts of up to 85 percent. There is no chat or advice, just a phone call and an order. The service has not become a big moneymaker yet.
Discount brokers have been in business in the US for 10 years and are said to account for only 8 percent of the business there.
Last year $22 billion worth of stock was bought on the five Canadian stock exchanges, generating about $330 million in brokerage commissions.
Under the provisions of the federal Bank Act, chartered banks are prohibited from getting into the areas that brokers work, such as investment banking. But there is a provision that allows a bank to take an order for shares from a customer and then buy the stock through a registered broker. The banks are not allowed to solicit this type of business, nor can they give investment advice. The purpose of this exemption was so that people living in isolated communities with no brokerage office could have access to stock markets.
The move by the T-D to offer a discount brokerage service has caused such an uproar on Bay Street (the Canadian version of Wall Street) that the Ontario Securities Commission is holding hearings on the matter.
The brokers and the exchanges have a joint committee headed by Austin Taylor, chairman of McLeod Young Weir. Their submission is totally against even the smallest intrusion of the banks into the brokerage community.
One discount broker, Marathon Brown, also sees the banks as a threat. ''Marathon Brown feels quite literally that it's fighting for its economic life.''
The banks, however, say they have every right to offer their customers cut-rate commissions.
The outspoken president of the Canadian Bankers Association, Robert MacIntosh , implied that the brokers were making too big a deal out of the issue, saying the discount business was hardly ''life and death'' for the investment dealers. He played down the importance of the discount service to be offered by the T-D. ''We are only trying to provide, as agents, a very modest service to the public.''
Mr. MacIntosh also said the brokers were getting into the deposit business by holding money for clients until they are ready to invest and paying interest on that money.
He also maintains the Ontario Securities Commission has no right to tell brokers what to do, since the banks are regulated federally under the Bank Act.
The man in charge of the new service at the T-D, Allan Hockin, says the bank is just taking advantage of the change in rules now permitting negotiated commissions. Mr. Hockin, the bank's executive vice-president in charge of investments, said the brokers have nothing to worry about. ''We don't want to take over the brokerage industry.''
But some bankers say privately that change is inevitable, and they point to the concentration of financial services in the US, where, for example, American Express is into banking, brokerage, and credit cards, and the Sears, Roebuck department store has a service that buys and sells stocks.