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Fidelity Clearing Canada celebrates fifth birthday and aims to grow

Clearing and custodial broker – which ensures that investor trading, record keeping and tax reporting are handled properly – now has $20-billion under administration


Date: November 19,2014

It’s a little-known part of the financial services industry, which investors are aware of only if they read the fine-print disclosures on their securities statements, forms or tax documents. But clearing, custodial and trade execution services are critical to the Canadian market, offering a wide range of “back office” support for brokerages and portfolio managers.

One provider, Fidelity Clearing Canada (FCC), is increasingly dominating the fine print in the country. As it celebrates its fifth anniversary, FCC has become the leading independent provider among Canadian broker-dealers and portfolio managers, with $20-billion under administration.

The Toronto-based carrying broker continues to grow, with the trend among firms toward outsourcing clearing and activities and given the significant technological advances in this complex and highly competitive industry.

“We have had a real impact on the market,” says Todd Roadman, the chief executive officer of FCC, which does everything from executing transactions, clearing trades, managing the books and records for purchased securities, to sending out monthly statements and annual tax reporting for investors. He notes that while much of this happens behind the scenes, “the investing public wants to know that their assets are safe and secure.”

FCC was established in 2009 by the institutional arm of Fidelity Investments in Boston, as an offshoot of its clearing and custodial company in the United States, National Financial Services. The goal was to expand internationally and the new company provided services to Canadian and U.S. clients who need carrying and clearing operations this country. In Canada, the field was highly concentrated and “there was not a lot of emphasis on service,” Mr. Roadman says.

The industry has undergone significant change since then, he notes, with big players leaving the field during the financial crisis and self-clearing firms increasingly opting for outsourced back-office solutions.

“It’s really a scale play,” explains Mr. Roadman, noting that self-clearing firms have particularly had trouble as custodial services become more skill- and capital-intensive as well as technologically sophisticated, requiring them to keep up with an array of new products.

Scott MacKenzie, senior vice-president of business development for FCC, says that increasingly complex regulatory requirements have also added to firms’ compliance costs and overhead.

He says that FCC is the only independent carrying broker and custodian in the marketplace.

Other providers, meanwhile, have existing retail or wealth-management clients and run their custodial services as an adjunct to these core businesses. The competition for investors, advisors and resources can create channel conflicts that compromise the level of service that such companies offer in their custodial “arm,” he says, and their internal and external business share the back office.

“Our competitive advantage is that we have no other business in Canada, other than to service our end clients,” Mr. MacKenzie explains. “Our focus, first and foremost, is on client needs.”

He says another thing that differentiates FCC is Fidelity’s focus on innovation and investment in new technology, especially coming from Fidelity Institutional, which has been in the U.S. market for more than 30 years and services more than $1.7-trillion in assets. Its proprietary technology automates and streamlines corporate action transactions, for example, making advisors more efficient and eliminating the risk of mishandling associated with paper-based processes.

“Nobody wants to deal with an error,” Mr. Roadman says, noting that the technology is used with every FCC client. “If you’re coming to us, you’re going to benefit from our focus on technology.”

He points out that by opting to use FCC for their custodial services, self-clearing firms are able to focus on their core competencies, increasing their businesses, improving productivity and attracting new clients.

“Our whole business model is purpose-built to serve our correspondent clients and portfolio managers,” he says. “Our success is clearly linked to their success.”

From just two firms when it opened its doors in 2009, FCC today has established relationships with 60 clients, and a total of 66 are expected to be on board at the end of this year. It has doubled its assets under management in the past two years, having moved into the portfolio management custodial business in 2012 and as more broker/dealers sign on and expand their businesses.

Mr. MacKenzie says that a lot of the custodial and clearing market is up for grabs in the next five years and there is every expectation that FCC’s upward trajectory will continue, especially by responding to investor needs.

One of the big trends in the marketplace, the move to a fee-for-service model, is particularly a place where FCC is looking to provide solutions. Fee-based assets represent some 26 per cent of the market “and is growing fast,” he notes. FCC is investing in solutions to support its clients in such accounts in efficient and cost-effective ways.

The FCC operating platform and investments in innovative solutions are also important as regulations change to ensure fee transparency and as reporting requirements grow more stringent. “It’s really about having comfort in the security of your assets and who’s holding those assets,” Mr. MacKenzie says. “Fidelity has been a leader in the asset management business since 1946 and has continued to earn clients’ trust by focusing on delivering a great customer experience.”

Mr. Roadman says that FCC has distinguished itself after five years, and investors can be assured that their assets are with a company that is solid and stable. “Much has changed, technology has evolved, products have become more complex and clients are expecting much more.”

He says that Fidelity continues to build its clearing and custodial operations in Canada. Fidelity Institutional is the largest clearing and custodial broker in the United States and provides services to more than 3,500 broker-dealers, banks, insurance companies and registered investment advisors, with $1.7-trillion worth of assets under administration.

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