Disclaimer, this video is for

educational entertainment purposes only.

It is not financial advice. We are not

registered financial adviserss.

Hello everyone. I have the absolute

honor and pleasure to have a legend back

on the channel. I am joined with Rob

Wessle who is the executive chairman and

co-founder of Hamilton ETFs. How's it

going, Rob?

>> It's going very well. No, thanks for

having me back. coming back uh coming

out of semi-retirement

uh I know that you're very busy and I

really just want to start off by saying

you're a legend in the community number

one number two

>> I really appreciate you you doing this

this is a just a non-sponsored video or

anything like that because I wanted to

talk to an expert uh or someone who

really knows the Canadian banks really

well because the Canadian banks have

been running and running running up and

and they're you know very hot topic and

are they going to crash and there's a

lot of chatter going on. So I said who

better to ask than Rob Wessle who in a

past life was literally a Canadian bank

analyst. So is that that's correct,

right? So what did you do in your past

life that make you such an expert?

>> Huh? Well, I have about 31 years of

experience um uh involved in the

Canadian banking sector. I first started

out in investment banking and then uh

actually corporate finance uh at a large

corporation then investment banking. I

was an equity research analyst for for

quite a long time and then uh and then

in my current life. So yeah, it's uh 31

years with the sector. So I'm um it's

it's been it's been a long time.

>> Yeah, I I think I got the the right

person. You were also an accountant in a

past life. And when we say bank analyst,

I mean you're the guy that literally

goes through the quarterly that's gone

through the quarterly reports and the PE

ratios and valuations or the bank

expenses versus other times. are they

cheap versus other times? So, you're

really the guy uh to talk to. And

another little point that I have to

mention, you are the legend behind the

creation of HD as well, which is a very

I would say pivotal/important

amazing ETF in in the community for for

various reasons because, you know, I

always say that it kind of started it

all. started at 25% leverage trend, but

so you're an absolute legend and I can't

wait to have this discussion with you.

So, thanks again for your time, Rob.

>> Um, let's get into it right away. So,

the banks, the Canadian six banks have

done really, really, really well. So, in

terms of valuations, um, I see that,

okay, they're, uh, they're they're

they're they're too frothy. In terms of

valuations, what can you actually tell

us about the truth? Are they expensive?

Are they still cheap in your opinion and

compared to the past? I know that

typically they use the PE ratios.

>> So, go ahead. The floor is yours.

>> Yeah. So, you know, there's there's

there's a few different metrics that

people use to evaluate the Canadian

banks depending on the environment, but

generally speaking, uh the price

earnings multiple is is the most

important and and thinking about price

earnings multiples generally speaking

the next 12 months. So, what we like to

call PE forward.

>> Okay. Um, so you know back when I was in

equity research and I have a comp table

to my left just uh so you might see me

looking to my left for a moment moment

in time and you know back in the day you

know for a very very long period of time

literally decades

if you know things were relatively

normal or benign and and the sector was

you know plugging along doing well they

would probably trade at 11 times give or

take 11 times uh the next four quarters

earnings And if things were doing really

really well, you know, ROIs were

expanding, earnings per share growth was

seen to be higher than the market was

forecasting or the analysts, excuse me,

they would maybe trade at 12. And if

people started to get really, you know,

worried about the outlook and they

thought things were slowing down, maybe

they would trade at 10. And then if you

were in a big severe downturn like, you

know, COVID or the global financial

crisis, they might go to seven. So that

would give you that's not perfect, but

if you're thinking back three decades,

I'd say that's a pretty good starting

point. So interestingly enough, uh in

the last 12 months, you've actually seen

these PE multiples rise to over 15

times.

So, I don't know what the Canadian X

traded at in uh uh 1860

uh or you know 1910,

>> right?

>> These would and are likely the highest

PE multiples ever recorded by the

Canadian banks. So, there's, you know,

they they are they're definitely at very

high multiples. Now, it's it's it's not

clear and we I know we're going to talk

about this. It it's not clear what that

means, but sorry, over to you.

>> No, that that's really a good

indication. Uh I like I love

>> that's your starting point.

>> Good starting point. So, just to sum up,

>> cheap COVID disaster stuff, seven.

>> Uh normal, regular, everything's humming

along 10. Frothy maybe a little bit

higher, 12, 13, 14. And right now are

you like what about right now? Right now

are we at the 14? We're 14 15 because I

know there was a little pullback.

>> 14 and a half. Yeah. So 14 and a half.

>> Normal would be 11. Really good. You

know back in the, you know, back over

the past several decades would be 12.

And if they were struggling a little

bit, maybe they'd be 10. I'd say that's

a pretty good rule of thumb. And right

now, you know, they're 14.6.

Um I'm looking right now, this is as a

Friday, using Bloomberg as a source. Um,

and so yeah, they are and and these are

the highest multiples I've seen in my

over 30-year career. And you know, I I

know for sure that these are higher

definitely higher than what they were

say in the in the 1970s. So suffice to

say, I think you can say these are the

highest multiples in at least 50 years,

probably the highest multiples they've

ever achieved.

>> So people might interpret that as frothy

>> right now or bubble or whatever, however

they want to call it. So

>> Oh, yeah. They're elevated for sure.

>> Elevated. Yeah. Yeah. Um, so the

million-dollar question, of course, Rob,

>> is why? So, I know we're going to go

through some potential reasons. So, if I

could just throw out some some maybe of

my theories out there or what I've been

asking myself,

>> uh, because, you know, if you look on

the news, which I don't, which I rarely

look at, and maybe I'll see some

headlines [clears throat] by accident

because I'm scrolling through some some

some funny cat videos or something.

>> Um,

>> the Canadian economy is not doing that

well. Lagging. G7.

Um, but the Canadian banks are doing

really, really, really well. So, is it

because they're just amazing banks? Is

it because Canadians that that own

assets pile money in there? Is it an

explosion of ETF access? Is it

>> because they're so well-run and they're

expanding international operations? So,

in terms of why are some potential

reasons, what can you tell us of why

this is happening right now? So, so the

first thing I will tell you is I don't

think anybody knows, right? So, I think

in if if you had a private conversation

with the CEOs of any of the individual

Canadian banks and I've um over the

[clears throat] years I've I've spent a

lot of time with Canadian bank CEOs, uh

I don't think any of them would be able

to say exactly why. And I think what's

interesting right now is there's no

single identifiable reason for them to

be trading where they're trading. So

what I think what we all have including

myself or our firm I should say is we

have theories. So why don't I give you

some of my theories

>> please.

>> Um the first one is um what I call the

Australia effect uh which is that the

Australian banks which are equally good

to the Canadian banks. We have an

Australian bank ETF ticker HBA. Uh the

market you know it's a smaller country

more successful than Canada GD higher

GDP growth much wealthier than we are.

uh they have world-class banks but the

market is has lacks breadth. So what has

happened over the years is the

Australian banks trade at much high have

historically traded at much higher

multiples than say the Canadian banks or

indeed any global banks and yet they

didn't fall in price. They I mean they

were very very strong performing banks.

They just traded at higher multiples.

But a function of I I I surmise or I I

submit to you was the lack of breadth in

the markets. the investment alternatives

in the publicly equity markets. You

know, there was not as many things that

were as high quality as the banks and so

people were prepared to bid them up.

They obviously had higher payout ratios

and higher dividend yields and that's

variable too. There's also a unique

aspect of Australia about their pension

system. But nevertheless, what you've

seen in Canada is there's been basically

no IPOs of any consequence for many,

many years and a lot of foreign

takeovers over time. And what you've

seen is the Canadian equity markets, the

lack of breadth is becoming more and

more evident. So I I I submit to you I

think one of the reasons they trade at

higher PE multiples is the investment

alternatives within the Canadian public

markets has has thinned. Also I think

it's fair to say that the quality of

some of the other sectors or the outlook

you know maybe isn't quite as strong as

it has been in the past. You can energy

is is up for debate but bottom line is I

think that's one theory. The second

theory relates to fund flows and there's

two dimensions to it. So, you know, back

in the day, you know, 25 years ago, the

active portfolio managers at the mutual

fund companies, they were the ones who

set the prices for Canadian bank stocks,

right? So, if they got high, they got

inflows, they just wouldn't buy Canadian

banks. They'd reallocate to utilities or

energy or consumer products or some of

the other sectors, tech, uh, mining, and

so on. But, as time has gone by and the

ETF sector has gotten bigger and bigger,

you know, the ETF sector not that long

ago was only 300 billion in Canada. Now,

it's over a trillion. So take us for

example, you know, our firm has done

very well. Uh we have inflows roughly

95% of trading days. We are buying

Canadian banks every single day. Every

single day pretty much we are buying

Canadian banks regardless of what

they're trading at. So is so is

Vanguard. So is BlackRock. So are all of

the large providers. So you have all

this money going into ETFs and they're

buying Canadian banks either directly or

indirectly. Mostly indirectly. We are

the number two provider of Canadian

financials and Canadian bank ETFs as it

as it happens. We're behind Beimo. We're

below Beimo but above Black Rockck. So

the other part of fund flows would be

quant funds. So momentum funds. So

that's also something that's largely

valuation indifferent. Instead their

criteria are things like ROE accretion,

EPS growth. And so the Canadian banks

screen very well because they have been

doing very well fundamentally. So you've

seen incremental we I submit to you we

one theory is that the constant and

regular buying from quant and and

momentum funds. The other one on the

fund flows which is three-dimensional is

they're all buying back stock. So you

know there's a natural buyer every

single day. So not that any of those are

necessarily determinative but the fact

that there's buying and there's natural

large buyers every single day of

Canadian meto irresective what they

trading at is a variable. I think the

other critical one is AI and there's a

two-dimensional you know two theories as

part of AI. One is that

the Canadian bank CEOs have been

relatively optimistic in communicating

what they think expense synergies could

be from um the the greater usage of AI.

So some of them I are talking like 10

20% of expenses. Those are monstrous

numbers. So, you know, there is probably

some idea that um you know, the uh um

analyst estimates are too low or maybe

you're not pricing in some of this and

that the real earnings per share is

quite a bit higher than what the

analysts are forecasting and therefore

the multiples aren't as high as they

look on a um when when you just look at

Bloomberg. So, and then you know lastly,

if you believe there's an AI trade going

on in the market where where investors

are moving from away from industries and

businesses they think could be disrupted

by AI and putting money into businesses

that will be less likely to be disrupted

from AI. You know, the banks would be in

that category. So, I I nobody really

knows how they got to these multiples.

And by the way, I I am saying it's not

obvious that they're quote unquote

overvalued and it's not obvious that

they're going to fall in price. I know

we're going to talk about that in a

little bit, but I I think what is

interesting is that they came to these

multiples very very quickly and like

this happened over a fairly short period

of time. You had very large multiple

expansion. Uh it took place, you know,

in less than a year. And you know, not

that long ago, I just have a I have a

comp table here to my left. you know, a

year ago they traded at 12 and a half,

give or take because 31st they traded 12

and a half and you know, here they are

at at 14 and a half. They picked up a

couple over over two multiple points in

a fairly short period of time. You go

back even a little bit further and that

multiple expansion is even higher. So,

it's it's really interesting. And then

the last thing we'll talk about or I'll

mention before I I'll seed the floor is

what's also interesting is the PE

multiples within the banks have become

very wide. So there's significant

dispersion. It used to be, you know,

back in the day, one bank would trade at

11.3 and one be at 11.5, but here I look

and RBC is trading at 15.9 times and

Scotia's 13.6. So you got like two

multiple point differences. So not only

is are we in this weird situation where

the banks are trading at multiples

they've never seen before, but the

multiples between the banks have never

been wider. So it presents a really

interesting conundrum for investors.

Yeah. Well, this is this is exactly what

I hope for honestly.

>> Uh this great insight, Rob. Thanks so

much. Uh whenever someone starts the

conversation with to be honest, uh we

don't know or I don't know. I

automatically trust them. I

automatically know, okay, I'm dealing

with a an honest person here and uh you

know, and you're always fully honest and

transparent and and this is synonymous

with with your firm Hamilton ETFs, which

we all love. So, thank you for that. But

it's interesting what you said. I

particularly like the the what you said

where there's constant flows. It kind of

reminds me a lot of what's going on the

US market as well where there's, you

know, S&P 500, NASDAQ 100 where you got

Nvidia, Apple, Microsoft at the top and

the PE ratios are expanding and

expanding. It's because there's there's

forced buying because the SM it's so

popular and the Canadian banks are the

top stocks in Canada. So if you're

buying even like

>> like you said a Hamilton ETS which has

the banks or bank ETF or even an XIU

right a TSX60 you're constantly buying

and buying the banks right

>> yeah and it's valuation indifferent we

you know people like us um you you

decide you know we we have HCA or Mosley

Canadian bank ETF we have HB which is

our lowcost equal weight Canadian bank

ETF people you know that's they're both

over a billion dollars you know the

people who buy them. They've made the

decision that they want exposure to the

Canadian banks. We take the money uh we

we take the cash and we do exactly what

we promised to do, which is we bought

the six banks equal weight.

>> Yeah.

>> And or we bought them with with modest

leverage, but you the investor have

decided that you want exposure and we're

valuation neutral. We're not active

managers. Uh you decided that this is

the structure and and exposure that you

would like. we provided it for you and

uh but it's it's not something where we

can say well you know what the multiples

are high so we're not going to buy today

uh that's not how ETFs work as you know

>> yeah yeah for sure no that makes

complete sense we'll take a look at some

Hamilton bank products as you guys are

you know you actually started

specializing in in financials and you

have the Australian bank we're going to

take a look at in a second

>> to continue the conversation

>> um I think that's pretty much what's

happening it's uh I would say the rise

of the retail investor

>> is causing this as well because retail

investors like you mentioned earlier

they're not like professional fund

managers where if they see some

frothiness in the bank like you said let

me trim a bit and put it in utilities

and

>> they don't retail investors like you

said they could do what they want for

example for me I don't care about

trimming and going to utilities I want

the the assets that invest over time

>> and if you have long-term time horizon

you might think it all works out and

maybe you maybe your taxable, you know,

maybe you don't want to pay commissions.

There's all sorts of things that

>> Exactly. My my I don't have any

quarterly targets. I have 10 20 year

targets like unlike those fund managers.

Another thing I will mention is I think

in it all kind of ties into inflation as

well.

>> I personally think well I I think it's a

fact inflation is actually accelerating

and that also inflates asset prices

higher and common things like S&P,

NASDAQ, TSX60,

Canadian banks. I think that will

accelerate as well and that's why you

have the the PE ratios expanding and I

don't I'm not in the camp where people

say oh it's frothy there's going to be a

bubble to me it's it's kind of normal

it's like any asset price. So that's

that's pretty much my opinion I think in

what you said which correlates.

>> Yeah I mean certainly you know money

supply easy money low interest rates

[clears throat] have had a big impact.

We'll we'll see what happens if the Fed

has to raise rates over the next couple

meetings. I mean, it's a mug's game to

predict uh interest rates and uh how the

Fed will react. But I I think what I

would say is also interesting is that

this multiple expansion is

is not completely specific to Canada,

but it's pretty Canada. The Canadian

it's Canadian centric, which I I think

is interesting. The other thing that I

think is really interesting is it's not

like, as you alluded to, the Canadian

economy is on fire. Yeah, we had a good

print recently, but in the last four

quarters, GDP growth has by many object

has been very mediocre. Unemployment is

still quite elevated. There's tons of

macro risk. So, it's just such a weird

situation that we're in where we have

these higher multiples. This multiple

expansion was very abrupt. But it's also

true that it's not that it's taken place

in this really favorable macro backdrop.

The the the macro environment is, you

know, there's there's lots of potential

areas of risk.

>> H Okay. Interesting. Um Okay. So, you

kind of alluded it before where there's

different PE ratios for the different

banks. So some [clears throat] is it a

would you say out of all your years of

of of um

>> looking at the Canadian banks analyzing

the Canadian banks there's pretty much

six of them. It's a fool's errand to

really choose the banks you know cuz RBC

maybe is higher and Scotia Bank is a bit

lower. So do you feel like over time

they kind of balance out? Is there any

>> what are the differences between the

actual banks? Do you think some banks do

some things better than other banks or

do you think that it's a waste of time

for a regular investor? Let me just get

all them and that's it.

>> Yeah. So, so I think that's a that's a

really good question. Um, not one I

planted by the way for the audience. Um,

so I think that's an excellent question.

Obviously, as a former bank analyst, you

would expect me to say that, you know,

back back in the day when, you know, had

huge financial models and you went to

lots of meetings and visited foreign

subsidiaries and talked to all these

different executives and did your own

industry research, you know, the idea 25

years ago was that if you were good at

estimating earnings and pretty good at

anticipating changes in relative

multiples, uh, that you could add value

as as an analyst and and or if you were

a buyside investor. Fast forward, I

would say post global financial crisis

and with the rise of algorithmic

training, I would say the ability of the

average bank analyst and institutional

portfolio manager, investment advisor,

retail investor to say, I'm going to

actively manage my Canadian bank

portfolio and I have the skills to

generate alpha and and and not do that

once, but do it consistently time and

time again.

>> Yeah.

>> Has mostly gone away. I even in my own

background, while I I wouldn't say it's

a fool's errand, I would say the ability

right now for the average investor or

even quite frankly the most senior

institutional portfolio manager to add

value by picking their favorite three

and having them outperform over a 1 2

3ear period is very very low. And that's

because they're not really trading as

much on fundamentals and the individual

differences that you know we've spent

time debating over the past 25 years.

It's there's just so much macro. And

then you know because you know back in

the day the main driver of of share

price performance was EPS growth. We

were very good at estimating EPS. you

know, you had a big model, you know,

that was you could add real value, but

now changes in pees are are very very

difficult and outside of the core

competency of an analyst. So, not only

are are PE multiples higher and this but

the spread, as I alluded to earlier, you

know, there's when you're this high, you

know, RBC trades at 15.9 times the next

12 months earnings or fiscal 27.

Um, Scotia trades at 13.6 six using

Bloomberg Commerce CIBC at 13.9, TD at

15. Who knows? Why can't TD, you know,

in the next 3 months trade at 14? Why

can't Scotia trade at 14.6? You just

don't know. But if they move, that's 8%.

If Scotia went up a half a multiple

point or a full multiple point, that's

like 7%. And the changes in multiples

are just I I think it's I don't want to

say random, but I would say for the

average investor, one of the things that

we've talked about is there's never been

a better time or a more appropriate time

to say, listen, I I can't very easily

pick the three best banks. So on a

prospective basis, obviously a lot of

people in Canadian banks and they're,

you know, the cost base of Royal Bank

for a whole bunch of people is like $12.

So you're kind of stuck. you can never

sell it for capital gains reasons. But,

you know, I think HB, you know, that uh

Hamilton Canadian Bank Equate Index ETF

is just 19 basis points. Yeah.

>> You know, that's a very quick and easy

uh fund to own.

>> And you don't have to think about it.

You don't have to try to pick anything.

But I I would say a product like this is

a good product because the current

environment means it's extremely

difficult for you to pick your own

stocks.

>> Yeah. Yeah, that that makes sense.

Uh,

all right, Rob. So, uh, lots of great

information there. So, if you currently

own Canadian bank stocks,

>> just hold and just say, you know, this

is obviously my opinion. They're always

a great investment 5, 10, 15, 20 years

out. I'm a buy and hold investor. Do

that. Should they be worried? I mean

specifically for a retail investor who

doesn't need to have corally targets

what would be your I don't know top

advice obviously it's not financial

advice but some top wisdom uh from a

legend

>> yeah so I I think it's it's a very

interesting period right now so yes they

trade at very high multiples um

ordinarily in in a regular normal course

you would say okay now's the time to

sell um what I what I would say is

there's a couple things going on if you

are comfortable with the sector right

now what do you need to believe and I

would say what you need to believe if

you are along the Canadian banks and you

you're you're worried should I hold them

should I sell them um you have to

believe you literally have to believe

that earnings estimates are too low

which is to say and and by the way

that's a perfectly reasonable investment

thesis so for example and I I I want to

say for six quarters in a row basically

ally something like that. The Canadian

banks are all beating every quarter. Uh

they're all rising and so and you're

getting upward earnings revisions.

>> Yeah. And the dividends are rising

consistently as well, like non-stop

dividend increases, which

>> confirms that thesis that they're

growing their revenues, right?

>> Yeah. And earnings per share growth was

over 20%. What's interesting is, okay,

but that's all behind you and now you're

now you're at much higher multiples. So,

I think that's the first thing you need

to believe. The second thing I think you

need to believe if if you're comfortable

just holding them for let's say 5 years

um I I think you need to believe that

they're not going to go back to 12 times

anytime soon. They're just this is a

fundamental revaluation because if you

don't believe that, you know, they have

like 25% downside. But I think there was

this last quarter uh Q3 was actually

very encouraging. I think if you own

Canadian bank stocks and you've been

worried and let's face it, we've all

been talking about valuations for a

while, this last quarter was actually

pretty encouraging because what you had

was you had all the Canadian banks beat

and you had a muted stock price

reaction. So, there's either two ways to

think about that. Um, you can be happy

because you ended up with multiple

compression, multiples came in, a full

multiple point, but you as the holder of

Canadian meto stocks barely noticed

because they didn't really change in

price.

>> Yeah. So you got multiple you got

painless multiple compression is what I

would say. Now you know you need if you

get that for two more quarters then this

conversation largely becomes moot. So

now that's the that's the glass is half

full approach. The glass is half empty

is that if you hold them for 6 months

and you care about a six or ninemonth

period it could be that the stocks

really don't move all that much over the

next 9 months.

>> Yeah. So, I think at minimum, you're

probably looking for a period where and

and listen, if you're a long-term

investor or you're highly taxable, you

know, no, it's no big deal. It's no no

skin off your nose if they're flattish

for 8 months, 9 months, and earnings

growth continues to move ahead and then

your multiples end up coming in without

you, you know, having any real pain.

That that's the that's the that's the

best case scenario. you know, the worst

case scenario would be there's some sort

of macro event or the bond market

interest rates back up, stock prices

come in and the banks end up with um you

know, falling more than the market,

which they don't normally do or they

don't often do, but they can't of credit

then the not that I just want to keep

going on and on and on. But what's also

interesting right now is that loan

losses are largely falling. So you have

all this macro risk and you have all

this stuff going on and there's

obviously trade tensions but credit is

actually doing pretty well and the

accounting has changed. So they have a

ton of capital, a ton of reserves. So

you know the the you know the axiom that

this time is different is the most

dangerous phrase in in investing is true

uh 100% and and the Rogoff book is

brilliant. Uh but it it is different

now. Uh I don't know that we're I don't

think we're going to stay at 14.6. I

just don't know that it's going to be

painful to go back to normal. I think

it's it's quite possible that this is

somewhat of a, you know, staggered

orderly reversion, but I don't think

you're going to 12 times. That that's a

that's a really really big correction. I

think there's been some structural

changes to the market that will just

keep them higher. How high? I don't

know. Nobody knows. But, you know, I

don't think there's 25% downside.

>> Yeah. Yeah. I I uh I cringe at that that

expression, this time it's different

because

>> Yeah. Yeah. Yeah. I I always think this

time it's different, but this but it's

always the same. Like it's like, you

know, to me it's all whatever. And it

certainly helps, you know, when these

are like dividend aristocrats and it's

obviously easier to hold something when

you're generating dividends in income.

Before we get into some Hamilton

products, uh, that are, you know, really

focused on the banks and and stuff like

that, I have more of a curious question

that I I started asking myself more and

more when I visited Toronto uh a month

ago because when you walk around, you

walk around downtown Toronto, you look

at you look up and it's just the six

banks logos. They have the nicest

buildings. Every ETF fund manager I

talked to spoke about the the the power

and the the oligopoly, the monopoly that

these institutions have, [clears throat]

>> not just for like customer deposits but

for multiple like capital in general. So

my question to you is versus the US

banks versus you know you'll see a JP

Morgan uh city and whatever but then

you'll see like uh investment bank like

Goldman Sachs and then you'll see like

Morgan Stanley which is more of a

wirehouse. It seems like each

institution has like a a little bit of a

different function or more specialty,

but the Canadian banks, I think they

just do. Is it because they just do

everything like from A to Z in terms of

the capital structure? Is that Do you

think that makes them a little bit more

special versus the US banks for example?

I was just curious about that.

>> Yeah. Know um well, I don't know if I'd

use the term special, but without

getting into too much history,

um a lot of history. So yeah. No, me

too. Me too. Um, so the US banking

sector was designed, policy makers

emphasized fragmentation. Uh, in

particular, they wanted to avoid uh New

York City becoming too powerful. This is

back in the 1800s. That's one of the

reasons why you have regional Fed

presidents. That's um and there was

often uh legislation depending on the

state that didn't let you have a bank

branch across state lines. So the system

was was really the one of the primary

policy objectives at its inception and

for for you know couple hundred years

after that was for a fragmented banking

sector and to spread out that economic

power and Canada by the way wasn't all

that different but we definitely had

larger banks but you know there was a

period of time where they you know they

were consolidating much faster call it

in you know in the first uh 50 years of

of the 20th century uh and then there

has a a law after the great depression.

Um there's a great book by Andrew Rossin

called 1929. Um back in the day

um banks were cross dealing with each

other. The investment bank and the and

the banks were um you know obviously

basically unregulated. Uh there was

quite a few scandals and so in in uh

coming out of the the Great Depression

they enacted a law called GlassSteagall

uh two senators together and that was to

keep the pillars apart. So there were

four aspects of the financial services

sector that weren't allowed to co-ingle.

Uh investment banks, mortgage lenders,

insurance companies, and commercial

banks.

>> Okay?

>> And that persisted for a very long

period of time. And that fell away. But

in Canada, um you may or may not know,

but the investment banks were actually

partnerships. This is into into the 80s.

Uh they were corporations, but they, you

know, they were partnerships and then

they become corporations. And then there

was a great concern. I think the the

story of the rumor was that Morgan

Stanley tried to buy Dominion

Securities. Uh the government got very

very worried about an American takeover

of our investment banking industry. So

they dropped that that those that pillar

the and they allowed the Canadian banks

to buy the investment banks. Now those

investment banks also had full service

brokers. So in a very short period of

time in 198788

you had Royal Bank of Canada by Dominion

Securities. You had uh um CIBC by Wood

Gundy. Um you had Scotia by um Scotia

Mloud and or Mloud Young Weir and and

Nesbbit Burns got bought by Beimo and so

on and then TD was left out uh and they

they built their own investment bank. So

that's not quite your question, but that

was when the integration started. And

then as things progressed, the Canadian

banks took that control that they had

over investment banking and full-ervice

brokerage and commercial banking and

then they bought the trust companies

which were the mortgage lenders part of

the of the and they just ended up being

basically financial supermarkets and

then they took over the and then they

just they either bought mutual fund

companies or crushed the independent

ones. So here you are, fast forward to

2026. The Canadian banks have complete

dominance over every aspect of the

financial services sector with the

exception of life insurance, which they

don't really want to do. Uh they do have

some have property and casualty, but not

life. So when you go and meet all of the

people, what they're what they're

explicitly telling you is, you know, the

Canadian banks have massive power over

the market because they control

distribution and they have millions of

customers.

>> Yeah. Now, what's interesting from our

perspective is because these mutual

funds have such high fees and they get

sold to older people at the branch at

huge mess, the Canadian banks haven't

been all that interested in ETFs. So,

two things have happened. The pace of

ETF adoption in Canada has been much

slower because the banks and their

control over the mutual fund se not

control their dominance of the mutual

fund sector and their lack of interest

in having you have a Canadian equity

fund by offered by Canadian make a 2%

and not wanting anybody to have a you

know an index product that was you know

10 basis points they didn't really want

to facilitate that trade.

>> I can understand why.

>> Yeah. Exactly. So, so they've not really

gone into yet. So, that's been great for

people like us because independence can

thrive. There's more innovation and all

the rest. Um, but that that um ballast,

if you want to call it, is melting. So,

two things are happening and you're part

of it. Uh, one of it is is an explosion

of financial information and people like

yourself providing financial information

um, you know, and helping educating

investors outside of we'll call it the

the the primary financial media and also

uh, demographics,

>> right? as technological innovation

happens, you know, people trade online

more and so and less people are buying

mutual funds, uh they're buying ETFs,

you know, maybe the person passes away,

they inherit it, they sell all the two

2% me bank mutual funds and then they

buy ETFs. So, you have this pretty big

movement of of of AUM moving out of

mutual funds uh into ETFs. So, it's true

that they're are very very powerful

dominant competitors, but it's also true

as it relates to ETFs. Um, you know,

that power is melting, but they still

absolutely have a hammer lock on full

service brokerage, investment banking,

commercial banking, mortgage lending,

credit cards, you know, they're the

dominant Yeah. They're the dominant

players across all of that.

>> Yeah. Interesting. It's interesting to

see the difference between the US and

and and it kind of reminds you. It makes

sense now cuz let's just say you you you

look up a US financials cover call ETF

or any ETF for that [clears throat]

matter. You'll see 15 20 25 companies.

You'll see the big boys, you know, the

big five, you know, City, Bank of

America, JP Morgan, but then you'll see

like investment banks and Morgan

Stanley. Then you'll see a bunch of

regional banks. Canada, look at look at

the ETF. It's always the big six. And

maybe you'll get a couple of life

insurance, you know, Sunlife Manual,

Great West Life, maybe a Power Corp or

Power Financial, whatever.

>> Sure, they have hundreds of midcap

banks, small cap banks if you want to

bank, you're if you're an investor, you

want exposure to only Tennessee, you

know,

>> credit unions. I think there's credit

unions as well that you could do. So,

it's more more local, more regional. So,

>> now the US market has been consolidating

at a pretty rapid rate. Yeah. So it is,

you know, I would I would suggest that

in the next, you know, 15 years, it will

look closer to Canada than it does now.

>> Interesting.

>> But there will still be because it's

such a giant country, there's still

going to be be lots of midcaps. One

thing I was going to mention is that,

you know, the regulatory environment

here is very prob. So the regulators,

you know, very much very much want to

create and keep the banks as powerful as

possible. They have prepared to accept

that financial products, mortgage

lending, credit cards might be more

expensive, a bit like telecom. They've

kind of accepted that, you know, um, you

know, cell phone fees will be higher.

They're trying to keep it domestically

owned and controlled. Uh, but for

example, you know, you cannot go into a

US bank, you can't go into a JP Morgan

branch and buy a JP Morgan mutual fund.

Like, they're not allowed to tell you,

hey, here's here's my three favorite

funds, and oh, by the way, I don't you

can't buy anybody else's funds in my

branch. So they have an open ar what

they what what they call open

architecture here and in Canada it's we

do not have open architecture. So if you

go to a BIMO branch I shouldn't name a

particular bank. You go to a Canadian

bank branch uh you know you're not

buying Fidelity mutual funds. You're

buying that bank's mutual funds and

that's not something that's allowed in

almost every other jurisdiction. So that

regulatory favor is also contributes to

at least in wealth management the the

dominance of the banks. And then

obviously their investment advisors who

are more independent obviously can still

uh market and sell the the mother ships

mother banks uh mutual funds. They don't

really but as much as they used to but

they did in the past. So your iRock or

investment advisory channel would still

have a lot of your own mutual funds in

that channel.

>> Okay.

>> Bottom line is they're everywhere.

>> Yeah, they definitely are. Uh they

definitely are. So Rob, this was

extremely insightful. I really

appreciate your time, my friend.

You know, people give us money. They

trust us.

>> Yeah. I I asked them that live in in

front of the audience and with Jennifer

and we we discussed that too at the

event as well. Hopefully next time

you'll be there.

>> Uh we love for you to make an

appearance.

>> Yeah. Um and we take that we take take

the people's trust in us seriously. Um

and so we're we're we we you know we say

all the time to your audience, you know,

we really appreciate and are and are

honored by the you know, the faith and

trust that you give us. And you should

know that we, you know, we care and take

that seriously. And and kudos to you,

Adrian, for uh, you know, just running a

great channel with all sorts of

different views and

>> uh, different videos. There's just tons

of material as you and I have talked

about. We don't always agree on

everything, but there's tons of mutual

respect and I think you're uh, just

doing great work.

>> I really appreciate that, Rob. And uh,

same for you guys. I I really hope you

definitely, you know, I know you're kind

of semi-retired now,

>> but I hope you'll come on uh again in

the future. It's amazing talking to you.

Uh

>> I owe you. So

>> Oh, well, I owe you too. So, uh really

appreciate it and and um it's always a

pleasure, Rob. So, I think we'll end it

here. I think you spent quite a bit of

time. Really appreciate it. See you next

time, my friend. See you soon.

>> Okay. No, thanks for having me.

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