Invest in Canada - FINANCIAL SERVICES
CANADIAN FINANCIAL SERVICES SECTOR
RECENT INVESTMENTS IN CANADA
- British Virgin Islands-based Citco Group expanded its technology development operation in Halifax, Nova Scotia, by 350 jobs in 2008.
- U.K.-based Invesco opened a new facility in Charlottetown, Prince Edward Island (PEI), with 200 jobs in 2008.
- New York-based Merrill Lynch opened a research and innovation technology centre in Toronto, Ontario, with 250 jobs in 2008.
- New York-based Morgan Stanley announced a $200 million investment in 2008 to open new operations in Montréal, Quebec.
- Illinois-based State Farm Insurance opened a new facility in the Greater Toronto Area, with an investment of over $55 million in 2008.
MAJOR GLOBAL INVESTORS IN CANADA
- Credit Suisse First Boston
- Goldman Sachs
- HSBC
- ING
- Liberty Mutual Group
- UBS AG
LEADING CANADIAN COMPANIES
- Bank of Montreal
- Bank of Nova Scotia
- Canadian Imperial Bank of Commerce
- Desjardins
- Great-West Lifeco
- IGM Financial
- Manulife Financial
- National Bank of Canada
- Royal Bank of Canada
- Sun Life Financial
- Toronto-Dominion Bank
The financial services sector is one of the largest contributors to the Canadian economy, employing more than 750,000 people. The sector has evolved substantially in recent years, generating over $78 billion, or 6 percent of national GDP, in 2007. [Note 1]
The financial services sector in Canada is diverse, and encompasses banks, trust and loan companies; life, health, property and casualty insurance companies; credit unions and caisses populaires; securities dealers, finance and leasing companies; pension fund managers and mutual fund companies; and independent insurance agents and brokers.
Key Capabilities
Sound banking system: According to the World Economic Forum Global Competitiveness Report 2008-2009, Canada’s banking system is the soundest in the world, indicating that Canada’s major banks are generally healthy with sound balance sheets. This strong financial position means that Canadian banks now borrow at considerably lower rates than those of many of their international counterparts.
Leadership: Canada’s mature financial sector has produced such global leaders as the Royal Bank of Canada and Manulife Financial. Further, the sector continues to attract foreign investment, with more than $54 billion in 2006. Many major international financial services firms (BNP Paribas, CITCO, among others) maintain nearshore business-processing operations in Canada.
Regulatory oversight and reporting: The Canadian financial sector is among the world’s most highly developed and offers many examples of best practices. The institutions, markets, infrastructure, safety nets, and oversight arrangements that comprise the system are sophisticated and include a full range of financial intermediaries.
Nearshore operations: Canada not only continues to produce and attract top-quality financial services firms, but is also a destination of choice for global financial services firms to locate their nearshore business-support operations. These operations are not simply local market centres, but key value creation centres representing multimillion dollar investments designed to support global clients.
The financial services sector is one of the largest contributors to the Canadian economy, employing more than 750,000 people and generating over $78 billion, or 6 percent of the national GDP, in 2007.
Unless otherwise noted all values are in Canadian dollars.
KEY CANADIAN CLUSTERS
British Columbia (BC)
Vancouver’s financial services companies operate in global markets, leveraging the city’s position as a global commercial gateway. Geographic proximity to Asia-Pacific countries is a critical asset for Vancouver’s financial sector, as are strong cultural connections to these emerging economies. Vancouver performs particularly well in four financial services subsectors: banking, credit unions, international financial transactions, and venture capital investment. Five of Canada’s largest banks have significant operations in Vancouver, while several international banks also have offices in the city, including the Canadian headquarters of London-based HSBC. Vancouver is recognized as a global hub for resource project financing, with strong capabilities to finance and structure exploration projects around the world.
Alberta
Calgary is North America’s fastest-growing economic region, and a thriving financial and business centre, with more head offices per capita than any other Canadian city. In the past 10 years, more than 19,000 new jobs have been created in Calgary’s finance and business industry. The city’s rapidly growing financial support services subsector employs approximately 22,700 people and plays a substantial role in financing many of the region’s new ventures.
All six of Canada’s major banks have a presence in Calgary, as do a number of strong regional banks and international investment banks. The city is also seeing tremendous growth in the wealth management subsector.
Much of the growth in Calgary’s financial services sector has come as a result of financing energy projects across the globe. The capital needed to finance the energy sector, and the revenue it generates, cannot be understated, and much of this activity is based in Calgary.
Manitoba
Manitoba has a large experienced labour force working in business, finance and administrative services. In addition to traditional banking, the cluster boasts industry-leading firms in insurance, mutual funds and leasing. Winnipeg has more than 20,000 people employed in the financial services sector. It is headquarters to Great-West Lifeco Inc., Canada’s largest insurer, which operates subsidiaries in Canada, the U.S. and Europe, with over $330 billion in total assets under administration. [Note 2] Winnipeg-based IGM Financial Inc. is one of Canada’s largest mutual fund distributors, with more than $94 billion in total assets under management. [Note 3]
Ontario
Toronto is North America’s third-largest financial centre and Canada’s financial and business capital. Toronto’s financial services strengths include strategic planning, financial product development, risk management and systems design, as well as training and development. The Toronto Stock Exchange (TSX) is Canada’s largest securities exchange, the third largest in North America and the seventh largest in the world, based on market cap. Toronto is the centre for over 10 percent of Canadian economic activity, at $123 billion. The clustering of financial services in Toronto has attracted highly skilled knowledge workers and a multilingual labour force of 205,000 employees.
Quebec
Montréal’s dynamic financial services sector, with more than 3,000 companies and 100,000 workers, is growing at a rapid pace, with 3.4 percent growth in 2007. Its main subsectors are banks and financial intermediaries, insurance and its associated activities, and securities. Among the major players are Desjardins, National Bank and HSBC in the banking sector, and Standard Life and Sun Life Financial in the insurance sector.
Montréal also hosts the International Financial Centre program, created to assist corporations or partnerships specializing in international financial transactions. At the R&D level, Montréal is home to 30 academic research units in such sectors as derivative products and pension fund management, mathematical and computational finance, and financial engineering.
Nova Scotia
Nova Scotia’s financial services and insurance sector has seen phenomenal growth since 2006. Major international firms have established back and middle office operations in Halifax, including Citco Fund Services, Butterfield Fund Services, Marsh Captive Solutions, Flagstone Management Services, and OC Financial Services—a division of Olympia Capital. Halifax has an experienced labour force of 14,000 in the financial services sector, while some 7,000 students across the province are enrolled in business administration.
Prince Edward Island (PEI)
Charlottetown is an ideal financial services processing location that is home to 15 companies and employs 2,700 people. PEI’s strengths include banking, mutual fund administration, client relations, hedge fund administration, and insurance. Fundamentally, financial service companies can enjoy important cost savings on labour rates and space costs in Charlottetown in comparison to other North American locations.
INVESTMENT LOCATION BENCHMARKING
METHODOLOGY
This benchmarking study assesses the competitiveness of a number of Canadian clusters against competing international business locations. Based on an investor’s perspective, the research and analysis uses a representative investment project prototype (an operation that processes transactions and provides custody services—see profiles on page 5) to assess criteria that corporate decision makers typically examine when evaluating location alternatives for foreign investment.
This international location benchmarking exercise was conducted by IBM-Plant Location International (IBM-PLI), a renowned global location consultancy. IBM-PLI performed objective research to assess the comparative cost and quality of doing business in various locations, simulating the approach used by investors when screening candidates for corporate investment projects. The benchmarking study examined 250 to 300 financial and qualitative location indicators in the assessment of each industry subsector.
To assess the quality of a location’s operating business environment, data were collected from a variety of sources for the different subfactors in each of the categories featured in the operating environment table (page 5). Data for the qualitative assessment were translated into comparable scorings (zero to 10) for each category and subfactor using a weighted scoreboard approach. Weights were assigned to each location category and subfactor to demonstrate their relative importance in the location selection process. These weights are specific to each industry subsector and are based on IBM-PLI’s experience in helping investors make strategic decisions when choosing locations.
A high-level financial analysis was also conducted to take into account major location- sensitive investment and operating costs and revenues for each representative project profile. Operating cost projections have been calculated and discounted over a 10-year period, incorporating anticipated inflation rates, to determine their net present value.
benchmarking the comparative cost and quality of doing business in global locations
REPRESENTATIVE PROJECT PROFILE
GENERAL DESCRIPTION OF OPERATIONS
Processing of transactions and provision of custody services for the financial services sector.
KEY PROJECT DRIVERS
- Availability of skilled labour: accountants and financial services staff
- Cluster of financial services companies
- Availability of suitable office premises
- English language skills as a corporate language
OPERATING COST ANALYSIS PROJECT REQUIREMENTS FOR FINANCIAL MODELLING
LABOUR
(HEADCOUNT = 94)
Financial Analysts: 20
Accountants: 30
Accountant Clerks: 25
Management and Administration: 9
IT Professionals: 10
OFFICE SPACE
Building: 15,000 sq. ft.
OPERATING ENVIRONMENT
| GENERAL BUSINESS ENVIRONMENT » 10%* |
|
|---|---|
| LOCAL POTENTIAL TO RECRUIT SKILLED STAFF » 35%* |
|
| PRESENCE OF INDUSTRY/CLUSTER » 10%* |
|
| FLEXIBILITY OF LABOUR & REGULATIONS » 5%* |
|
| INFRASTRUCTURE & COMMUNICATIONS » 15%* |
|
| REAL ESTATE » 5%* |
|
| LIVING ENVIRONMENT » 15%* |
|
| LANGUAGE SKILLS » 5%* |
|
*Factor category weight; corresponding location factors are ranked in order of importance.
CANADA’S VALUE PROPOSITION
Canada presents strong investment options in the financial services sector with locations that provide operating cost advantages over major European and U.S. competitors. Select financial centres in Canada also provide some of the best operating environments among international cities evaluated.
Favourable operating costs
Among the cities considered in IBM-PLI’s location benchmarking exercise, Canadian locations provide some of the most competitive operating costs. All seven Canadian cities assessed rank among the top ten global locations in this study, with Charlottetown, Winnipeg, Halifax and Montréal leading the way. Canada’s cost advantage can be attributed to advantageous labour costs, corporate tax rates and utility costs. Toronto and Montréal, both shown here as cost-competitive locations, also rank in the top international benchmarked locations in terms of their qualitative environment.
Competitive labour costs
In Canada, labour costs for employees such as accountants, financial analysts and IT professionals are very competitive when compared with those of other North American or international locations.
An important component of Canada’s labour cost competitiveness relative to the United States stems from its lower employee benefits costs. Canada’s national healthcare system implies that most medical insurance is publicly funded rather than paid by the employer, leading to potential savings.
The most cost-competitive options in Canada include the Atlantic cities of Charlottetown and Halifax, as well as metropolitan centres such as Winnipeg, Montréal and Calgary.
** IBM-PLI calculations based on Watson Wyatt 2007/2008 & Economic Research Institute (ERI) 2008.
A solid industry base
Canadian cities benefit from the strong presence of banking and insurance firms, which provide the skilled workforce needed to operate a financial service organization. Canada’s largest city, Toronto, is a recognized financial hub in North America, attracting experienced professionals and world-class organizations, resulting in a large pool of qualified workers for companies to draw upon.
Many other Canadian locations, including Montréal, Vancouver and Calgary, are also home to a large number of banking and insurance establishments, which attract employees with suitable skill profiles.
*** Statistics Canada and U.S. Census Bureau.
An educated workforce
A large student population that can be trained is an important driver for the selection of financial service activities. Graduates from accounting and other business-related programs, as well as general university graduates, represent a rich potential employee pool.
Canada has the world’s highest percentage of college and university graduates. [Note 4] All Canadian locations benchmarked in this study are home to universities and other higher educational establishments that provide solid business programs. The presence of large universities and business schools in Canada’s two largest cities, including the University of Toronto, York University, McGill University and HEC Montréal, leads to a large number of talented graduates.
**** Sources include: National Centers for Education Statistics and Integrated Postsecondary Education Data.
A conducive business environment
Thanks to its solid and dynamic economy, low corporate tax rates, quality support from local governments and development agencies, business permitting procedures, privacy regulations, information security and protection of intellectual property rights, Canada has fostered a business environment that allows companies to invest and grow.
As the leader in GDP growth among G7 countries over the last decade, and with the world’s soundest banking system, [Note 5] Canada provides a stable and strong business environment that offers tremendous growth potential and peace of mind for business investment. In fact, all Canadian cities evaluated offer a strong business environment, as based on measures published by the IMD, the Economist Intelligence Unit and the World Economic Forum. Charlottetown and Halifax rank particularly well because of their very supportive local development network.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
Outstanding quality of life
In the competition to draw international talent, Canada prides itself on its highly rated living environment.
With its natural beauty, high level of education, quality and affordability of healthcare, and low crime rates, Canada is globally regarded as being one of the best places in the world to live. This explains why Canadian cities attract young international recruits and talented expatriates from around the world.
International measures such as Sperling’s Cities Ranked & Rated and Economist Intelligence Unit’s quality of life index consistently place Canadian cities near the top of the rankings. In fact, Canada’s three largest cities, Toronto, Montréal, and Vancouver, lead all other benchmarked locations in this assessment, with Vancouver also recently ranking first overall in Expansion Management magazine’s quality of living quotient.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
Affordable living
Canada also appeals to expatriates and international recruits because of its relatively low cost of living. International measures such as the Mercer Cost of Living Survey and Economic Research Institute’s cost of living index identify the cost advantage of Canadian cities in comparison to other North American or global locations.
Among benchmarked locations, Charlottetown, Winnipeg and Halifax offer the most competitively priced goods and services, while maintaining an attractive living environment. Canada’s major urban centres round out the top 10 list by combining an overall high quality of life with affordable living costs.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
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Catalogue Number FR5-38/7-2009E-PDF
ISBN Number 978-1-100-12049-2
This publication was prepared by Invest In Canada in cooperation with IBN-PLI. The document covers a wide range of issues and is not intended to be a detailed nor an exhaustive reference. Accordingly, before relying on the material herein, readers should independently verify its accuracy, currency and relevance for their purposes and should seek appropriate professional advice. Any reference to companies or investments is for illustrative purposes only and does not constitute an endorsement of those companies or investments. Details of sources for all quoted facts and figures are available upon request. The Government of Canada does not accept any liability in relation to the contents of this work. This publication is printed on recycled paper and is available in multiple languages including French. © Her Majesty the Queen in Right of Canada, as represented by the Minister of International Trade, 2009.
Footnotes
- Canadian Industry Statistics, 2007. Gross Domestic Product: Finance and Insurance (NAICS 52). (return to source paragraph)
- Great-West Lifeco Q4 2008 financial statement. (return to source paragraph)
- IGM Financial 2008 Annual Report. (return to source paragraph)
- IMD World Competitiveness Yearbook 2007. (return to source paragraph)
- World Economic Forum Global Competitiveness Report 2008-2009, October 2008. (return to source paragraph)
