Episode 4: Guarantee Your Success: Maximize your Profits with Term Deposits

Thank you for having me and hosting this podcast. Pleased to be here.

Lesley Lawrence:

Great. So I’ve given a brief overview of CANNEX, but I’m sure the listeners today would be very interested to hear a little bit more about your organization and your background in the financial services industry.

Kim Muise:

Certainly. CANNEX is an independent and privately-held company with operations in both Canada and the U.S. My focus is our Canadian business and I’ve been with CANNEX for six years; a little more than that. My career has always been in the financial services space. It’s just the products that have changed from time to time and over the years. I started out in the insurance business as an actuarial student. After leaving that discipline, I focused on product management, starting with retail banking services, followed by full service and discount brokerage services at a large Canadian bank. Then I spent eleven years at TMX Group managing a wide variety of market data products and services. In 2016, I found my way to CANNEX. The CANNEX Financial Network, which as you mentioned, facilitates GIC transaction processing is my primary focal point among the Canadian services that CANNEX offers. In fact, the CANNEX Financial Network will celebrate thirty years of operation in 2023 next year.

Lesley Lawrence:

Wow, congratulations. That’s quite an accomplishment for the organization to be celebrating thirty years. With your history and your background, you certainly, have extensive knowledge of the financial services industry and I learned something new about you today. I didn’t know you were an actuarial student at one point in time.

Kim Muise: 

Yes.

Lesley Lawrence: 

That’s pretty cool. So let’s dive in a little bit around the current economic landscape. We know that there’s talks of recession, some economists say bigger recession, some say smaller recession; term deposit rates are on the rise. We’re seeing that for sure, and my understanding is currently it’s probably one of the best term deposit selling environments we’ve seen in a while. Maybe you could share a little bit about your perspective in your role at CANNEX and what you’re seeing around this.

Kim Muise:

Definitely. Well, as you said, interest rates are on the rise. The Bank of Canada started raising the interest rate with some vigor early this year, and with that, the term deposit or GIC sales have taken off. It really is, I think, a bit of a perfect storm right now for term deposits. Certainly, the interest rates rising, the volatile equity markets, and a baby boomer generation that is either retired or near retirement and they’re looking for income and they’re looking for low or no risk options for their investments. So that’s a little bit of a perfect storm for the numbers we’re seeing right now. We’ve processed our highest number of nominee GIC orders ever to date this year. Over 1.2 million orders processed with a total value of over $80 billion and the year’s not done yet. So we’re expecting quite the record year. We still have, as of our recording today, two more Bank of Canada rate announcement dates coming up, one next week on October 26th, and then again on December 7th. So the predictions are not mine, but the general consensus or predictions out there are that the Bank of Canada will raise the interest rate to 4% by the end of the year. And on that basis alone, even equity markets aside, I truly expect a strong continuation of the term deposit sales well into the New Year as well.

Lesley Lawrence:

Wow. Yes, I guess these days you don’t need a crystal ball to interpret the fact that there’s likely going to be interest rate increases and hence the volume for that is still going to grow. So let’s talk… You shared a little bit about volume there, so maybe share with us how many financial institutions are moving applications through the CANNEX network and maybe share with us kind of… You shared a little bit of volume, but in terms of on a monthly basis, volume of application funds, bit of get a perspective on that.

Kim Muise:

Sure, sure. So we’ve kind of look at it from both sides. We have our nominee dealers on our platform, and we have the issuers of the GICs or term deposits. So currently we have about thirty nominee dealers on our network, and I say about thirty because there’s a number of them or a handful of them that have both IIROC ( Investment Industry Regulatory Organization of Canada) and MFDA (Mutual Fund Dealers Association of Canada) arms that are submitting order flow for these transactions. There’s also a number of carrying brokers on our network as well. On the issuer side, we have about forty participants, and again, the about 40. So there’s many issuers on our network that will issue the GICs or book those GICs from multiple sort of legal entities. So a particular issuer might have a bank and a trust arm, or they might have… Even you’ll see with some of the larger banks, they might have four or five issuing entities. They do this to optimize the sales of the term deposits and the insurance coverage, the deposit insurance coverage. As for order flow, in the past five years or so, CANNEX would probably see between 50,000 to 60,000 orders processed by the network per month with a value from three to five billion dollars. And just to give a little perspective of what’s been happening this year, we are seeing about 130,000 orders per month on average with a value of eight to ten billion dollars.

Lesley Lawrence:

So you’ve doubled your business, right? Based on those monthly stats, you’ve doubled your business. If I was a financial institution that was interested in joining your network, would I need to worry that you have a capacity limit of a certain level? I mean, I know you’ve doubled already, but how much more can you take on? Is there a limit? The reliability of the service? I guess maybe share a little bit about your perspective on that.

Kim Muise:

Well, we have a robust IT presence, and we are always paying attention to that. So the throughput really is not an issue there. We’ve had no hiccups processing the amount that we’ve processed, and certainly, a doubling in volume this year has not presented any challenges. We keep our eye on that one.

Lesley Lawrence:

Okay. So good to know that there’s no caps, there’s no limits, in terms of the volume of business, and you’re certainly open for business to take on new opportunities and work with new financial institutions, which is great to hear.

Kim Muise:

Absolutely.

Lesley Lawrence:

So just taking it back a couple of steps, why would a financial institution really want to start selling term deposits? Is there an evolution to this channel in terms of products that a Financial Institurion might bring on board? But maybe just kind of walk through a little bit what you see and what you’ve seen through your time at CANNEX in this regard.

Kim Muise:

Certainly. Well, probably an executive, one of the Financial Institutions would best answer this question, but I’ll share what I’ve heard from clients over the years and prospective clients that have come along. For example, there’s some Financial Institutions that start out in the lending and financing business, and they may borrow from third parties to fund this lending. Then at some point, it’s probably a commercial or business strategic direction where it makes sense to raise their own deposits or create their own funding. So they could acquire a bank, they could start the process of launching their own bank right from square one. It’s a timely process, but I’m aware of some that have done that, definitely. Once a financial institution is in the business of selling term deposits, they may want to evolve how they sell or where they sell these products. And traditionally, a Financial Institution would have sold term deposits probably they start out directly to the client. Generally, from a bricks-and-mortar presence, a branch.

Lesley Lawrence:

Yes. Yes.

Kim Muise:

A branch network. And really outside of the large or the big banks here in Canada, many Financial Institutions don’t have that extensive of a branch presence or network. So some will move on to yet another channel. They’ll look at selling directly to clients, but maybe through an online presence. And what an online presence will do for them is it goes beyond their geographic sort of limits of their branch reach. And so that exposes them to national distribution of their product across Canada. Now, yet, another way for an FI to diversify or increase their source of funding is by accessing the nominee channel. And this is basically selling their products via the dealers. So the dealers’ advisors would sell those products. This is where CANNEX comes into the picture; this is our sweet spot. Our network facilitates the term deposit order processing between these counterparties or third parties, the issuers of the product, and the dealers whose advisors sell those products.

Lesley Lawrence:

So it’s quite a journey, I guess you could say because you took it right back to original branches, bricks and mortar, somebody having a term deposit, putting their money into the institution and the institution then using that as their capital, whereas your network really opens up a whole broader base of opportunity to fund growth for financial institutions, which is the way I would interpret that, very interesting. And in terms of your clients, Kim, you’ve got clients that… Financial institutions of many different sizes, right? Can you share with us who would be a good candidate for using your services based on what your current client base is and what you’ve seen in the past, what would a typical client look like? Any parameters around that?

Kim Muise:

Well, I’ll speak to this from both the sort of dealer view and the issuer side. And yeah, we have a variety of sizes of financial institutions… Of dealers from small, medium to large. It really comes down to what are they trying to achieve. Dealers that are a good fit for our services are those that… Well, particularly as they get into handling greater and greater volume of GIC purchases and transactions and so forth, when that starts increasing, sometimes if they’re administering this manually, it starts to get unwieldy pretty fast. And manual processing too is prone to errors and so forth. So if the dealer is seeking a more efficient process, a more automated process, definitely they will approach us. Another benefit, not only the automation, the efficiency, is when they come onto our platform, what we have is a number of issuers that are also processing in an automated fashion, but they’ll have access to those issuers that are selling their product in the nominee space. So by making connections with those issuers, those dealers may now offer to their advisors a greater breadth of product, of issuers and so forth. And that makes their advisors happy. And so they’ve got more diversity, more selection of term deposits from different issuers; small, medium and large. And sometimes that is interesting because they like to have different options, types of companies that will appeal to their advisors and their advisors clients. And sometimes even with the credit unions, oftentimes you may see superior rates on occasion, those that are a little more aggressive and are trying to raise a lot more funding may bolster their rates for time being. So this gives the dealers and their advisors better access to product. To look at the term deposit issuer side of it really we will see issuers approach us where one of their strategic goals is really to grow their funding base or diversify their funding channels too. This is important too because they don’t want to be too reliant on one particular distribution channel for where their products are sold. An example of this might be a small to medium-sized bank or credit union that is coming into or starting to utilize the nominee broker channel as a way of distributing their product or raising funds. And the great thing about this, I think I mentioned this earlier, is this opens them up to national distribution of their products. So if they are primarily located in Central Southwestern Ontario, that’s where their bricks and mortar are. They may have an online presence, but there’s still is some limitation by moving to the nominee broker channel for distribution of their product as they make these agreements, or with the counterparty dealers. I The dealers generally… Well, most dealers will have presence of advisors across Canada. So again, now they’re expanding their distribution of their product across Canada through the advisor network.

Lesley Lawrence:

So it sounds like that there’s a lot of variety and options, right? For your base of financial institution. In terms of size of, let’s say an organization assets under administration, what typically would be… Or again, just in general, would that look like for somebody to join your network for it to make sense for them to join?

Kim Muise:

Yeah, we have no limitations. It’s really what they’re looking to… We have no numbers. It’s really what they’re looking to achieve. So if they’re a much smaller institution, I’d say generally the fit is around probably a minimum… It’s just what I’ve seen, a minimum about two billion in assets under administration is usually kind of when they start looking at… If they have an aggressive growth plan, they’ll start looking at different ways to improve their funding.

Lesley Lawrence:

Okay. And I guess, as you said earlier, once you get to a certain size, you need to diversify. And so hence when you’re starting to get a portfolio in that space, you have to start looking at other options, so. Let’s talk a little bit about products and just get your perspective, because we’ve talked a lot about Canadian market. Are you getting which inquiry or demand, let’s say in foreign currency deposits? And if so, which foreign currency would that look like?

Kim Muise:

Okay, yeah, that’s a good question. We have the ability to process any GIC transaction, be it Canadian dollars, U.S. dollars, what have you. Really, I’d say I’ve only really seen a little more interest in this space since the CDIC (Canada Deposit Insurance Corporation) extended deposit insurance coverage to foreign currencies, to GICs issued in foreign currencies. And that happened on April 30th, 2020. So since that time, I’ve seen a few issuers, if they didn’t have a U.S. dollar GIC product to open that up or to enter that space. And I’ve seen definitely more transactions, but I wouldn’t see… Wouldn’t say it’s been a bit of a lightning boit; It’s been slow growth. But I think there’s probably a number of external factors that would influence that.

Lesley Lawrence:

Yeah. That’s just interesting to understand if there is any demand outside of the Canadian currency. So if we ask you another product-related question, when you look at your term deposit, is there certain terms of term deposits that… I’ll use the analogy of “flying off the shelf”, or are more popular amongst your client base than others?

Kim Muise:

Yeah, that’s an interesting question. So I would say, just kind of thinking back the last five years or so, definitely the outlier term is the one-year term. That’s typically been the most popular by a long shot. It definitely is this year as well. It’s the top sort of the most popular term deposit, but I’m also seeing a lot more volume in the two to five-year range as well.

Lesley Lawrence:

Yeah. I guess with the interest rates, again going up, people see return for longer. So that’s interesting just to kind of see where it’s shifting and where the demand is shifting to. So the last couple of years, our industry has seen a lot of regulatory changes and I know these have been really designed to help modernize and enhance the Canadian deposit insurance framework. It’s been a lot. I’m sure it’s been a lot from your perspective. I know in the financial institutions we work with, it’s been a lot. It’s been a lot for us. And I know you don’t have a crystal ball, I personally think we need a little bit of a stabilization period in this regard. But maybe share with us what’s your thoughts on this? Do you see more regulatory changes coming? If so, where do you believe… The same mindset as me that we need to take a breather? I mean, again, it’s been so impactful to the industry and all the players in it. I’m fascinated to kind of understand what your thoughts are on it.

Kim Muise:

Well, it’s been quite a ride that the last three years were consumed by a very notable and recent regulatory change in the term deposit space. And that was the CDIC Co-Owned and Trust Deposit Disclosure By-law. It’s a bit of a mouthful. It came into force on April 30th, 2022, and there was a lot of work prior to that. Its intended goal was to strengthen deposit insurance protection for the consumer. But as a consequence, actually, the significant changes that were required to achieve compliance actually had a sort of byproduct effect of modernization in the space and improved efficiency. So it was a good thing. Yeah. I mean, it’s a good thing for the consumer and it had good byproduct results of all the work that was done. So as far as what the future holds, I don’t know, but I would definitely agree we could all use a break. A little bit of a break.

Lesley Lawrence:

So it certainly sounds like it was a lot of work, but it paid off and we could do more. But yeah, we need to take a little bit of a step back and just absorb it all before we take the next step forward.

Kim Muise:

Yes.

Lesley Lawrence:

Yes. We know today’s podcast is about what’s possible in the term deposit space. So maybe from CANNEX’s perspective, are there opportunities for you guys to continue to make advancements in the term deposit space and what might that look like?

Kim Muise:

The term deposit space is definitely a candidate for further innovation and operational efficiencies. If I had to name a couple, I would say net settlement of funds for all the types of transactions; be it purchases, redemptions, maturities, interest payments, etc. Net settlement of funds is an area of opportunity. CANNEX can help with that, we don’t do fund settlement that happens outside of our network, but we certainly can help with the information passing and so forth to facilitate that. Another area is broker-to-broker transfers of term deposits. This is where a GIC moves in kind from one broker or dealer to another. That can happen for a number of reasons. It could be one dealer buying another. So they’ve got to move. An advisor may move from one dealer to another and take with them their book or their clients and their client’s holding. So that GIC needs to move from one dealer to another or just right at the client level. A client is moved from one dealer to another; changed advisors. And so they’ll take their portfolio with them to that new dealer or advisor. So that’s another reason for… The reason GIC needs to move. This happens all the time in the industry. It’s a very manual process today. It can certainly benefit from some automation and efficiency, but the challenge with some of these is they’re what I’ll call industry initiatives where you really do need the support of a critical mass of players in the industry to push this forward, get some traction, make it happen, or it can be a regulatory reform. That’s a great catalyst that I classify as the CDIC By-law, which the byproduct of all the efficiency, but whatever that catalyst may be, CANNEX is always looking to be part of the solution, either lead it or help in that solution. And we’re very focused on furthering industry automation where we can. It benefits everyone.

Lesley Lawrence:

Yeah. Well, and that makes sense because I said at the beginning you are the dominant player in this space, right? So you’re advocacy and you’re at the front of driving these initiatives forward for the benefit of the industry and your clients or your partners at the end of the day.

Kim Muise:

Absolutely.

Lesley Lawrence: 

So, Kim, we’re coming to near the end of our discussion today, and when our listeners walk away from this podcast, what’s the one thing or the one key takeaway you want them to remember about what we’ve talked about today?

Kim Muise:

I would say if you’re thinking about or you’re curious about growing your presence in the term deposit space as a dealer or issuer, new entrant, then don’t be shy and reach out. Behind the doors at CANNEX, we’ve got a wealth of knowledge with our staff and we enjoy sharing it and helping companies in their journey whether they become clients or not. And if we can’t help, we probably know someone who can. So we’re happy to make that connection as well.

Lesley Lawrence:

Yeah, and I would… My experience in working with you guys, I would attest to that, you have a great team and a wealth of knowledge and one that’s always willing to assist wherever you can.

Kim Muise:

Thank you.

Lesley Lawrence: 

So we’ve talked a lot about business stuff. Now, let’s have some time for some fun. Just to let the listeners know, maybe one key thing about you, I talked about a key takeaway from the podcast, but what do you like to do in your spare time? What’s a hobby or something that you really enjoy doing?

Kim Muise: 

I have quite a few, but I’ll name one. I’d say cooking. I really enjoy cooking and especially when it’s married with travel. And I like to take back to my kitchen and try out some new recipes, new dishes I’ve eaten, new spices, and so forth. That is really my passion, but I really haven’t embraced the mess that I make or the cleanup that follows. What about you, Leslie?

Lesley Lawrence: 

Yeah. Well, I mean, I would agree with you. I like to enjoy the foods when you’re traveling, but I’m not as much of a cook. So that’s why I think you guys… You and I get along as you’re a good cook. I like to eat. Me, I think my spare time these days has been spent with a new puppy. So we had a new addition to our family. So I don’t know if I’m training the puppy or the puppy’s training me. I think it’s more that’s the case. But yeah, it’s been a lot of fun the last few months. And similar to you, I like traveling and trying new things in spare time, which is great. Well, Kim, thank you very much for joining us today. It’s always a pleasure to speak to you and I know I learned a lot and I’m sure our listeners today learned a lot as well. And thanks to all of you for listening to our podcast today in our conversation with Kim Muise. For more information, please visit our website at www.portfolioplus.com/podcast. If you have any feedback, we’d love to hear it from you. Please tweet us at portfolioplus19 or like and share on LinkedIn. You can subscribe to our podcast series wherever you listen to your podcast. So thanks again for joining us and goodbye.