Manulife buys Berkshire and its baggage

Andrew A. Duffy

Tuesday, June 26, 2007

Berkshire-TWC Financial, the company Victoria investment adviser Ian Thow shook to its foundations, was bought Tuesday by Manulife Financial in a deal that will double the number of Manulife's investment advisers and triple their assets under management.

The deal remains subject to regulatory approval, which may not be straightforward considering the scandal surrounding Thow's activities at Berkshire remains under investigation by one regulatory body, the Mutual Fund Dealer's Association, as well as the RCMP. Meanwhile, another regulator, the B.C. Securities Commission, is expected to make a ruling on sanctions for Thow sometime this year after a three-week hearing on the matter.

"I'm a little surprised ... I can't imagine they'd be interested in Berkshire unless they got a really good deal, with all the baggage they've got," said Brad Goodwin, one of Thow's former clients whose family claims Thow owes them $1.4 million.

Former clients and creditors claim Thow owes them in excess of $32 million after he convinced them to invest in a variety of schemes ranging from short-term loans to developers to the national Commercial Bank of Jamaica, which is majority owned by Berkshire founder Michael Lee-Chin.

The BCSC hearing heard testimony from a forensic accountant that instead of making those investments, Thow took his clients' money and funnelled it into his personal accounts, credit cards, car dealers and even used it to pay off other clients.

Berkshire has already settled with 27 clients for an undisclosed percentage of their losses due to Thow's actions, but those Thow talked into investing in the Jamaican bank are still waiting for Berkshire to deal with them.

On top of the ongoing investigations, there are also a series of lawsuits that have been filed against both Thow and Berkshire Investment Group.

"Maybe [Manulife] intends to clean things up, I don't know," said former Thow client Daryl Goodwin, who was shocked at the news Berkshire had been sold. "I mean, I wouldn't buy a company unless they had all their messes cleaned up; when people buy businesses they don't want to buy baggage, they don't want lawsuits and pending lawsuits."

According to Shaun Devlin, vice-president of enforcement for the MFDA, his organization will not approve a transaction "that removes our opportunity to take any disciplinary action that we might take."

He said if it's a simple transaction, as the Manulife deal appears to be, and doesn't affect Berkshire's operations or status of membership, it won't be an issue.

"It would still be the dealer and the people at the dealer who would be culpable if we take any disciplinary action," he said.

Calls to Manulife to discuss the role of the Thow affair in the deal were not returned Tuesday.

Bob Levis, CEO of Berkshire, said the Thow affair played no role in the sale and Manulife knew exactly what it was getting in the transaction.

"Manulife did significant due diligence on us. They had a team of 50 people working on this for months," Levis said in an interview.

Berkshire general counsel Julie Clarke added it will be business as usual in terms of the Thow affair.

"Berkshire will continue to cooperate with the regulators and with law enforcement agencies and help to the extent that we can," she said.

"The Thow issue has nothing to do with this Manulife deal."

While terms of the deal were not disclosed, it has been estimated Berkshire could fetch anywhere from $120 million to $200 million. The deal is expected to close by the end of August.

Berkshire represents more than 700 advisers at 237 branches in Canada managing about $13 billion in investment savings. Once it is acquired, Manulife will boast more than 1,500 advisers managing about $19 billion in assets.

Levis said nothing will change for Berkshire advisers, who will use the same back-office system, deal with the same staff and retain the same name, though they will have the benefit of being associated with a stronger brand and have access to a broader range of products and services such as banking trusts, estate planning and enhanced wealth management platforms.

"We wanted to make sure our advisers would be competitive from a products-and-services standpoint, but we wanted to preserve what differentiates us, the independence," he said, noting Manulife's advisers are also independent.

In a release, Paul Rooney, president and CEO of Manulife Canada, called the deal a good fit for both sides.

"We now have an excellent opportunity to significantly broaden Manulife's position in Canada's wealth management market, while providing Berkshire's clients and advisers with access to Manulife's platform of insurance, wealth and banking products and services," he said.

The deal solidifies Berkshire's spot as the No. 4 financial planning organization in Canada behind Investor's Group, Dundee and Assante.

Manulife shares (TSX:MFC) fell 21 cents to $39.24 Tuesday.



Ian Thow takes flight