Humilis & National Bank Financial: Growth Catalyst Under Regulatory Constraints

National Bank Financial (NBF) has partnered with Humilis Investment Strategies as its first sub-advisory firm, introducing three data-driven model portfolios to its wealth management offerings. This collaboration expands NBF's access to discipline-driven equity strategies through Humilis' fundamental investment approach, enhancing advisory capabilities for clients. According to the partnership announcement.

The partnership represents a strategic move to diversify NBF's product suite while leveraging Humilis' specialized expertise in separately managed accounts and independent research. Founded by veteran investor Brian Belski, Humilis emphasizes rigorous fundamental analysis and behavioral resilience over market timing, focusing on long-term value compounding through quality business selection and valuation discipline. As detailed in their investor profile.

Plans are underway to scale this collaboration across Canada and the U.S. by 2026, marking Humilis' first sub-advisory agreement and expanding its market reach. However, regulatory constraints in these jurisdictions may limit the speed of expansion, requiring careful navigation of compliance frameworks as discussed in subsequent sections.

Sub-Advisory Funds: Growth Potential vs. Scalability Constraints

Sub-advised funds allow primary managers to outsource specific strategies to external specialists, creating a dual-path growth engine. This structure grants access to niche expertise that might otherwise be unaffordable to develop in-house. Firms can rapidly expand product offerings without building parallel research teams, improving time-to-market for specialized strategies like international equities. The Wellington-Hartford partnership exemplifies this – Wellington's global equity skills bolster Hartford's lineup, letting both firms serve more investor segments through shared infrastructure. This operational flexibility creates clear growth levers through product diversification and cost efficiencies.

However, this model faces scalability friction in fee structures. Each sub-advisory layer adds a management fee, creating multi-tiered charges that can obscure true investment costs. For retail clients, understanding these layered fees becomes increasingly complex as more sub-managers are layered into a fund. This opacity may deter adoption, particularly among price-sensitive investors who prefer transparent pricing. While institutions often accept these costs for performance benefits, mass-market growth could stall if fee simplicity becomes a bigger priority than strategy diversity.

The tension between these forces determines scalability. Firms must balance expanding specialized strategies against maintaining fee transparency. Early evidence shows penetration rising in target segments, but sustained growth depends on whether clients perceive sufficient upside to justify layered costs. The long-term logic remains sound for differentiated strategies, but execution hinges on communication clarity around fees and performance trade-offs.

Regulatory Hurdle: Quebec Framework Risks

Quebec's new regulatory framework imposes stricter limits on non-Quebec advisers by restricting them to only 'permitted clients,' effectively invalidating many prior sub-advisory arrangements. The old 194.2 exemption-which let non-Quebec advisers manage portfolios for Quebec institutional clients-expired back in December 2009 and was replaced by a tougher international adviser exemption under National Instrument 31-103. This shift means that registered dealers or advisers in Quebec are no longer classified as 'permitted clients,' disrupting existing partnerships and forcing companies like Humilis and NBF to overhaul their structures.

For Humilis and NBF, this regulatory change translates into costly adjustments and scalability constraints. They must now reassess and potentially reconfigure their sub-advisory models to comply, which could involve significant legal and operational expenses. This friction not only slows expansion plans but also raises the risk of compliance failures if not handled carefully. While these firms may have strategic intentions to enter or grow in Quebec, the immediate pressure to adapt creates uncertainty and resource drain.

In contrast, Ontario retains a more flexible approach through OSC Rule 35-502, which still allows a sub-adviser exemption. This divergence highlights Quebec's stricter stance compared to other regions, making national scaling more complex for advisers. Other jurisdictions might offer similar relief, but Quebec's rules currently stand out as a barrier.

Despite the partnership's long-term potential, the compliance risks here are material. The need for structural changes could delay revenue generation and strain capital, emphasizing that Quebec's regulatory hurdles require careful navigation rather than optimistic assumptions. For investors, this underscores the importance of monitoring how Humilis and NBF mitigate these constraints amid broader growth strategies.