When RBC's John Taft retires on May 31, he'll be leaving behind a much bigger brokerage firm that he inherited in 2005.
During Taft's tenure as CEO of the firm's U.S. wealth management operations, he's helped grow the firm into a national brokerage with over 1,900 advisors and $273 billion in assets under administration.
The firm has made multiple acquisitions, with the most recent being City National, a private bank that caters to Hollywood's elite.
Alois Pirker, research director at Aite Group, says that even with that growth, RBC has room to grow.
"They are a still little bit too small. Other firms [have been] bulking up, for example, Stifel and Raymond James [through acquiring and recruiting]," Pirker says. "The City National deal could give them a clientele that is very attractive."
Taft says that integrating City National and RBC will be a huge opportunity for his successor. Yet headwinds are also ahead, Taft says. He points to the increasingly intense regulatory environment, notably the Labor Department's fiduciary proposal.
In an interview with On Wall Street, Taft looks back at his accomplishments, obstacles overcome and what the future holds for RBC and the industry he has worked in for 35 years.
What are the accomplishments you are most proud of?
first, helping build the firm that RBC Wealth Management is today. It's a respected and leading player in the U.S. wealth management industry. We've grown it through acquisition, recruiting financial advisors and organically. But more importantly, while we've been growing we've maintained and improved our reputation for being a firm that puts clients first and integrity – a firm that is about giving back to the community and keeping clients first.
That's probably what I am most proud of.
I'm also proud of my role in advocating for responsible finance. Probably the most tangible there was leading SIFMA during the financial crisis and advocating for a fiduciary standard of care for financial advisors. It was something that the industry came to support. I am proud of the way that a fiduciary standard of some kind will be the minimum bar in our industry. I feel I had something to do with that and I am most proud of it.
How important is it for the industry to adopt a fiduciary standard?
I think it's critical. One of the under-recognized and certainly under-appreciated things during my 35 years in the financial industry is the professionalization of financial advice. A client who walks into an advisor's office in 2016 has a completely different experience than what they would have had in a broker's office in 1981, when I started in the business.
It starts with a discovery process just like you would in a doctor's office. The advisor and their team find out the clients' history and goals and doesn't do anything until the client has had a chance to discuss it with the advisor. The range of products and services today is really 360 degrees. That is very different than the days when people would walk in to get a prospectus to [buy] a stock that [was] being sold on commission. The experience today is a far more a professional experience.
A fiduciary standard of care is the next step in professionalizing the industry. It is a critical piece – it is the missing piece in the archway.
I believe that five years from now, if you provide advice to individual clients, you will do so pursuant to a fiduciary standard. We are on the path to that. The DoL has come out with a proposal for retirement accounts and the SEC under Mary Jo White has indicated that they will do so.
I think the sad thing is the missed regulatory opportunity. In other words, no one has disagreed that this is the appropriate next step. But the devil is in the details. Instead of getting a standard that applies to all types of advisors for all types of accounts, we are going to continue with a balkanized regulatory landscape that makes it confusing for clients and hard for advisors to comply with.
But I believe that in … maybe a decade [there] will be unified standard. To me that is the Holy Grail – a unified standard of care for all clients, advisors and types of accounts. I believe that will be good for clients and the whole industry. It'll be the next level in evolution of wealth management.
What was the biggest challenge you faced while CEO?
I came to RBC in 2000, and RBC was virtually unknown in the U.S. financial services market.
We were a de novo entrant. My goal throughout the time I've been at RBCand throughout my time as CEO, was to help build a business that all of us would be proud of. That meant having the scope and scale and respect from others in the industry. It meant investing in our products and services, our technology platform and our intellectual content. And it meant continuing to act consistently with integrity in everything we do and being a good steward for everything we do. I wanted to build a firm like that.
I've been grateful for RBC's long-term strategic DNA. They spot an opportunity and they stick with it. It's not that they don't make adjustments. They do. But in this case, they stayed true to the original vision.
I've been there for that whole period. I'm proud of what we built and RBC is proud of what we've built.
What's next for the business?
We've got capital markets. We've got wealth management. What we have been missing is private banking capabilities. We lend money today but it is generally secured by portfolios. But we don't make loans to their businesses or on their homes or extend private lines of credit. Through the acquisition of City National, we now have those capabilities.
The vision for the next 10 years which [Royal Bank of Canada CEO] Dave McKay has articulated is, through those three businesses of capital, wealth management and private banking, to be the premier provider to high-net-worth clients and their businesses.
To go from where we are today to realizing that vision is another 10-year undertaking. That is what my successor will be charged to do.
I have every confidence that RBC will do it and when they do I will be a proud shareholder.
How big of a challenge will that be?
It's not a challenge – it's a huge opportunity. We have been planning it, and even piloting it right now in San Diego.
How do we take the capabilities of City National and make it available to financial advisors?
It's not about offering up every client on the wealth management platform a mortgage or loan. It's about looking at the high-net-worth clients we have now, and ask, "Are these clients that could benefit from having a lending relationship with City National?" And then letting the financial advisors decide.
We need to get that right and RBC is committed to get it right.
We need to make sure the service quality is high, that advisors identify the clients for whom this is right.
That is the number one opportunity for the new CEO. The number one challenge will be to respond to the ever-changing regulatory environment. We're about to see the single most transformative change and that is the DoL fiduciary standard.
That will be an all-hands-on-deck challenge to make sure we comply with the new regulations and that client relationships aren't disrupted by the new regulations.
How much more intense is the regulatory environment today compared to when you started?
Regulators are much more active and aggressive today than they were before the financial crisis. There are more new rules, more rule makings and more aggressive enforcement. So the environment is more regulatory intensive than at any other time during my tenure as CEO.
Other parts of the industry have had intense periods of regulatory oversight. Now it is wealth management's turn to be under more scrutiny.
Will the industry be able to adjust?
There's no alternative. If you are going to be in wealth management, the single biggest need our clients have is retirement planning. So you can't be in business without being able to advise clients on their retirement needs. To do that, you will need to comply with the DoL's regulations.
Firms in the industry have been working for months, if not years, to get ready for the release of this rule. But we don't know yet what the phase and implementation will be. It's still a question mark for everyone in the industry.
It goes without saying that I am confident that we will do that and the major players will do that. It will be more challenging for the smaller players in the wealth management industry.
You spoke earlier about the importance of letting the advisor decide when to recommend banking and lending services to clients. Why do you think it is important to empower the FA?
The principle you have to operate under: What is the right thing for the client? What will help the client achieve his or her objectives? The thing I am excited about, doing the right thing for the client, is the culture I see in City National Bank. They are known for providing private and commercial banking services to very sophisticated and demanding clients. Their whole ethic is to do what is right for the client. That is our ethic too.
In our model, the individuals who know the clients' needs, the people who know clients the best, are the financial advisors. So letting the advisors decide is the best way to ensure whether the banking services we offer is in the client's best interest.
What that requires is a training and education effort. Knowing when and how to use banking services is a new skill, a new expertise. So part of getting it right is the training effort.
What are you going to do in retirement? Write another book? Get involved in politics? Play golf? I'm absolutely play golf this summer [laughs].
I'm going to take some time off. It's an exciting but intense role running a wealth management firm.
I feel I have one more chapter in my professional life, and I want to somehow contribute to society. I feel I've done that in this chapter of my life.
I have lots of options. That's not the issue. The issue is figuring out which one I can have the most impact in my life. I'm retiring to do something different.
- Slowly, But Surely: RBC to Phase in New Banking Capabilities
- Once in 'Turmoil,' UBS Turned the Corner Under McCann
- CEO Path Blocked, Fleming Departs Morgan Stanley