RBC's American wealth management unit is pushing ahead with a stronger emphasis on fee-based business, an increased focus on ultra-wealthy clients and a more aggressive campaign for its brand, according to George Lewis, group head of RBC Global Wealth Management.
In what amounted to a state of the union address at RBC's annual Women's Association of Financial Advisors in Minneapolis, Lewis outlined the transformation that the firm's global wealth management division is making and acknowledged both its strengths as well as areas it was hoping to grow.
The wealth management division's third quarter earnings fell $56 million year-over-year due to economic uncertainties and some unanticipated legal difficulties, said Lewis, who was personally "surprised by the impact of last year's Eurozone crisis on a level of client activity." Also reflected in the decline in income was the firm's continued spending on itself as it continued to push an aggressive transition.
"What George is trying to do right now and what he has been communicating to the public and holding us as managers accountable for over the last two years is nothing short of a transformational remaking of RBC global wealth management platform," John Taft, chief executive officer of RBC U.S. Wealth Management, said. "We have been engaged in a change-management exercise across the platform."
Meanwhile, RBC, which describes itself as the sixth largest wealth management business by assets under management, continued to expand its assets. The firm reported net inflows and a jump of C$4.7 billion in the last quarter to C$339.7 billion
According to Lewis, the firm is hoping that while transaction revenues fall, it can capitalize on those assets by embracing fee-based growth: "Our clients and our business participate in a long-term growth of the market as opposed to being negatively impacted by not taking action when the markets look scary because that's when the markets have the most opportunity," Lewis said.
Globally, the firm is also increasing its focus on the high-net-worth and ultra-high-net -worth client segments by expanding its product offerings. RBC has also made a number of leadership changes recently to reflect those priorities.
"Part of that is focusing on the type of clients that we do business with an doing more and more business with high-net-worth and ultra-high-net-worth clients and offering a platform as we do hat includes not only investments, but also trust solutions, banking solutions, credit solutions, the full wealth management approach," Lewis said.
In a reversal from its previous strategies, the firm is looking to build its brand through participation in thought leadership exercises such as the Capgemini World Wealth report and the launch of its "There is Wealth in Our Approach" campaign.
"We have not historically done as much to invest in our brand as RBC Wealth Management as our global competitors," Lewis said. "So in the last year and a half we have launched our campaign."
In taking stock of his successes, Lewis also pointed to two areas where the firm needed additional investment. The firm's growth, he said, was heavily dependent on the strength of its North American arm, but lagged in terms of market share some emerging parts of the globe. As part of that push, the firm has reached 50 total relationship managers in London, but is hoping to add 50 more there as well as in areas such as Hong Kong and Singapore. The firm has also shuffled its leadership in London.
"We are under-represented in the fastest growing parts of the world relative to our global peers," Lewis acknowledged. "So we are deliberately investing money now, hiring people in advance of revenues to grow those smaller businesses in emerging markets and the U.K."
Underperformance of market drivers also cut into income growth. While the firm had planned for a 5% to 6% return from equities markets and higher interest rates, "which looks like later rather than sooner in terms of an increase in interest rates," those goals had not been realized, Lewis said.
"The area that we are behind is the area of market drivers, which are accounting for about 40% of expected growth and are delivering right now 0% of our growth," he noted.
Even so, Lewis said the firm remains optimistic with regards to long-term growth and continues to look to equities rather than fixed income. The firm has focused its fixed income investments on corporate credit opportunities and emerging market fixed income "which at the end of the day look much more attractive than purchasing developed market sovereign debt at 1% or 1.5% yield."
He also noted insurance solutions and trust solutions or wealth and estate solutions can also help clients take action even when they may otherwise be reticent given the market ups and downs.
Looking ahead to the presidential election, Lewis noted that he was prepared for a short-term solution and expected a longer-term framework for deficit reduction following election. As for November itself, "It's a clear choice," Lewis joked.
"I'll leave it at this," Lewis said. "If the market reaction to an incumbent victory is a negative one, I would use that as a buying opportunity. And if the market reaction to the win of the challenger is a positive one, I might use that as a selling opportunity."