CHRIS WATTIE
Bank of Montreal is getting ready to launch a new division catering solely to the ultra-rich - from private business owners to lottery winners - as it attempts to expand into one of the banking sector's most exclusive yet sought-after market segments.
The bank is hiring dozens of financial advisers, accountants and other specialized professionals in the coming months to add to its BMO Harris Private Banking division to prepare for the move. The expansion into ultra-high net-worth banking - a rarefied segment that courts households with financial wealth of at least $10-million, but often reaching $100-million or more - will be formally announced in the coming weeks, and will see the 600-person private banking group grow by 15 per cent in the coming year.
It is part of a growing trend across the sector as financial institutions prepare in various ways for a massive shift in wealth that is set to take place in Canada, as the baby boom generation retires, family businesses are sold, and that wealth is either invested or passed on to other generations.
"It's a very small space in terms of the opportunity, and yet the growth is expected to be tremendous over the next 10 years," said Andrew Auerbach, head of BMO Harris Private Banking.
Private banking to the ultra-rich has often been likened to a concierge service where tailored investment and lending services are provided in an upscale atmosphere to manage family riches. But that segment of the industry is evolving as the increased amount of legal, accounting, tax planning and investing services required for estate planning becomes more of a reality than a frill. Some estimates figure as many as one third of family-owned businesses in Canada will be sold or transferred by the end of this decade.
"There are some who would view private banking as a cappuccino machine and nice sofas - a nicer kind of banking - and it's really not about that," Mr. Auerbach said.
"You have instances [with family businesses]where there was a hope that the children would take over the chain of dry cleaning stores, but the daughter is admitted to medical school in the states, so what is the game plan for transition?"
However, the bank is wading into a market in Canada that has often been the domain of specialized players like Swiss bank UBS, or wealth managers such as Burgundy Asset Management Ltd. and Jarislowsky, Fraser Ltd., to name just a few.
BMO's rival Royal Bank of Canada has also been bulking up in wealth management services with an eye to the same trends. The banks figure they can leverage operations to build upon their ultra-high net-worth businesses, ranging from investment and tax counselling to lending and business planning.
Last week, in an internal memo to staff, RBC executives flagged the segment as a key area for growth in its wealth management division. RBC also stated that it wants to eventually own 25 per cent of the broader market for high net-worth clients by expanding RBC Dominion Securities and its RBC Phillips, Hager & North investment counsel, estate and trust services.
Analysts are unsure how much business the banks can gain by expanding in this segment. It's a market that has been coveted in the past, but has never made a significant impact on the balance sheets; certainly not compared with the large retail and investment banking operations they run.
"A focus on high net worth is something I've heard from virtually every financial institution in Canada at some time or another," said Mario Mendonca, an analyst with Canaccord Genuity, who noted the impact of the niche is tough to gauge.
Part of the difficulty in figuring out how much a new player has to gain in the ultra-high net-worth segment is that client data is hard to come by, making it difficult to know how much of the market one player commands.
"Discretion is key. The 'private' in private bank is an important component," BMO's Mr. Auerbach said. "There's not a lot that's actually in the public domain."
As a large retail bank, BMO is wading into a market that is very small in terms of numbers, but big in terms of dollars. BMO's market research estimates there are about 27,000 homes in Canada with financial wealth of $10-million or more, but those families oversee more than $500-billion of wealth, the bank estimates.
The broader, high net-worth (as opposed to "ultra-high") banking segment, which is served in various ways by all the large banks and many independent investment houses, comprises households that hold more than $1-million of financial wealth, and make up an estimated half a million homes in Canada, BMO said. That number could reach 900,000 over the next 10 years, based on the bank's projections.
"It's a highly concentrated space in Canada. The [broader high net-worth]marketplace is estimated at about 3 per cent of the households in Canada," Mr. Auerbach said. "But it is estimated that about 60 per cent of the financial wealth is concentrated in those 3 per cent of households."
Grant Robertson