At a time when Canadian banks are cutting back on free services and raising everyday banking fees, one segment of the banking sector is being eagerly served up at no charge by some financial institutions – the exclusive world of wealth management.
In a sign of just how badly the country’s big banks covet high-net-worth customers, some are starting to offer wealth management services free on a trial basis, hoping to entice clients in the door with the promise of high-end advice at no initial cost.
Royal Bank of Canada has made the biggest pro-bono push of late, launching a campaign this spring to target 250,000 business owners across the country with letters inviting them to sample the service. The goal, which is being rolled out over the next few months, is to convince clients who have at least $1-million of investable assets to switch financial institutions, and convert them to paying clients down the road.
It’s not your typical flavour of banking. Wealth management for high-net-worth clients can include specialized lawyers, tax planners, estate planners, accountants and investment strategists who normally command a premium for their work. But as banks place a high priority on adding such clients, RBC has decided to be more aggressive.
“We may not get any immediate business from this interaction,” said Anthony Maiorino, vice-president and head of RBC Wealth Management. “But there may be an opportunity that ends up coming out of this two to three years down the road.”
Giving away free advice is not necessarily a new strategy, since banks often urge people to bring in their stock portfolio to get a free second opinion. However, wealth management usually restricts itself to a well-heeled and ultimately paying audience.
But since wealth management brings in significant fees and doesn’t tie up a lot of the institution’s investment capital, it is an attractive business right now, and the hunt for clients is intensifying.
RBC is the largest of the chartered banks in wealth management, with slightly more than 180 advisers. But other banks are also fighting to grow their market share.
“It’s a pretty competitive landscape,” said Rajiv Silgardo, co-chief executive officer of Bank of Montreal’s global asset management division.
In the past few years, several players, including RBC, BMO, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and National Bank of Canada, have stepped up their wealth management efforts. The goal is to get a bigger share of a higher-margin business, compared with personal banking and capital markets, which are being squeezed by low interest rates and economic upheaval.
“That is why you see all of the banks coming out and saying wealth management is going to be a priority,” Mr. Silgardo said.
Though BMO hasn’t embarked on a formal campaign to offer its high-net-worth private banking for free, Mr. Silgardo said banks often will offer clients sample access to the expertise they have.
In a business where relationships can be forged over years, decades or even generations, it can be difficult for a bank to win over a client.
“If you want to be growing your client base, especially if you want to take them away from someone else that they do business with, then it is very hard,” said Mr. Silgardo. “You need to be very much on top of your game. You need to be able to show the value to them of changing.”
BMO began building an ETF (exchange-traded fund) business a few years ago in order to set itself apart from the pack. RBC relies on its size, offering up an army of specialized advisers, while smaller boutique firms market themselves on the personal touch.
At RBC, Mr. Maiorino knows there are risks involved in the push his bank is embarking on. By reaching out to non-clients and doling out the bank’s expertise with no commitment, he knows some of the bank’s know-how could be lifted by a customer who accepts the free advice then bolts for another firm. He compares this to drawing up a blueprint for a house, then having a client try to build the home themselves. It’s not as simple as it looks, he says.
“We’re willing to take the risk and say, you know what, some of these people might come in, they might grab all the info they need and go back to their own financial institution and try to implement it. And I say fantastic, knock yourself out,” Mr. Maiorino said. “Because the reality is if you go back to an adviser at another firm and you say I want to open up an RCA (retirement compensation agreement), the majority of those individuals are going to say, ‘What?’”
Retirement compensation agreements and other post-career financial planning for business owners such as Individual Pension Plans (IPPs) are part of the growing complexity of wealth management as the population ages and undergoes a generational shift that will see thousands of business owners sell their companies and retire.
But the campaign for more customers is a delicate strategy, RBC acknowledges.
“We are not going out and aggressively saying to clients, ‘The firm you’re with is no good. Move your stuff,’” Mr. Maiorino said. “We’re going out instead and saying ... we have the capability to do [other things]”
It is also aimed at persuading customers to consider a kind of banking they may not have looked at.
“We’re trying to drive revenue, there’s no question about that,” Mr. Maiorino said. “But I think anybody who gets [the invite letter from the bank]and chooses to act on it, that’s probably somebody who had a pretty significant need.”