Just days after Bank of Nova Scotia unveiled its hefty $2.6-billion bid to buy MD Financial Management last May, Leo Salom called together what he calls his “SWAT team.”
Mr. Salom, head of wealth management at rival Toronto-Dominion Bank, convened a meeting in TD’s executive boardroom to marshal the bank’s response to the Bank of Nova Scotia’s leap into the lucrative business of helping doctors invest their billions of dollars in assets.
Sitting around the table were TD’s executive heads of insurance, business banking, retail banking and wealth, along with their senior staff in marketing and human resources. Their mission, Mr. Salom told them, was to build TD’s own in-house version of MD Financial to compete with Scotiabank.
And it had to be ready to launch within 90 days from Scotiabank closing its deal. And in fact, two months after the sale of MD was done, TD became the first bank to launch a competing unit that focuses entirely on providing investment and banking advice to doctors and other medical professionals. But it has plenty of followers: Today, all five of Canada’s largest banks have entered the race to attract the estimated $100-billion in investment assets controlled by Canada’s doctors.
“We saw an opportunity to do something different in the marketplace, be disruptive and take market share quickly,” said Dave Kelly, senior vice-president of TD Private Wealth Management, who Mr. Salom tapped to lead the physician program.
After closing the MD deal, Scotiabank quickly set up a physician banking package in March to complement the investment services offered by MD. The banking package offers special banking fees for medical students and residents, as well as practising and retired physicians.
A week later, the Canadian Imperial Bank of Commerce followed suit with a banking service for doctors and dentists, while Bank of Montreal introduced its services in June, including accounts and investments for veterinarians, pharmacists and optometrists.
Royal Bank of Canada was the last to announce its entrance into banking for health-care professionals and students, with its launch at the end of August.
But the race to win over the medical community will not be an easy one. Many doctors felt betrayed by the Canadian Medical Association, the former owner of MD Financial, which announced the sale of MD without vetting its 90,000 members.
The CMA launched the service 50 years ago to provide financial-planning services focused solely on physicians and their family members. It had been marketed as “owned by physicians for physicians” and some members never thought it would be sold.
A number of doctors immediately took to social media to protest against the sale, with many expressing frustration of the lack of consultation before the deal was done. As well, MD clients voiced concerns that the firm was no longer independent and their financial information would be handed over to a bank without their approval.
Now, as the banks look at opportunities to pounce, some doctors remain wary about the number of new “specialized” services that are being aimed at them from the Big Five.
Some doctors say the banks brought their ideas forward too quickly with discounted interest rates, specialized bank accounts and low-fee investments that don’t seem all that new or competitive. As well, for those doctors who want to see what other banks are offering, branch staff appear to be unaware of the new services or can’t approve advertised interest rates on loans or credit.
“I think all the banks have rushed to market and the left hand is not speaking to the right hand,” says Vladislav Miropolsky, a neuroradiologist at Cambridge Memorial Hospital and a clinical assistant professor at McMaster University.
After looking to consolidate student loans and business accounts under one roof, Dr. Miropolsky was surprised that many branch employees did not know about any “doctor discounts.”
He also found the special offers across the banks to be too similar and not competitive enough to prompt him to make a move. In the end, Dr. Miropolsky decided to keep his previously set up banking services and accounts at five financial institutions – including a small investment account remaining at MD.
Akash Sinha, a pediatrician from Vancouver, was similarly frustrated after contacting several banks. He found they either did not respond to his requests for more details or were not aware of any specialized services for doctors.
“We hear about all these new programs, but I am not sure how open for business the banks actually are,” Dr. Sinha said. “When you leave several messages and never receive a call back, it’s discouraging.”
The banks will need to address the problems quickly to win over a market segment they have long coveted.
There are about 89,900 physicians in Canada, according to the Canadian Institute for Health Information, and analysts estimate MD serves about 30 per cent of them – leaving plenty of opportunity for the remaining banks to focus on. Sixty-three per cent of MD’s assets are from clients who have more than $1-million each invested with MD.
Typically, physicians earn six-figure salaries and are self-employed business owners. They face unique challenges as they enter the work force at a later age and tick off several key boxes for banking needs, such as loans and mortgages, business accounts, retirement planning and insurance.
As well, medical students come with higher levels of debt. According to the CMA, a third of medical residents expect their debt to be more than $100,000 and 19 per cent expect it to exceed $160,000 before entering a practice.
Providing competitive lines of credits for medical students can become quite fruitful for the banks. But from there, the service that students were receiving was not consistent, TD’s Mr. Kelly said.
“I think the way these clients were serviced before was really fractured,” he adds. “If you think about what they really need to be successful, they need a team of professionals all working together for them.”
To launch its program, TD hired 20 private bankers who are solely dedicated to serving physician clients. Another 10 private bankers will join the team before the end of 2019.
Mr. Kelly wanted to provide the same experience as MD, and trained an additional 50 investment advisers on doctors’ specific financial needs. Financial advisers typically help clients manage their investment portfolios, which can include portfolio management, financial planning and wealth preservation for retirees. Private banking, meanwhile, generally caters to high-net-worth individuals looking for a dedicated banker for day-to-day banking needs.
The bank also set up a direct telephone hotline for financial planning where, regardless of their asset levels, a doctor can be connected with a certified financial planner. Students can set up budgets while more established doctors can create a full investment plan.
“It’s how we are going to beat the segment,” Mr. Kelly said.
Despite the disruption and new competition, it appears Scotiabank has held on to the MD assets it acquired, defying critics who predicted a mass exodus in the face of doctor anger about the deal.
In the past year, MD has added $1-billion to the $49-billion in assets it acquired. The bank also signed 12 new partnerships with medical organizations, and now has a total of 15 organizations that refer doctors to MD as a preferred provider.
Scotiabank would not agree to an interview about the MD acquisition, but Glen Gowland, Scotiabank’s global head of wealth management, said in a blog on the bank’s website that he isn’t concerned about the growing competition.
“The experience and expertise that MD has developed over the past 50 years simply cannot be replicated,” he wrote. “We have focused on ensuring that clients continue to receive what they have always valued from MD and now you add to that all of the capabilities that Scotia has to offer as well.”