TORONTO (Reuters) – Royal Bank of Canada’s <RY.TO> U.S. wealth management unit has been luring teams managing bigger amounts of assets from much larger rivals, driving a surge in revenue from the new recruits and helping it outperform others in the industry.
As recently as August, the U.S. unit of Canada’s biggest lender hired a team of four advisors from Morgan Stanley <MS.N> who managed $675 million in client assets, building on additions from other competitors including AllianceBernstein <AB.N>, Wells Fargo <WFC.N>, Bank of America’s Merrill Lynch <BAC.N> and UBS <UBSG.S>, according to RBC Wealth Management.
RBC’s recruitment push helped lift average revenue per new advisor, or production, by 43% year-to-date through July from the comparable year-earlier period, even as the number of hires remained flat, according to internal data from its U.S. wealth management unit that was shared exclusively with Reuters.
“The U.S. is a great opportunity for the enterprise, given it is 10 to 11 times bigger than the Canadian market,” Michael Armstrong, the chief executive of RBC’S U.S. wealth management unit, said in an interview.
“The key premise behind recruiting for us is that it’s really important that we try to reach scale in our business,” he said, adding that the business doesn’t have specific growth targets.
Across North America, wealth management companies saw average annual growth of 5% in revenue per advisor between 2015 and 2019, a period that culminated in record assets and revenues, according to a June report from McKinsey’s PriceMetrix unit. Data for 2020 was not yet available.
RBC has made inroads into U.S. wealth management since its acquisition of Minneapolis-based brokerage and investment bank Dain Rauscher Wessels nearly two decades ago, which it combined with City National following its 2015 acquisition.
Overall U.S. wealth management client assets grew to $30.5 trillion in 2018, up 64% from 2010, according to a January report from McKinsey.
Stephen Biggar, an analyst at Argus Research, attributed RBC’s success in drawing teams from more entrenched players in the U.S. wealth management arena to its willingness to invest in growth.
“In some cases, there’s a bit of frustration with some of the larger firms,” he said. “If you want to grow a certain business, you have to spend … RBC has gotten the return on that investment. That’s why they’ve not been in a cost-cutting mood.”
In July, Wells Fargo announced a broad cost-cutting initiative and UBS’s wealth management unit said in January it was axing as many as 500 jobs globally.
Armstrong noted that RBC had made important investments in technology and advisor platforms.
RBC declined to disclose details about the investments, but said they were in the “tens of millions of dollars” and the amount was up three-fold in the last four years.
The company’s compensation is also “consistently very competitive,” said a spokeswoman for RBC’s U.S. wealth management unit, without providing details.
Production by financial advisors with high asset values is typically about 1% of assets under management, with compensation at 40% to 45% of that, said Jeff Testerman, managing partner at BrokerHunter.com, a financial services employment website.
The lure of compensation, however, could be a pitfall, said Patrick Kennedy, co-founder of PriceMetrix.
“If an advisor is likely to move once, they’re likely to move twice,” Kennedy said.
RBC Wealth Management’s U.S. assets under administration were up 7% to $436.4 billion as of the end of July, a touch below the record set in January. That compared with a 1% increase at Bank of America Corp’s wealth unit to $2.9 trillion and a 3.5% jump at Morgan Stanley to $2.7 trillion, the firms with the biggest wealth management units.
The United States accounts for 53% of RBC’s total wealth management client assets of C$1.1 trillion ($842 billion), versus Canada’s 38% share.
Wealth management has contributed about 19.6% of RBC’s total earnings this year, compared with 18.8% in 2019. RBC does not break down wealth management profits by region.
While the U.S. unit functions separately from its Canadian counterpart, the competitive recruiting is similar to what the bank has done in Canada for years, said Tony Maiorino, head of RBC Wealth Management’s Canadian unit in Toronto.
But Maiorino stressed the Canadian unit has been “very focused” on marrying investment management with wealth planning, by expanding offerings including tax, estate and succession planning to existing clients.
This has been the “largest contributor” to success in Canada, he said, while recruitment has been a major driver of U.S. growth.
“RBC is in a leading position in Canada and there’s less room to grow, so their focus there would be more on client retention,” said John Mackerey, senior vice president for North American financial institutions at DBRS Morningstar.
“They have greater room for expansion in the U.S., and a bigger runway to expand in a fragmented market.”
(Reporting by Nichola Saminather; Editing by Denny Thomas and Paul Simao)