Keats, Connelly Names RBC Advisor Services as 'Custodian of Choice'

Pioneering fee-only firm believes its Canadian cross-border clients will respond to Canadian bank affiliation

Keats, Connelly, the Arizona and Florida-based fee-only RIA firm with $265 million under advisement that specializes in serving Canadian citizens who also work and live in the United States, has named RBC Advisor Services as its new custody platform of choice.

Dale Walters, Keats, Connelly’s CEO, said the “most obvious” benefit for its Canadian clients, who he said accounts for ”99%” of all the firm’s clients, is their existing level of comfort with RBC, the Canadian bank parent of RBC Advisor Services. “Canadians are more comfortable with a name they recognize” when it comes to where their assets will be custodied, he argued, noting that Schwab has only a very small presence in Canada and Fidelity not at all. “Clients are concerned with the health of U.S. financial institutions, but they think that would never be a problem with RBC.”

Keats, Connelly has used Schwab as a custodian “since the beginning of time,” and has used Fidelity’s custodial services for nearly 10 years, Walters said, and when it makes sense to continue those custodial relationships for clients, it will do so. However, Walters said that in addition to the comfort level for clients of custodying with a Canadian bank, Keats, Connelly did its own comparison of the products and services offered by Schwab, Fidelity and RBC, and concluded that RBC had more of what the firm wanted.

In particular, Walters (left) said RBC’s research — “as a traditional brokerage firm, they’re much more active there than Schwab or Fidelity” — was a main attraction, as was its best execution on trading. “We do a lot of business with RBC already,” Walters said, but “beyond that, RBC gives us access to research and tools that Schwab and Fidelity just didn’t offer.”

Having both U.S.and Canadian dollar-denominated accounts was a draw, as was access to the products from Forefield, the publisher of educational and marketing materials for clients. He is also seeing some referrals from RBC bank branches to Keats, Connelly, which he doesn’t expect will be a major source of new business, but said would be a nice side benefit.

Walters said it will be mostly new clients that are placed on the RBC custody platform, though he expects that “some of our existing clients will hear of” the RBC option and will want so shift their assets. That’s apparently happened already. Walters says one client with $100 million in investable assets had resisted putting those assets under Keats, Connelly’s management, but now with the RBC announcement he’s said he will now do so. “It used to be a challenge to have multiple custodians,” Walters says, but advances in technology have made that no longer a issue.

When asked if Keats, Connelly was concerned that RBC Advisor Services (which was profiled in an Investment Advisor cover story in 2010) was a relative newcomer to the custody ranks, Walters said he wasn’t worried.

“We’ve kind of been early adopters all along,” and said that with RBC Advisor Services, the RIA firm decided “the risk-reward is certainly there.”

RBC Advisor Services, part of the U.S-based RBC Wealth Management, got a jumpstart in its custody business by acquiring the small but high-end former Bear Stearns RIA custody unit from JP Morgan last year.

"We are excited to welcome Keats, Connelly and Associates to our select cadre of high performing RIA firms-focused on providing sophisticated wealth management solutions to meet the complex needs of high net worth clients," said Catie Tobin (left), Head of RBC Correspondent and Advisor Services, in a press release announcing the affiliation. "As one of the largest cross-border wealth management firms in North America, Keats Connelly's commitment to its customers matches our own high-touch approach to serving RIAs.”

One of the most salient instances of Keats, Connelly’s early-adopter approach is its fee structure: all clients of the firm pay an annual retainer, ranging from a minimum of $15,000/year to $240,000, Walters said. “The average is around $60,000,” he said.

Keats, Connelly also has a wholly owned subsidiary, Cross Border Tax & Accounting, that provides an “a la carte” tax and financial planning services to middle market clients.”

In a separate interview later Wednesday, RBC Advisor Services Director Craig Gordon (left) said RBC’s RIA custody business “is going very well.” Last year the company was focused on “transitioning the JP Morgan business and keeping them [the advisors on the custody platform] happy.” He said that the “high-end advisory community has noticed our move into the marketplace,” and that RBC was hearing from RIAs who had previously custodied with the unit when it was part of Bear Stearns but had left because of Bear's well-publicized problems. “Our pipeline is filled up,” Gordon said, though he admitted to having had to turn away some prospects—"advisors with $10 or $20 million in AUM”—because they didn’t meet RBC’s goal of  “advisors with a minimum of $100 million in AUM,” noting that RBC Advisor Services is “not trying to build a one-size-fits-all custodian.”

He also reports hearing from some advisors who came out of the big Wall St. firms and have custodied assets with brokerage firms that are not specifically in the RIA custody business, “shoehorning themselves into non-traditional custody relationships,” because they wanted access to the full suite of services they were accustomed to getting in the wirehouses. “With our offering,” Gordon says, “there are a number of these firms that are just about ready to sign up” with RBC.

As for Keats, Connelly in particular, Gordon said “We’re excited about them: a high-end firm that offers a broad range of services to clients.” Gordon says Keats, Connelly “found us,” echoing Walters’s assertion that the advisory firm's mostly Canadian clients had a natural attraction to Royal Bank of Canada. He also pointed out that founder Bob Keats is well known in Canada in part because he has “written the book, literally, on crossborder” Canada-U.S. financial planning, referring to Keats’s book The Border Guide, now in its 10th edition.

Gordon says that Walters’s other point about the importance to Keats, Connelly of RBC’s trading expertise was not an isolated incident. “More sophisticated trade execution, best execution, is going to become more and more important to all advisors.” At RBC, he said, “we’ve been measured that way for years: you can’t compete in the institutional business without it.”

As for breakaway brokers, Gordon says the branch managers at RBC Wealth Management, the retail brokerage arm of RBC, are seeing more and more breakaway brokers who want to move to the RIA model, but don’t want to move away from the services they’ve come to expect from full-service brokerages. Those branch directors, as RBC calls them, will be an important source of referrals for the custody unit. “We think,” says Gordon, that as these brokers' retention deals vest over the next few years, “that we’ll be successful there.”

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