When advisors and the companies that partner with advisors think about RBC at all, they might consider it as a largish regional brokerage firm born from a big bank that acquired Dain Rauscher 10 years ago, which was itself a respected but still smallish firm whose own genesis came from consolidating a number of smaller, mainly Midwestern brokerages. Or they might consider that parent company big bank as a sleepy, slightly boring Canadian financial services firm, Royal Bank of Canada. I mean, this is America–we don't do royalty, right!
But starting now advisors will begin to think of RBC Advisor Services as a major player in the independent advice universe, and chances are good that more than a few will be attracted to this new player in the RIA custody space, especially advisors who are most coveted by all the custodians: those who serve high-net-worth clients with complex financial needs.
Moreover, RBC Advisor Services is not starting from scratch. On June 15, the company closed on its acquisition from JP Morgan of the old Bear Stearns RIA custody business. In a field where competitiveness is a function of people as well as technology, in which expertise in customer service counts as much as breadth of product offerings, RBC has been blessed with keeping together the key team that has continued to run the small but significant Bear custody business throughout that firm's nosedive in 2008, and which now will spearhead RBC's business development plans with high-end RIAs.
Mike Kavanagh, chief administrative officer and head, Independent Business Channels at RBC, says the decision to take on Schwab Advisor Services, Fidelity Institutional Wealth Services, Pershing Advisor Solutions, and TD Ameritrade Institutional was a "natural" one, citing RBC's "consultant-focused culture."
Starting with its "global reach but with a small-firm feel," and highlighting its Midwestern roots, Kavanagh said the move was hastened by RBC's realization that with the turmoil among the wirehouses occasioned by the 2008-09 markets and economic crisis, "the people breaking away" or considering a move from the wirehouses "were the same people we were trying to recruit" to RBC Wealth's brokerage force.
In announcing the closing on JP Morgan's Advisor Services business, which will continue to be run by Leonard Palmer in New York as Director of Client Services, the move was positioned as part of RBC Wealth Management's "ongoing expansion in the U.S.," noting that the firm has also recruited more than 300 "financial consultants" (i.e., employee brokers) to RBC Wealth during the current fiscal year, which RBC said was "by far the most consultants the firm has ever recruited in a single year."
For Kavanagh, the acquisition and recruiting success is part of the same strategy. "We're not competing for the $20-million-in-AUM advisor; we're focusing on the same elite 'advisor,' whether in the employee space, the correspondent broker/dealer space, or the RIA space." The tag line for Advisor Services? Custody and clearing for high performing RIAs.
Speaking of his competition, Kavanagh is respectful but sanguine. "The other custodians are built off online brokerages or mutual fund platforms, but our DNA is different," he says. No one, he posits, is already "doing as good a job as we are" in "catering to high-net-worth clients." RBC Advisor Services will "focus on larger advisory firms with high-net-worth clients," providing "complex solutions for clients with complex needs."
He cites the RIA clients who have stayed loyal to the Bear Stearns/JP Morgan custody team as both core to the new initiative's growth strategy, and emblematic of how RIAs will be serviced in the new division. "We're a natural partner for advisors; we have a strong service culture" already, says Kavanagh. "At most of the other custodians, you can't get to a person" to help you with your needs, and they also "can't provide an expert" on a complex issue "who won't cost you a lot of money," he argues. By contrast, he says "these JP Morgan people with an average of 11 years experience" in serving big advisory firms know how to provide expert customer service and access expert advice. Combined with RBC's long-standing expertise in trading, research, and capital markets, that advisor focus may very well make the new RIA venture a major player among elite advisors.
Value Prop. No. 1: The Parent Company
Before getting into the details of RBC Advisor Services' new initiative for RIAs, which was formally unveiled with the June 15 acquisition of the former Bear Stearns RIA custody unit called IAS from J.P. Morgan Securities, let's put RBC Advisor Services into context.
The parent company of RBC U.S. Wealth Management, headed by John Taft (the incoming chair of SIFMA), is Royal Bank of Canada, which bought Dain Rauscher in 2000. Royal Bank of Canada is the largest of that nation's 'Big Six' banks, as measured by capitalization and assets, with some 77,000 employees doing business in 55 countries, and with nearly 1,200 branches throughout Canada. The bank was founded in 1869. (See the Canadian Connection sidebar.)
Dain Rauscher traced its roots back to Oscar Kalman, who founded the brokerage firm Kalman & Co. in St. Paul, Minnesota, in 1909 and, through a series of mergers with other small brokerage firms over the next 89 years formed Dain Rauscher, which at the time of the RBC acquisition was valued at $1.45 billion, and had 2,600 brokers and 215 branches.
Shileen Groth, director of strategy and marketing for RBC Correspondent and Advisor Services, recalls that "we've been in the advice-giving business for 100 years," while Craig Gordon, director of Correspondent and Advisor Services who did a stint with Fidelity Institutional Wealth Management, touts the same culture that long characterized Dain Rauscher: "We've done it by staying focused on servicing the advice-giving individuals."
Kavanagh notes that now "we've got 220 branches in 46 states," and that "we've been serving the private client and HNW client, and clearing for 30 years. We're moving into this area naturally."
About that global reach: in addition to its brokerage operations, "We're a huge capital markets player with 1,600 people on the trading floor (in Minneapolis and New York)," says Kavanagh. The company also has a respected research arm in both equities and fixed income from RBC Capital Markets which is available to its broker/dealer and RIA clients.
Then there is RBC Correspondent Services, the company's correspondent broker/dealer clearing operation, which has been operating for 30 years and counted 170 B/D clearing customers as of year-end 2009, according to Investment Advisor's January 2010 clearing firm survey.
The company also has RBC Trust Company–a Delaware company founded in 1914 by members of the DuPont family specifically for their investment needs.
Value Prop. No. 2: The Bear/JP Morgan Connection
RBC Wealth Management got into the RIA custody business in a smallish way beginning in 2009, says Gordon, who in addition to his day job at RBC has been a FINRA arbitrator for 15 years ("It's more fun to learn from other people's mistakes," he says with a smile of his arbitration experience, saying he's "learned how to work with clients, and how to handle complaints.")