John Taft, chief executive officer of RBC Wealth Management-U.S. in Minneapolis, oversees approximately 1,900 advisors with about $264 billion of assets under advisement (as of late March 2015). Research recently asked Taft, who is retiring at the end of May, about his background and the challenges and opportunities facing the wealth management industry. Edited excerpts of the conversation are below.
How did you get started in wealth management?
I’ve had three careers in the financial services industry. One as a public finance investment banker, one as the president and owner of an asset management business, mutual fund and institutional asset management business, and then one in wealth management. RBC acquired my asset management company in 2000 and I came to RBC just as RBC bought the U.S. broker-dealer Dain Rauscher Wessels, which became RBC Wealth Management. I ran asset management for RBC in the United States for a couple of years before taking on increasing responsibilities in the wealth management side of the business and ultimately becoming CEO in 2005. So it was an acquisition that got me to RBC and the gradual evolution of my responsibilities that got me into wealth management.
How has the wealth management industry changed during your career?
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I would say that, of course, the regulatory environment today post the financial crisis is much more intense. And there are transformational changes in the offing like the DOL’s imminent fiduciary standard for retirement accounts that are going to continue to force changes on wealth managers and financial advisors. Second, changes in the role that technology plays in wealth management [are] true of financial services generally. That is a process that’s, if anything, accelerating right now and has the potential to transform the way advisors and clients interact in the next five to 10 years even more than in the last five to 10 years. There’s really a race to enhance the client experience and a race to enhance the platform advisors use to work with their clients. It’s requiring everybody to be more agile and to spend more money and to be more strategic about how they use technology.
And, the third thing I would say is really an unappreciated, I think, development in what I would call the professionalization of the wealth management industry. If you think back to when I entered the brokerage business 35 years ago and compare it to today, it is night and day when it comes to the quality of advice, the comprehensiveness of the services and the price of the services that individual investors get and expect and pay for from wealth management firms.
It’s been a steady evolution away from a sales-oriented, transaction-oriented business to a consultative, planning-driven, goals-based advisory business in general and we’re not done with that. I personally feel that the next step in the professionalization of the industry will be the adoption of fiduciary standards across all activities that advisors are involved with in the wealth management industry. The DOL is first but the SEC is next.
We already have the ’40 Act fiduciary standard and that will be the final step in a process of a decades-long process of gradual professionalization of the wealth management industry. Clients today are getting much higher quality advice, they’re getting a broader suite of products and services than they’ve ever received and they’re getting it all at a fraction of the cost that they used to pay for those services several decades ago. Here’s a good news story for consumers of wealth management and that story hasn’t been adequately told.
How do those industry challenges affect RBC and how are you adapting?
You used the word challenge; I would use the word opportunity, which is related to RBC’s acquisition last November of one of the premiere private banks in America, City National Bank, headquartered in Los Angeles. Wealth management firms today don’t just offer execution services, they don’t just offer investment management services. They offer planning, retirement planning, estate planning. They offer trust. They offer risk management, life insurance, long-term care insurance, longevity insurance. These are all things that complement the traditional securities or investment focus of wealth management firms.
The most recent set of services that wealth management firms are offering to clients as they evolve into full-service holistic wealth management advice platforms is credit and lending and banking services. You certainly see that going on at Merrill Lynch. You certainly see that going on at Wells Fargo, Morgan Stanley; less so at smaller firms because they don’t have banking affiliates.