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?
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.
We now have at RBC a private banking partner in City National Bank and we are focused on rolling out through our wealth management advisors to clients who need those services the jumbo mortgage, personal lines of credit, commercial lending and credit card services. That is the primary opportunity we’re focused on at RBC Wealth Management today. I think the leading wealth management providers are all focused on that: how do you integrate banking services with their traditional investment-oriented offerings of a wealth management firm?
What is the biggest issue confronting the wealth management field today, and how should the industry overall or financial advisors address it?
At the time your readers are reading this interview, responding to the Department of Labor’s fiduciary rule for retirement accounts will be the single biggest challenge that wealth management firms face for the next several years. Yes, regulation generally. Yes, technology generally. Yes, building out wealth management platforms to meet the needs of the clients. Yes, operating efficiently in a low interest rate environment which takes away one of the traditional and primary sources of revenue for wealth management firms and brokerage firms generally.
Those are all challenges but the single most immediate challenge is what do firms need to do to continue to provide retirement advice to their clients, which is probably the single most important need individual investors have today. How do wealth management firms continue to offer that advice under the new DOL fiduciary regime? That’s the single biggest one. It’s the 800-pound gorilla in the living room of every wealth management firm.
We’ve seen continued growth in the number of registered investment advisors (RIAs) and projections that at some point the amount of assets that group manages will equal those in the traditional brokerage firm/wealth management businesses. What are your thoughts on the outlook for the full-service wirehouse employee model?
I also think this is a story that hasn’t been told. Having been involved in asset management RIAs, having been involved in broker-dealers, I believe that the best model for meeting a client’s needs is the dually registered, broker-dealer RIA with a platform that allows it to deliver holistic wealth management advice to their clients, everything from buying and selling stocks and bonds to building asset allocation models and fulfilling that with managed products to risk management in the forms of various types of insurance to trusts to credit and lending.
No two investors are alike. Advice needs to be customized and no one model, brokerage, commission or RIA fee-based, meets the needs of every client out there. So, the broker-dealer RIA, dually registered holistic wealth management model is the best model for meeting the wealth management needs of most high-net worth clients in the United States. I believe that fully. Now, that’s not to say that the RIA model or the broker-dealer model isn’t viable and doesn’t meet client needs. I’m not saying that, but the model I’ve described is the one that meets the most needs for the most clients, best way I believe as long as you have ethical advisors and ethical firms delivering those services.
You’re also a published author. What was your motivation for writing books?
I wrote two. One was called “Stewardship” [“Stewardship: Lessons Learned from the Lost Culture of Wall Street”; Wiley, 2012], which is about the core principle I think should underpin the financial services industry and the other one was called “A Force for Good” [“A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism”; St. Martin's Press, 2015]. It is about what we can do to have finance contribute more consistently to positive social outcomes; they both fall in the space I would define as responsible finance.
There is no way to have the economic model we have today, capitalism, operate without a financial services industry. It’s part and parcel of the global system but it only works if finance understands and lives up to its role in society. And, so, that’s what I’ve written about because I feel like we’ve lost our way in the past and that’s not good for anybody. I think it’s important to continue to talk about what the proper role of the financial sector is in society and to talk about the principles that we need to be true to in fulfilling society’s expectations of the role that finance should play.
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