For internal use only Adapting to the New Age of Advice David J. Hutchinson Senior Vice President, Relationship Management RBC Correspondent Services is a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
RBC U.S. Business Overview RBC U.S. Presence RBC Wealth RBC Global Asset City National RBC Capital Management Management Bank Markets RBC Correspondent RBC Advisor Private Client Services Services Group 5th 7th 11th 1 largest bank in largest Wealth largest Investment Bank North America by Management Firm in in the U.S. with 36 Market Cap the U.S. by AUA offices in 23 states 1 2 3 1 Source: Bloomberg 2 Royal Bank of Canada Annual Report 2018. 3 Dealogic, based on global investment bank fees, Fiscal 2018.
What do you think? In the future… More Less Market Complexities Products/Services Regulations : Oversight Client Service Expectations Fees/Commissions
More for less In the future… More Less Market Complexities Products/Services Regulations : Oversight Client Service Expectations Fees/Commissions
Gaining perspective The industry is continually changing and creating new opportunities Asset Allocation, Fee-Based Commission-based Use multiple vehicles Trade individual securities to beat the market • Digital Offerings • Goal based planning • Fee transparency 1970 1980 1990 2000 2010 2015 • Advice based models Compete with growing number of advice Fee-based, alternatives, including Seek Market Outperformance, cost sensitivity “robos” Active Mutual Funds Use low-cost investments, active/index
The Big Squeeze Source: Oliver Wyman, Winning at all cost – coast management as key success driver” 2016 Adapted by Fidelity
What are the implications for you? 1. Role of an advisor is changing • Differentiation is shifting from sales and investment selection to value creation of personalized, planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage) • Has created need to diversify revenue streams and to achieve greater scale and efficiency. 3. Assets are migrating from commission to fee-based/asset priced models • Driven by advice-led positioning and regulatory compliance. 4. Technology is becoming the core enabler of enhancing the client and advisor experience • And driving greater automation, productivity & new revenue opportunities.
So what? What are the implications for you? 1. Role of an advisor is changing • Differentiation is shifting from sales and investment selection to value creation of personalized, planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage) • Has created need to diversify revenue streams and to achieve greater scale and efficiency. 3. Assets are migrating from commission to fee-based/asset priced models • Driven by advice-led positioning and regulatory compliance. 4. Technology is becoming the core enabler of enhancing the client and advisor experience • And driving greater automation, productivity & new revenue opportunities.
Role of an advisor is changing
Role of an advisor is changing
A hierarchy of advisor value
The new advisor value/advice stack
So what? What are the implications for you? 1. Role of an advisor is changing • Differentiation is shifting from sales and investment selection to value creation of personalized, planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage) • Has created need to diversify revenue streams and to achieve greater scale and efficiency. 3. Assets are migrating from commission to fee-based/asset priced models • Driven by advice-led positioning and regulatory compliance. 4. Technology is becoming the core enabler of enhancing the client and advisor experience • And driving greater automation, productivity & new revenue opportunities.
Assets are moving to Fee-Based/Asset Priced models Benefits Client Fee Transparency & Alignment Advice and Service Stronger Investment Plan • When the account value goes • Shifts focus from perceived • Best of class, open up or down, so goes the low value activities architecture with no penalties advisor’s compensation. (investment selection) to (sales loads) that otherwise higher value activities (goals, may encourage sticking with • The advisor could buy and sell planning). Automates what one mutual fund family or all day and not derive an clients expect – due diligence stock when a change should economic benefit from it. + regular monitoring & be made. rebalancing. Advisor Reduces conflicts. Can help Increase Recurring Revenue: demonstrate “Client Best Build Efficiency and Scalability “Annuitize Your Book” Interest Standard” • Fees align the advisor’s • Start the year generally • Focus on client relationships interests with those of the knowing how much income and prospecting instead of client you’re going to make; don’t investment selection, trading, approach each year/month billing and reporting (40% of starting at $0 revenue. an advisor’s time)
Fee-Based account growth Since 2008, non-wirehouse sponsors have grown their assets 5 times and increased market share 15 percentage points Wirehouse vs. Non-wirehouse Managed Accts Wirehouse vs. Non-wirehouse Managed Accts Assets ($ billions) Market Share ($ billions) 65% $2,414 $2,158 $2,190 50% $2,396 $1,901 50% $1,955 $1,545 $1,844 $1,253 $1,315 $1,536 35% $1,049 $1,194 $836 $965 $867 $638 $442 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 Wirehouse Non Wirehouse Wirehouse Non Wirehouse Source: MMI Central Q1 2017
The future is advice. Embrace it. -- And it’s more valuable anyway! Commission Niche-Expertise Advice Based, Recurring Based Practice Practice Revenue Practice 1X 1.5X 2X
How can I grow my business in this environment? The industry changes present new opportunities. But you must be very specific on who you’ll focus on…and how. Who How The mass affluent market represents a Leverage the tools, technology, products and significant opportunity: resources available to you through RBC to execute. • An underserved market • Accounts in motion/wealth transfer
Sizing the market How large is the opportunity? The mass-affluent market (accounts between $100k and $1 million) represents a significant portion of the market (35%); totaling $11.1 trillion in investible assets. The lower end of the mass affluent market (accounts under $250k) is a $2.6 trillion market. Source: Phoenix Marketing International 2016
Who’s your target? 20
21
An underserved market 62% of Americans Do Not have a Financial Advisor. Of those who do, 44% believe their advisor doesn’t understand their complete financial picture. Working with a Current Relationship Financial Advisor with Advisor 56% 43% 68% 41% 62% 32% NO TRUSTED NO FINANCIAL INVESTORS UNDERSTANDS LONG-TERM TAILORED ADVISOR ADVISOR WITH MORE MY COMPLETE COMMITMENT ATTENTION THAN 1 FINANCIAL ADVISOR PICTURE Only 8% of financial advisors focus on targeting and serving the 89.6 million American households with <$100,000 in investable assets – which make up 71% of all American households. Source: Northwestern Mutual Planning and Progress Study 2016. Based on an online study of 2,646 adults WealthManagement.com, “Advisors Don’t Have to Abandon Small Accounts” – 1/19/17; InvestmentNews 1/8/17.
Wealth Transfer A large transfer of assets will create a significant opportunity for well positioned advisors. Increase in US Household Transferred between 2007 & Assets - $Trillions 2061 - $Trillions $140 Total Bequests to charity $67 Investable $27.0 $87 Total Federal estate taxes $36.0 $34 Investable Bequests to heirs $5.6 2016 2030 Breakdown of the Average Inheritance By 2030, $150-$240 billion Cash 27% in wealth management 40% Real estate & luxury investments fees will be up for grabs 6% Equities & public holdings 27% Privately held businesses Source: WealthManagement.com February 2017 – The Index
Mass Affluent – favorable consumer preferences Advisory Model & Services Model % of mass affluent investors by Advisory & As mass affluent investors become older and wealthier – and as pricing transparency and Service Model. comfort with technology increase – their approach to investing is likely to change with hybrid models likely to make the bigger gains versus dedicated advisor or digital-only models. To compete in what will be an increasingly Not advised competitive market, financial services providers 30% 38% Digital only will need to adjust their business models: Digital-plus • Be prepared for explicit price competition 2% Available advisor • Develop new services and programs to Dedicated advisor combat investor switching 9% 21% • Deliver against digital requirements of all investor segments • Deploy hybrid service models that combine digital and human options. Source: A.T. Kearney June 2016 “Future of Advice: Why Investing Will Never Be The Same”
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