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EXCLUSIVE INTERVIEW: Playing The Long Game Saves Need For Drastic Changes At RBC
Tom Burroughes
6 February 2014
Plenty of banks have sold trust businesses, culled booking centres and “restructured” to boost, or at least protect, profit margins. There are many compelling reasons for this, and few banks have escaped the pain. “A lot of firms have, over time, created too many booking centres and are going through rationalisation. At RBC we did not go through that phase of creating an inordinate number of centres around the world. We can be efficient with what we do,” he said, talking from his offices in Swan Lane, next to the River Thames in London’s City district.
One bank that seems to have avoided some of this turbulence - although not entirely – is RBC Wealth Management, part of Royal Bank of Canada. It still has a substantial trust business; it has not had to shed many booking centres and is not planning to do so . Meanwhile, although fourth-quarter 2013 net income in RBC’s wealth segment was relatively flat at C$205 million from a year before, for the 12 months to 31 October, total net income was C$899, up from C$763 million. Revenues in Canadian, US and international wealth management have risen.
The danger, of course, is that one can get complacency in a bank where progress has been steady and there haven’t been many big setbacks or dramatic turns of direction. And while RBC’s ascent in recent years to being a major wealth management name has been done without noisy fanfare, its rising profile now means more scrutiny from investors, analysts and, well, journalists. That puts more pressure on.
So how are things going? This publication recently caught up with Stuart Rutledge, who is chief executive, RBC Wealth Management, British Isles and Caribbean. Rutledge’s brief is pretty wide: he also serves as a member of the operating committee of RBC Wealth Management and chairs the RBC Global Trust Advisory Board, which oversees its trust business across the British Isles, Caribbean, Europe, Asia and the US.
There is zero chance of complacency at this bank, is the impression this publication got from Rutledge, who has been at the firm since 1999, a period that has seen him live through the end of the dotcom boom, 9/11 and the worst financial crisis since the 1930s Great Depression. The last 15 years haven’t been quiet.
Rutledge, in particular, said one reason why RBC has not had to drastically prune certain business lines to control costs is that it did not over-expand in the first place.
Some rival wealth manager houses, such as at HSBC and Barclays, have rationalised booking centres sharply. Other firms, such as Morgan Stanley, have decided they were sub-scale in certain markets and sold up.
RBC, on the other hand, has made some disposals but nothing apparently drastic or suggestive of a big strategic shift. For example, last year Royal Bank of Canada’s wealth management division shut an office with about 40 employees in Montevideo, Uruguay, at the end of October. RBC, which has served Latin American clients for over 100 years, continues to do so via a different business structure. Separately, RBC agreed a few days ago to sell RBC Royal Bank and RBTT Securities Jamaica to Sagicor Group Jamaica.
International credentials
Rutledge is very keen to stress the international dimension of RBC and its clients, serving them across a wide number of jurisdictions, choosing to focus on the highest-calibre centres in terms of stability and transparency.
The same approach, he said, applies to the trusts business that RBC has. Clients want trusts to be in safe, robust jurisdictions and run by large, solid organisations, he said. “There are a number of jurisdictions we would definitely not set up in,” he said.
RBC’s willingness to remain a large trusts player sets it apart from some of its rivals who, for different reasons, have spun off some of these businesses. Earlier this week, Salamanca Group, a London-based operational risk management and merchant banking firm, completed the acquisition of Investec Trust Group from Investec Bank; in 2007, ING Group sold its ING trust business via a management buyout; Citigroup sold part of its trusts business to Reliance Financial Corp in January, 2013. In certain cases, the margins to be earned from trusts – a sector where compliance and other burdens have made the sector more costly to run – are not worth the pain. At RBC, however, the view seems to be that having a trusts business is a key part of the overall offering.
“RBC takes a long term view and we don’t jump in and out of this business,” Rutledge said.
Rutledge’s fiefdom oversees plenty of money; his team manages or administers in total around $150 billion in client assets, of which about just over half is for private clients and the remainder is for institutions through its custody and corporate employee and executive services business and the remainder for private clients.
The international feel and touch of the bank extends to an area where it has sought to claim an early advantage: serving expat Americans and others affected, in some cases harshly, by onerous US tax compliance regulations known as FATCA . There had been concerns that non-US banks and other financial institutions would refuse to serve US expats for being a costly burden, and several have done just that . At RBC, though, this firm, with its SEC licence and obvious North American heritage, reckons going after expats for business makes sense.
“It is one that we are still looking to grow. We will do work if we can do it in a compliant fashion,” Rutledge said. His firm works, for example, with organisations such as specialist wealth management firm London & Capital in serving expats and Anglo-American clients.
Talent management
There have been several significant recent hires, highlighting continued expansion although not, Rutledge is keen to stress, at a fast pace. There are no hard-and-fast rules on RM/client ratios: in some cases, depending on circumstances, there are RMs with big, complex clients who serve only about 20 each, or fewer; some others can serve many more.
In terms of revenues and assets per RM, productivity has doubled in the past two years. “That is a quantification of their success,” Rutledge said.
He said the moves by RBC to raise brand awareness, through key sponsorships and associations, and its thought leadership drive via the World Wealth Report, were working in terms of visibility for the brand. RBC-sponsored research shows that significant gains have been achieved in the last couple of years in the UK in terms of awareness of its brand amongst HNW individuals.
Talk of brand visibility is a reminder that RBC’s brand value, according to Brand Finance, an organisation tracking such issues, is among the top-20 out of 500 banks worldwide That might be just one measure, but for Rutledge and his colleagues, the ascent of RBC as a brand is all of a piece of playing a long, considered game rather than rushing for quick results.