After making a slew of major acquisitions over the past several years, Toronto-based Bank of Nova Scotia now is building out its wealth-management and insurance business by shifting its primary focus to organic growth.
This strategy will result in this business operating more seamlessly, as well as making it a relatively larger contributor to the bank’s bottom line, says Chris Hodgson, group head of global wealth management (WM) and insurance in Toronto: “We have all of the pieces. It’s a question of bringing it all together.”
A key part of that strategy in Canada will be to continue to recruit experienced financial advisors for Scotiabank’s full-service, independent and private-client platforms in order to grow the bank’s assets under management among “mass affluent” and high net-worth (HNW) clients. Scotiabank has recruited 118 new wealth advisors since 2010.
The bank also is looking to add 500 more financial planners at the branch level to market its lineup of ScotiaFunds-branded mutual funds and boost referrals of affluent clients to the bank’s advisory channels.
Bank executives acknowledge the competition for client assets in Canada, a market in which Scotiabank earns 76% of its global WM and insurance profit, will continue to be stiff because of the maturity of the marketplace and the fact that it’s relatively well served.
The global WM and insurance group currently accounts for 18% of overall bank earnings, but the bank’s leadership is hoping to increase that figure to 20%-30% in the next five years by targeting a growth rate of 10% or more for the business line.
“The reality is we’re looking for double-digit growth in a single-digit growth environment,” said Glen Gowland, managing director and head of distribution for the Canadian WM advisory group, at a Scotiabank presentation for analysts in September. “It’s become largely a takeaway game; and we believe we’re very well positioned in this environment.”
Scotiabank, once a laggard in WM relative to its Big Five bank peers, has made great strides to close the gap, through both organic growth and by investing more than $6 billion into acquisitions over the past few years. These acquisitions include roughly 38% of CI Financial Corp. and all of online discount brokerage E*Trade Canada in 2007. These were followed by the acquisition of independent dealership DundeeWealth Inc., which also included Dynamic Funds, in 2010.
However, the strategy over the next few years, whether domestically or internationally, will be targeted, selective acquisitions only. “We’re not particularly interested in acquiring [Canadian] brokerage firms,” Hodgson says.
Instead, the focus has been to reshape slowly both the recently acquired and the long-standing businesses into a more complementary operational whole.
At the top end, the bank has been repositioning its ScotiaMcLeod Inc. full-service brokerage, which has a sales force of about 850 advisors, to focus primarily on HNW clients. ScotiaMcLeod adjusted its compensation structure in recent years to reward advisors for attracting new HNW business. (The bank says it now ranks second among the bank-owned brokerages in terms of revenue generated per advisor compared with fifth place five years ago.)
Scotiabank also has been looking for ways to tie its ScotiaMcLeod business more closely to its private-client platform, allowing the bank to keep more business in-house.
This year, the bank started a pilot project in Vancouver in which some advisors have teamed up with a variety of local trust, estate, tax and charitable foundation experts from the bank’s private-banking platform to offer clients seamless and holistic WM services. The bank intends to roll out the pilot project to four other cities, including Toronto, in 2014.
“Not all the advisors within ScotiaMcLeod will buy into [the pilot project]; they’ll want to do their own thing,” Hodgson says. “But we are piloting this, and the better advisors will be gravitating more toward this because of the natural ability to gain a greater share of wallet.”
The bank also has an independent advisor division, unique among the banks, in DundeeWealth (to be renamed HollisWealth on Nov. 1). This division has about 900 advisors, plus some 115 insurance-only advisors, who serve the mass affluent market on the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada platforms.
Scotiabank is committed to keeping the HollisWealth division independent, allowing it to attract and retain advisors who serve clients who prefer independent advice but who also appreciate having the implicit security of the bank backstopping the business.
“What you need to do is be respectful of what that culture has been,” Hodgson says, “but then bring the heft and the substance of the broader business in behind it.”
Scotiabank reports that advisors in the HollisWealth division have been referring more affluent clients to the bank’s private-client and Scotia Trust divisions; in the past, those clients might have been directed to third-party providers.
At the retail level, Scotiabank has managed to boost the sales of its in-house fund products, contributing to the improved performance of the bank’s asset-management business. Scotiabank now holds 8.4% of the domestic mutual fund market, including its ScotiaFunds and Dynamic Funds brands, a significant increase from just 2.8% in 2006.
However, Scotiabank still has a ways to go to catch up. According to bank figures, just 5% of its clients own in-house fund products, well below the 13% high water mark among Scotiabank’s peers.
Scotiabank intends to continue to invest in its asset-management business, including acquisitions in the institutional asset-management arena, in which the bank believes it needs to bulk up. “It’s an area,” Hodgson says, “that we feel would complement our HNW business and parts of our investment-management business.”
Banking analysts say that such a move would make sense for Scotiabank strategically. “If Scotiabank can manufacture its own institutional products, it wouldn’t need to subadvise on those funds,”says Gavin Graham, chief strategy officer at Integris Pension Management Corp. in Toronto. “And [the bank] could sell some of that product through [its] Canadian distribution channels.”
Scotiabank also is looking to make targeted WM and insurance acquisitions in its international business, but only in countries in which the bank already does business. The bank also will look to build out its insurance business, both domestically and internationally, where it can leverage its branch network to sell products.
As part of the overall integration, Scotiabank will be making changes to its branding over the next 12 to 18 months, Hodgson says. In late September, the bank announced that Scotia Asset Management LP will be renamed 1832 Asset Management LP, referring to the year in which the bank was founded.
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