Most of the barriers separating the various pillars of the financial services business have been torn down for some time, and the big banks have elbowed their way into the brokerage, money-management and mutual fund businesses. But now the mighty banks are finding their own turf invaded by new competitors.
Toronto-based Assante Financial Management Ltd. recently announced an arrangement whereby it is offering its financial planning clients access to traditional banking products such as high-interest savings accounts and a mortgage product
through a referral arrangement with Manulife Bank.
And Toronto-based Dundee Corp. is proceeding with the development and launch of its wholly owned bank, Dundee Wealth Bank, with plans to offer a wide range of retail banking products through its financial advisor network, as well as directly via the Internet and telephone. A year ago, Dundee Wealth Bank received its charter as a Schedule 1 bank from the Minister of Finance; and this past July, it received its order to commence and carry on business from the Superintendent of Financial Institutions.
Since then, the bank has been busy with a multi-stage launch of products, starting with savings accounts and guaranteed investment certificates in Ontario this past summer and expanding to the Western and Atlantic provinces in mid-October.
“For years, we have been competing with the big banks, which constantly take away clients from mutual funds and institutional accounts,” says Ned Goodman, president and CEO of holding company Dundee Corp. and chairman of Dundee Wealth Bank.
“The six big banks operate as a cartel or oligopoly. We’ve come to the conclusion that Canada needs more banks — not less.”
Although Assante is not in the deposit-taking and lending business itself, its advisors across Canada are receiving an up-front commission as well as trailer fees for recommending specific Manulife Bank products to clients, then referring clients to Manulife banking consultants in offices across Canada who are qualified to complete the official sales transaction.
“Assante’s arrangement with Manulife Bank provides advisors with new tools so they can help clients with more than just growing their financial assets,” says Clive Smith, vice president of insurance and financial services at Assante. “Our advisors can now actively assist with both sides of a client’s balance sheet — the assets as well as the liabilities.”
The Manulife products promoted by Assante include a savings account designed to offer a slightly higher interest rate than the big banks’ accounts and a product called Manulife One, an all-in-one borrowing and banking account that combines a home-based line of credit or mortgage with savings and chequing features. Instead of paying the mortgage down with regularly scheduled payments, the outstanding balance is adjusted as money is put into the account through deposits or taken out through
spending, up to a pre-determined limit. The “debt management solution,” which charges interest at the prime rate, gives clients the option of paying off the mortgage more quickly than through regular payments, but also allows clients to draw on their line of credit for expenses. The enhanced flexibility may allow advisors to help clients find funds for an RRSP contribution or a whole life insurance policy that they might not otherwise be able to afford.
“With the banking products, our advisors can now talk to their clients about mortgages and savings, extending their advice-giving capabilities,” Smith says. “[The] advisor [is] able to develop a stronger relationship with the client, and that will help retain clients in the long term.”
From Manulife Bank’s point of view, the deal with Assante gives it a large distribution network for products that advisors recognize as “value-added,” says Dustin Coté, assistant vice president of strategic alliances at Manulife Bank. He says the bank’s strategy is to build its business — not by dealing directly with the public but by selling through advisors at mutual fund and investment dealers. Often these advisors are already selling Manulife insurance products, and a relationship is in place.
The deal with Assante involves Manulife Bank providing back-office and reporting services. Manulife Bank products include GICs, investment loans, RRSP loans, other mortgage products and a credit card that can be made available to the clients of any advisor. At this point, however, the full range of products is not part of the Assante/Manulife partnership, Coté says.
@page_break@Dundee’s Goodman is plunging much more deeply into the banking business by taking the risk of starting his own bank and ultimately offering a broader range of products and services through the advisor channel. His plan is gradually to expand bank-oriented activities such as deposit-taking and retail loans and mortgages, first through clients of Dundee Wealth Management Inc. advisors and then through other financial planning organizations.
Dundee Wealth Bank’s products and services ultimately will be available to the entire public, not only clients of advisors, he says.
Goodman points out that Canadian banks now account for almost 40% of Canadian mutual fund assets and are the owners of Canada’s major investment dealers. He thinks it is time to invade the bank’s turf rather than sit back and watch them take more market share away from independent fund managers, brokerages and investment dealers.
“If you take the four pillars down, you have to take them down for everybody and that means letting others into the banking business, as well as the banks into our business,” he says.
Eventually, he wants to venture into high net-worth products and services that would put Dundee Wealth Bank in the same league as the prestigious Swiss banks that take care of a wide range of banking, trust and estate-planning needs with the full red-carpet treatment. He’s also thinking of partnering with a major foreign bank to woo the big
corporate loans that ultimately lead to participation in the big share-underwriting deals.
“We would like to be able to service wealthy clients all over the world with a Swiss-
bank type of service,” Goodman says. “The big banks have tried it, but their bureaucratic background makes it difficult to do. In our bank, it’s a short distance from the advisor to the president of the bank, and another short distance to the chairman — a matter of one phone call.”
For now, Goodman is focusing on only a few products and introducing them slowly to iron out any kinks along the way — before Dundee Wealth Bank goes full throttle. By yearend, he expects the bank’s products to be available across Canada through Dundee Wealth Management’s network of advisors. Next year, he hopes to expand the product line to include chequing accounts, bill-payment services, lines of credit, RRSP loans, credit cards and mortgages.
“When you’re impinging on things the banks make money on, such as the wealth-management and brokerage businesses, it takes a long time to go through the process.
But we’re growing our company all the same,” Goodman says.
Although he does not plan to build a network of retail branches, he says, Dundee Wealth Bank will effectively have 700 branches across the country as soon as the services become fully available through Dundee Wealth Management’s existing national advisor network. He also expects to put ATMs in the larger offices. He envisions a few “look-alike” retail branches in the major cities to create visibility for the bank’s name and enforce the image of the bank’s strength by having its name on key real estate.
“The plan is to be competitive on rates; that’s how you get money in the bank and build the deposits that you need as a base for making loans,” Goodman says. “The goal is to keep the clients of the entire community of financial advisors from being stalked by the tellers turned financial advisors of the big banks. We recognize that our competition in the wealth-management business is the banks, and we need to offer the same products
and services.” IE