Canada\u2019s major banks have set their sights on wealthy individuals and are scooping up small, but focused, niche financial advisory firms that cater to this market. At the same time, these banks are re-organizing their private-banking divisions to better service these high net-worth individuals.
But these moves hold a big challenge for the banks: will ultra-wealthy clients accustomed to highly customized and unbiased advice stick with banks known more for their multi-department organizations than personalized services?
This autumn, Montreal-based National Bank of Canada<\/b> and Toronto-based Bank of Nova Scotia<\/b> both made acquisitions of independent firms that historically catered to HNW clients, gaining greater access to clients with assets of $10 million plus.
In October, National Bank acquired the private-wealth management arm of Montreal-based Montrusco Bolton Investments Inc. <\/b>, a portfolio management firm that has been serving HNW clients since 1946. National Bank will soon roll that business into its Private Wealth 1859 division, a group solely dedicated to serving HNW clients.
In addition to buying Montrusco\u2019s private-wealth arm, National Bank merged its trust and estate planning services division into Private Wealth 1859. With more clients aging and needing trust services, it made sense to combine the two businesses, says \u00c9ric Bujold, co-CEO of Private Wealth 1859.
Says Bujold: \u201cMore and more clients will need guidance on trust management, philanthropy, transfer of wealth. Now, we have all our experts under one umbrella.\u201d
The private-wealth division has grown substantially since it was launched in 2009, says Bujold. But acquiring a business with an established model for servicing wealthy families has helped the group accelerate that growth, he adds: \u201cWe wanted to grow fast and one way to do that is by acquisition. Montrusco was a good opportunity \u2014 it complemented our internal growth of clients and staff.\u201d
It was a similar story for Scotiabank\u2019s private-wealth group, which purchased Burlington, Ont.-based WaterStreet Group Inc., <\/b> also in October. WaterStreet focuses on providing wealthy families with a range of specialized services, such as wealth preservation across generations and advice on philanthropy and taxation. The firm caters only to about 30 ultra-high net-worth families. It specializes in providing a number of services under one roof, such as accounting, investment advice and legal counsel.
The deal still requires regulatory approval. But assuming that is obtained, it will allow Scotiabank to extend its reach into the UHNW space. Currently, Scotiabank caters to its HNW and UHNW clients through its private-client group. WaterStreet clients however will still be served under the WaterStreet brand.
Given that the UHNW market is simply an extension of the HNW market, (the dividing line is $10 million) industry watchers say these moves do not represent a new frontier in wealth management.@page_break@However, they do represent a shift in the way that this sector is served by financial advisors, with many of the services they require being offered in one place, says Keith Sj\u00f6gren, director, research and advisory services with Toronto-based Investor Economics Inc.: <\/b> \u201cThis is a natural extension of the private-wealth business in Canada.\u201d
The banks\u2019 positive performance during the downturn also represents new opportunities to gain new HNW clients at a time when smaller players may have lost ground, says Brenda Lum, managing director, Canadian financial institutions with Toronto-based DBRS Ltd.: <\/b> \u201cCanadian banks have a solid reputation because of how they performed during the [financial] crisis and they can now leverage that reputation with these clients.\u201d
In the past, firms operating within the UHNW space have typically been smaller boutiques, Lum says.
But banks with a solid platform of wealth-management services will probably gain more traction in this sector in the future if they continue to expand their services for the very wealthy.
Says Lum: \u201cThere is opportunity for the banks to leverage products as well as existing client relationships.\u201d
One way banks are tapping into the needs of the ultra rich is by distinguishing between services for HNW clients and UHNW clients. \u201cThere well may be services that appeal to the ultra wealthy and not to the middle-class millionaires,\u201d says Sj\u00f6gren.
For example, advice around philanthropy is one of those services that is much more important to the ultra-wealthy client than it is to the average privatebanking client. Such clients may also be looking for help in handling sophisticated trust structures and cross-border tax issues.
But the main avenue for future bank growth in this area, says Sj\u00f6gren, lies in connecting with Canada\u2019s entrepreneurs, even before they accumulate more than $10 million in investible assets.
According to Investor Economics\u2019 research, the number of Canadian families with $1 million or more in investible assets is expected to reach 900,000 by 2018, which is about twice as many as the 544,000 families that were millionaires in 2009. Of those, 27,000 familes were UHNW.
\u201cThe wealth in the ultra-wealthy category isn\u2019t corporate executives or inheritances,\u201d explains Sj\u00f6gren. \u201cIt\u2019s wealth created by entrepreneurs. This is where the banks have an advantage, since they are dealing with these families that create wealth on a day-to-day basis through their private banking.\u201d
Bujold agrees: \u201cAll the future growth in the HNW and UHNW categories is from the entrepreneurs that are looking to sell their business or transfer it to the next generation.\u201d
For that reason, Private Wealth 1859 has been working with its commercial-banking division to identify entrepreneurs that have qualified as HNW individuals and who may be looking for more private-banking services.
Part of the advantage that the banks have over smaller firms is that they boast a large platform of research and experts. These resources can help them work through complicated estate and trust issues, says Diana Reid , vice president and managing director of the British Columbia division of BMO Harris Private Banking in Vancouver.
\u201cWe have experience, we have knowledge, and we have resources and there aren\u2019t too many things we haven\u2019t seen,\u201d she says. \t IE<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
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