Five years ago, B2B Trust, a unit of Montreal-based Laurentian Bank of Canada, was floundering, and Laurentian was on the verge of pulling the plug. Today, B2B is bringing in 30% of Laurentian\u2019s income, compared with a mere 8% in 2005, and is the leading third-party supplier of banking products to clients of financial advisors and insurance agents across the country.
The turnaround has been largely orchestrated by president and CEO Fran\u00e7ois Desjardins, who joined the company in 2004 at the age of 35. Desjardins had made the decision to focus solely on serving the financial advisory community, while leaving other divisions of Laurentian to cater to retail and commercial clients. The strategy was to make the process of obtaining investment loans so seamless and hassle-free that it would facilitate advisors\u2019 relationships with their clients and help advisors build their assets under management.
\u201cOur goal has been to \u2018wow\u2019 the advisor consistently on operational excellence, administration and customer service,\u201d says Desjardins. \u201cWe want to make things as smooth as possible for advisors so they can concentrate on selling and servicing their own clients.\u201d
Under the direction of Desjar-dins, B2B\u2019s investment loan portfolio has mushroomed to almost $3 billion from $1.2 billion in 2005. The average investment loan is $65,000; although RRSP loans are more popular, they are typically smaller because of the contribution limits for RRSPs.
In addition to a variety of fixed- and floating-rate loans that have been B2B\u2019s bread and butter since it was launched 10 years ago, the unit has expanded its product line to include high-interest deposits, lines of credit and mortgages. Mortgages have grown rapidly in the two years since they were introduced to the advisor channel, to the tune of $1.5 billion.
Through B2B\u2019s distribution alliance programs, it also offers investment and RRSP loans through product manufacturers, such as investment-management companies that may give preferred rates to clients who stick to their specific fund family. B2B currently has 66 agreements for the distribution of RRSP and investment loans with product manufacturers, including Mackenzie Financial Corp., Fidelity Investments Canada ULC<\/b> and Renaissance Investments<\/b> (all based in Toronto).
Desjardins says it is in servicing and efficient processing that there is the most opportunity to stand out from competitors, including AGF Trust Co., owned by Toronto-based AGF Fund Management Ltd., MRS Trust Co. <\/b>; owned by Mackenzie Financial; Dundee Bank of Canada<\/b>, owned by Toronto-based Bank of Nova Scotia; and Manulife Bank<\/b>, owned by Toronto-based Manulife Financial Corp.
\u201cThere is always a selection of lenders to go to, but hassle-free and error-free service is what advisors want,\u201d Desjardins says. \u201cI want our forms and our company to be at the top of the pile. Advisors want to deal with a provider that treats them with respect and facilitates their ability to do business.\u201d
Desjardins says his \u201cfavourite product\u201d is the investment loan. This is a personal loan for investment purposes, and although the underlying investments are used as collateral, it is different than the typical margin loan offered by many brokerage houses. An investment loan is based on the creditworthiness of the client and is designed in such a way that no margin call is triggered \u2014 even if the value of the client\u2019s investment assets decline with market gyrations.
In contrast, a typical margin loan offered by many brokerage houses requires the client to maintain a predetermined assets-to-loan ratio. If the value of assets declines, the client is required to either decrease the loan or put up more assets as collateral, and with no control over the timing; the client could be forced to sell the investments in a bear market to meet the margin requirements.
With a no-margin loan, clients can sustain a market decline and wait for their investments to bounce back without worrying about a forced sale that could interrupt the growth pattern of their investments. About 80% of B2B\u2019s loans are of the no-margin variety, Desjardins says, although B2B does offer a lower-priced margin-call feature.
Desjardins says loans can be useful for investing outside an RRSP, as the interest costs are fully deductible. Loans are also useful for maximizing an annual RRSP contribution or making use of unused contribution room.
In helping clients to arrange their finances, he says, it makes much more sense to borrow to invest than it does to buy a car, boat or take a vacation, for which the interest rate could be four to five basis points higher and there is no tax-deductibility.
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