A tough third quarter took its toll on RBC's Wealth Management division as net income shed $56 million after reaching $212 million in the second quarter, but the firm remains committed to making additional investments and tackling an "ambitious growth platform," George Lewis, head of RBC Wealth Management said over the phone.
"We feel that even though the industry conditions are challenging or more particularly because they're challenging, it's creating a lot of opportunity to invest for the long term," Lewis explained.
Although decreased client transactions was "the primary reason for our year over year decline that you saw in our third quarter," Lewis said, RBC continues to concentrate capital infusions into that segment as part of what Lewis calls an "organic" focus. RBC, which has around 2,000 advisors, has made over 300 hires in the last five years, many of which, such as its latest team from Merrill Lynch , have come from big wirehouses.
"The nature of organic growth means hiring client facing professionals together with having them attract clients to your platform and over time broadening and deepening that relationship with your client base," Lewis said.
Because of the volatility of revenue numbers, especially considering lower transaction volumes, and their large-scale investments, Lewis says that RBC isn't looking at straight revenue numbers to gauge the success of their initiatives. Measuring the effectiveness of their organic strategies requires different metrics: "Our overall primary financial measure is pretax margins but there are number of different drivers in that including net new asset flows, assets under advisor and revenue per advisor and number of products and solutions per client," Lewis said.
According to Alois Pirker, research director at Aite Group, looking away from quarter-to-quarter revenues and focusing on those core investments can be important for growth.
"What is there is that need to invest," he said."I do think there is something to the story that they are pushing and sometimes the investments outweigh the income."
RBC also measures its success in terms of investments that the company is making in marketing. The firm recently partnered with consulting firm Capgemini on its World Wealth Report and the Asia-Pacific wealth report as it invests in its brand name in effort to drive that organic growth.
"This business is still growing through referrals and working with centers of influence," Lewis said.
In addition to its organic growth, acquisitions may also be in the pipeline, according to Lewis. The firm has some targeted investments in mind that are designed to help build up the global asset management business.
"Given that we're relatively completed on the fixed income side, you can look for our focus to be on smaller and mid-sized opportunities that would complement or add to our equity or alternative asset capability," Lewis said.
The hope is that once business does begin to restart and clients do begin to feel comfortable revving up their transactions, the firm will be well positioned to take advantage of growth.
The final tally will not really be evident for a couple years, Pirker said.
"I think a touch point is what does the post-crisis situation look like?...I think we haven't seen a post-crisis situation in the market yet, and there are some firms that are pushing very hard in being better positioned after the crisis than before, and I think RBC is one of them." Pirker explained. "RBC knows the need to invest in their platform and they're doing that right now. Ultimately we'll have to measure them again in a year or two of time can they measure up to the Merrills of the world."
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