Michael Lagopoulos, deputy chairman at RBC Wealth Management and a member of PBI’s editorial advisory board, is to step down from the Canadian wealth manager on 31 October. One of the driving forces behind RBC’s international expansion, he gives his expert view on more than 30 years in the industry and where he sees it heading.
I started my journey in wealth management in 1979 at a time when demographics suggested that we were going to witness the greatest inter-generational transfer of wealth in history as the Baby Boomers retired.
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I knew that advising these clients on their banking, investment, trust and taxation planning needs was the career opportunity that I was looking for.
Since then I calculate that I have visited nearly 70 different countries and travelled nearly three million miles to do business with clients and colleagues.
Unrecognisable industry
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By GlobalDataCertainly the industry that I am retiring from is almost unrecognisably different from the one I joined following a successful spell in accountancy.
For example, few people back then would have predicted that the Royal Bank of Canada would move from 62nd to the 11th largest bank by market capitalization in the world, with a top ten global wealth management arm.
Working for a Canadian bank in the 80s was irrelevant to international clients at best; this year the World Economic Forum rated the Canadian financial system as the most stable and secure in the world for the fifth year in a row, helping to attract clients looking for safety.
Risk/rewards fundamental shift
Canada’s place owes much to its strong regulatory regime, its reputation for good risk management and its consequent performance during and after the financial crisis.
The markets are much more challenging today than they were during the bull years, of course.
Up until recently you could pick any five-year period over the last 60 years and you would be safe in the knowledge that bonds would outperform cash and that stocks would outperform bonds.
For a long time this allowed the industry to talk to clients about risk/reward as if it were a law of physics.
The challenging markets, combined with fundamental problems within our industry that the financial crisis exposed, has led to the loss of trust between client and adviser that will take many years to rebuild.
The poor state of government balance sheets across the world has led to a fundamental shift in the debate on tax revenue.
Evasion is rightly becoming more difficult and punitive for those foolish enough to try, and governments are increasingly cooperating with one another as they seek to chase tax dollars.
At the same time however, the wealthy are becoming more mobile, with homes, businesses and families spread over multiple jurisdictions.
In the short to medium-term, legitimate tax planning will become more important than ever so that individuals can ensure that their affairs are compliant.
A prediction
This is something that I predicted years ago and is why RBC has, through acquisitions and hiring, built one of the largest trust and fiduciary businesses in the world.
Yet arguably the biggest disrupter to our industry in my working life has been the ready availability of data thanks to the media and the internet.
Just like doctors, journalists, musicians and so many other professions, wealth managers now face the challenge of an increasingly disintermediated world.
Clients today are better informed and far more discerning than ever before. Why rely on my relationship manager for information and pay for it, they ask, when I can find it out myself for free?
The truth is that a lot of what we have traditionally done as wealth managers has become commoditized in recent years.
Trade execution and investment and banking products, the very sources of our fee and commission income, have become undifferentiated and the outperformance of important benchmarks increasingly difficult to achieve.
Charging model changes?
If we are to demonstrate a value-add then we need to look at our charging models to ensure that they properly reflect the expertise and advice that clients are receiving.
There would be greater transparency if the industry were to charge by time, and less for transactions or products.
This model allows a better demonstration of the process of gaining an understanding of the client’s circumstances, their long-term goals and objectives, and the compiling and executing of an effective plan.
The trade may be a commodity, but the quality of the wealth manager, their time and expertise and the solution that they develop and implement, can be differentiated more successfully and priced accordingly.
While these are big decisions that should not be taken lightly, it is worth pointing out that parts of our industry, such as trust and fiduciary services, charge in this way already.
Challenges for WM
The challenge for wealth managers will be how to construct a model that continues to deliver profitable returns while keeping clients’ interests at heart.
Yet for all of the challenges that our industry faces, it also presents huge opportunities.
Figures from the Capgemini and RBC Wealth Management World Wealth Report show that the number of HNWIs continues to grow around the world.
Well-documented trends such as aging populations in developed markets and growing wealth in emerging economies mean that more and more financial services companies are turning their attention to the business of managing HNWI’s wealth.
In an increasingly competitive market, differentiation will become absolutely critical. Demonstrating quality of advice and service to clients will be the number one priority.
