Scotiabank and Toronto Dominion (TD) Bank, two of Canada’s largest banks, have consolidated and rebranded their Canadian wealth management and private banking operations. Both banks have seen their wealth management revenues rise as a result. Robin Arnfield digs into the details
In December 2015, Scotiabank consolidated its financial planning, investment management, private banking, insurance, business transition planning, and estate and trust services as Scotia Wealth Management. The rebranding affects well-known Scotiabank wealth management brands such as ScotiaMcLeod and ScotiaTrust. Scotia iTRADE, Scotiabank’s online brokerage, continues to operate under its own brand identity, despite being part of Scotia Wealth Management.
In January 2016, Toronto Dominion (TD) Bank consolidated its Canadian wealth management businesses as TD Wealth Private Wealth Management, which comprises TD Wealth Private Investment Advice, TD Wealth Private Investment Counsel, TD Wealth Private Banking and TD Wealth Private Trust. The rebranding reflected TD’s strategy of providing wealth management customers with team-based, seamless advice, the bank said.
Both of these banks that are among Canada’s 'big-five' (other banks being Bank of Montreal, Canadian Imperial Bank of Commerce, and Royal Bank of Canada) have seen their wealth management revenues increase as a result.
Scotiabank said its collaborative approach to wealth management is based on what it terms “Enriched Thinking.”
“We’re breaking down traditional silos and taking a team-based approach to deliver an integrated wealth management offering to our clients," James O'Sullivan, Scotiabank’s group head of Canadian banking, said in a statement.
As part of the restructuring of its wealth management business, Scotiabank agreed in December 2016 to sell its independent advisor network HollisWealth to Canada’s Industrial Alliance Insurance and Financial Services Inc.
HollisWealth, which Scotiabank acquired as part of its purchase of DundeeWealth in 2011, has C$34bn ($25.7m) in assets under administration, 800 advisors, and 400,000 active client accounts. The transaction, which is subject to regulatory approval, is expected to close in the calendar third quarter of 2017, increasing Industrial Alliance’s assets under administration, including HollisWealth, to C$75bn ($57bn).
HollisWealth will remain a distribution partner for asset manager Dynamic Funds, which Scotiabank acquired as part of its purchase of DundeeWealth.
“This decision (to sell HollisWealth) was based on a strategic review of our operations,” a Scotiabank spokesperson tells PBI.
“Scotiabank is committed to meeting the wealth management needs of Canadians by offering a continuum of wealth management services that range from a completely self-directed experience, with Scotia iTRADE and (online-only bank) Tangerine, to full-service solutions at our bank branches, all the way through to a customised, integrated approach at Scotia Wealth Management.”
In May 2016, Canada’s The Globe and Mail newspaper reported that Scotiabank had let go around 7% of the brokers at its ScotiaMcLeod retail advisor network, as part of a cost-cutting exercise across the bank.
Will Trout, Senior Analyst, Wealth Management at US-based Celent, tells PBI:
“Putting various investments-related businesses under one roof, and adding staff to quarterback the client relationship, makes it easier to control the client journey – so there is greater co-ordination among the various bank experts and a better client experience.
“Greater internal coordination and reduction in administrative processes reinforces the transparency, especially around pricing, mandated by CRM2, the second phase of the Canadian Securities Administrator’s (CSA) Client Relationship Model, which requires advisors to provide greater transparency on investment cost and compensation.
“It also reinforces the focus on goals-based advice, which is holistic and more resistant to commoditisation.”
Fees are coming under increased pressure in Canada in the wake of CRM2, says Trout. According to WealthInsight’s Canada Wealth Report 2016, the industry has one of the highest fee structures in the world.
“There is a push among Canadian regulators and the investing public generally for more transparency, for example around trailer fees (1%+) paid to advisors by mutual fund companies,” Trout says.
“These represent a hidden cost that runs counter to the spirit of CRM2 and presents opportunities for robo-advisors and independent advisors to break down the stronghold banks still have on the wealth management business. TD Wealth, for instance, controls 10% of the HNW segment in Canada, and a similar share of the mass affluent market. Look for investors to continue to push for lower cost product, for example, ETFs, from wealth managers.”
From a strategic standpoint, this is the right time for banks to refocus their value proposition towards relationship based and fee-based – versus commission-based – advice, given the challenges investors currently face.
In Canada, these include a low interest rate environment making it hard to generate returns, an ageing population in need of greater returns and income stream given extended lifespans, and significant geopolitical uncertainty, including developments South of the Border such as President Trump.
“While revenues at the wealth arms of both TD and Scotiabank and at CIBC (which launched the CIBC Imperial Digital remote advice channel for its Canadian mass-affluent clients in December 2015) have increased in recent quarters as a result of this repositioning and greater efficiency, uncertain economics and rising market volatility will make it critical for them to redouble their efforts going forward,” says Trout.
TD stated in an investor presentation that its total Canadian wealth revenues – including fees, transactions, and net interest income – rose from C$864 million ($653 million) in Q4 2015 to C$950 million ($718 million) in Q4 2016.
Scotiabank said that its total Canadian wealth revenues rose from C$788 million ($595 million) in Q4 2015 to C$813 million ($614 million) in Q4 2016.
Scotiabank’s and TD’s consolidation and rebranding makes sense in terms of identifying ways to go deeper in the customer relationship and provide better customer experience, according to Ed O'Brien, EVP Research and Strategy at US-based ath Power Consulting, and a former Bank of America wealth management executive.
“A common wealth management industry model has been to look at return on investment (ROI) and interest rates,” he says. “But the new model for HNWIs, the mass-affluent and the near-mass-affluent is to build a deeper relationship with the client and work with them to realise their long-term objectives. It’s not just about getting ROI but establishing what their goals are and how to achieve them.
“Integrating their different wealth management lines of business so they collaborate efficiently will help TD and Scotiabank consolidate previously silod operations. This should lead to heightened client engagement levels as customers won’t get frustrated by being passed between various lines of business and go to another bank. By combining their lines of business, TD and Scotiabank will get to know their wealth management customers better and have a clearer understanding of what they need.”