Getting Cozy With Canadians

RBC's job on that front is far from done. The bank is giving Dain a makeover, and making major investments in the firm. In March 2008, Dain Rauscher will merge with another of Royal Bank of Canada's U.S. offspring, New York-based RBC Capital Markets, its institutional b/d, to form RBC Wealth Management. After the deal is done, the U.S. headquarters will move to New York City. Among other things, the

RBC's job on that front is far from done. The bank is giving Dain a makeover, and making major investments in the firm. In March 2008, Dain Rauscher will merge with another of Royal Bank of Canada's U.S. offspring, New York-based RBC Capital Markets, its institutional b/d, to form RBC Wealth Management. After the deal is done, the U.S. headquarters will move to New York City. Among other things, the merger will give RBC advisors greater access to investment-banking referrals and institutional-style products for clients. John Taft, CEO of the Minneapolis-based firm since September of 2005, says his deep-pocketed parent company also plans on unleashing a multi-million dollar, national campaign to help increase brand recognition in the U.S.

More acquisitions may also be on the horizon. Last year, RBC Dain expanded in the U.S. through a number of purchases including: Flag Financial Corporation based in Atlanta; Carlin Financial Group of New York; Daniels & Co. of Denver; and American Guaranty & Trust of Wilmington, Del. (Along with its personal and commercial bank, RBC also owns an insurance firm, a mutual-fund business and, in the U.S., is a lender to real-estate developers and homebuilders.)

RBC is certainly not lacking for cash to fuel U.S. growth: The bank has free cash flow of about $4.5 billion, according to Taft, and a stock that's jumped 300 percent since 2002. Compare that with another bank-owned b/d, Smith Barney, whose parent Citigroup has seen its stock jump just 35 percent in the same period. Regional competitor Raymond James has seen its stock rise 180 percent over the period.

Stepping Up

Dain has grown rapidly since the beginning of the decade: Revenue has doubled since 2001 to $912 billion, and average production per advisor is up almost 60 percent during that period to $533,000, according to the firm. Dennis Gallant, principal of consulting firm Gallant Distribution Consulting in Sherborn, Mass., says RBC is much more than just a regional firm: “They're self-clearing, they are putting a lot of money into technology and they have a strong advisory platform,” he says.

Going forward, Taft says Dain is looking to do what so many other regional firms intend to do: Build the best wealth-management firm in America by attracting high-quality advisors. (Incidentally, Taft, 53, is the great-grandson of William Howard Taft, the 27th president and former Supreme Court Justice.) The added bonus is that RBC claims it still enjoys a small-firm culture with big-firm resources.

In 2006, Taft told Registered Rep. that he was looking to bring the number of advisors at the firm to 2,500 over the next five years. With the rep count at about 1,800 today, Taft's outfit is, comparatively speaking, still a small one. Some speculate the firm will grow well beyond 2,500 reps, since “scale” is key, as so many industry observers argue.

A former full-time national recruiter for RBC Dain Rauscher says that although the firm frequently discussed growth through recruiting during his tenure there, growth has really come via acquisitions. “If Dain gets to 2,500 reps it will happen through acquisitions. Is the growth happening via recruiting? My quick answer is no,” he says. One potential acquisition target that's often named by consultants is Raymond James Financial.

When asked, Taft doesn't rule it out: “RBC's strategy in the U.S. is one of growth. Anything is possible.” With the Canadian loonie at record highs against the dollar, RBC must be salivating over U.S. assets. (Tom James has said frequently that he would never sell out to any other firm, unless, of course, “it were the best situation for everybody, all constituencies,” meaning, shareholders, the affiliated FAs and employees.)

But while RBC and Dain are on the same page about expanding the firm's wealth-management offerings further into the U.S, it may take more than acquiring a few firms in different parts of the country, and giving them an RBC makeover. The biggest challenge will be getting the brand recognition that its U.S. competitors already have. RBC Dain Rauscher often falls under the radar of advisors looking for new digs, recruiters say. It still has a second- or third-tier image among many wirehouse advisors, and recruiters say wirehouse reps looking to switch firms think of RBC Dain Rauscher as a step down from their current firm; they don't give it a second look.

The New Dain

Taft is hoping that will change. The merger with RBC Capital Markets will result in an important shift in the firm's positioning. It will consolidate the funding, balance sheets and accounting systems of the two firms. Dain advisors will also have much better access to RBC's vast resources — in particular, structured products, alternative investments and eventually foreign currency. “One of the reasons we're merging the broker/dealers is to make access to the global resources more seamless to our financial consultants. This way we don't have to jump between legal lines when accessing their tools,” Taft says.

But the move to New York is also significant. According to Securities Industry and Financial Markets Association (SIFMA) Databank classifications, one of the conditions that defines a regional firm is that it's a full-service broker/dealer based outside of the New York City area. The headquarter change puts RBC Wealth Management smack in the middle of the financial district. (Taft is quick to point out that almost 100 percent of the people and functions of both b/ds are staying put, despite the move of headquarters from Minneapolis to New York.)

Another condition that helps classify regional firms is their lack of a nationwide franchise. Anyone paying attention to the acquisitions market will know Dain recently sunk its teeth even further into the Northeast with its acquisition of Parsippany, N.J.-based J.B Hanauer, a privately held, employee-owned, financial-services firm specializing in retail fixed income and wealth-management services. The purchase added about 150 reps, some $10 billion in client assets, and a greater presence in New Jersey, Pennsylvania and Florida, where J.B. Hanauer houses its five offices.

The firm expects the integration of RBC Capital Markets — and the new name — to help it attract more advisors and continue its growth. “Already, in anticipation of forming a single broker/dealer, we've identified a number of opportunities. In particular, we've made huge strides in expanding our delivery of structured products, and have had great success in the sale of RBC Capital Markets' reverse-convertible notes,” says Taft. He also mentions the introduction of alternative investments, new derivatives, hedging products and linking up with RBC Capital Markets to strengthen the investment-banking referral process. “The biggest long-term area of opportunity for us is to increase our international capabilities, including multi-currency offerings, foreign exchange and international money management.

Providing these capabilities will open up a lot of opportunity for us, and is very much part of our long-term vision,” Taft adds.

Mark Donohue, one of the top five producers at the firm — with over $5 million in production, and just under $1 billion in client assets under management — says, “As a practical matter, it's hard to argue with a name change that will place RBC on your business card. Its prestige and performance speaks for itself, and it brings some clout to people who are employed here.” Donohue also adds that the closer relationship with RBC will help make lending easier to access.

The Organic Route

In the meantime, RBC Dain management is working on organic growth — raising the production levels of existing advisors. Profitability, Taft says, is not as directly linked to scale as many firms think. “Profit in the wealth-management space is correlated to productivity. The more productive financial consultants are, the more revenue they bring in, the more profit the firm will have,” he says. That's why the firm is providing plenty of resources to its practice-management and business-development team, whose goal is to make advisors the “primary financial consultants” to their clients. “Primary Advisory Households,” those households with a majority of their investable assets with the firm, do three times as much business, and bring in three times as much in assets, as a standard household, he says.

To gather more primary advisory households, the firm is giving its advisors practice management tools. One year ago, with the help of Success Metrics' patent-pending technologies, the firm rolled out “RBC Dashboard.” The desktop tool is designed to drive additional production and assets into the advisor's practice: It helps them expand client relationships by allowing them to identify assets held elsewhere and uncover other client needs. One feature lets reps compare their own practices with their peers' businesses; another lets them analyze their clients according to 15 different metrics. For example, a rep can pull up all of his clients who are unmarried and over 65 years old, with at least $2 million in assets.

William Hardee, an advisor with the firm in Houston, with about $400 million in client assets, says the system lets him slice and dice his book of business into categories such as largest clients and oldest clients, or to divvy them up by zip code. “We used to have to wait 30 days to print up a report like that. It's helped us cut a substantial amount of administrative time,” Hardee says.

Perhaps the most innovative part of the program is its predictive algorithmic formula that helps advisors determine whether there is a business opportunity in a particular client household. “It will identify a client who has $2 million with an advisor, but no retirement plan,” says Catie Tobin, head of the firm's Private Client Group and Business Development. “You can look at any product area, and the program will tell you whether that client may have assets elsewhere.” She adds that advisors using the tool, about 700 today, are bringing in assets at twice the rate of those who are not using it.

Also available to advisors at each of the firm's 35 branch complexes is a Complex Consulting Team. The group is made up of eight experts who work with a designated group of between 75 and 100 advisors. Their areas of expertise include: wealth management, wealth strategies, insurance, retirement plans, lending, community affairs and sponsorship, marketing and branch training. “Those eight people support the complex by identifying how they can help advisors grow their businesses in those areas. For example, if a financial consultant wants to close a deal with a foundation or endowment plan, he or she can bring in the qualified plan expert,” Tobin says.

Curt Wall, an advisor with the firm out of Minnetonka, Minn., with about $600 million in client assets, says he uses both the RBC Dashboard, as well as the complex consulting team. “We've used the client-segmentation feature to create our A-list, B-list and C-list of clients. And we use the [consulting team] in some form or fashion every single day,” he says. Recently, his team sold a multi-million dollar death benefit to a client and says the insurance expert on the team helped them throughout the process.

RBC reps seem to be happy with the firm's direction: Dan Alesandro, a complex manager in Florham Park, N.J., says, “RBC is a global organization and is becoming a prime name in the U.S. The move is bringing us closer to our parent company, and we're embracing it.”

It remains to be seen whether U.S. clients and rival advisors will embrace the firm's moves, too, and allow it to take a top spot in the U.S. wealth-management universe. For sure, eh.


Canada's biggest financial-services firm is focused on growth in the United States. A look at RBC Dain's growth:

2001 2003 2005 2006
Financial Consultants 1,120 1,753 1,643 1784*
Revenues (mn.) $445 $741 $820 $912
AUM (bn.) 55 100 116 148*
Gross Production (in 000s) 335 349 410 533
*Year to date
Source: RBC Dain Rauscher
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