international private banking, has just relocated to London from
Toronto with a mandate to sharpen up the global wealth operations
of RBC Royal Bank. Acquisitions and hirings will be the order of
the day.
Nothing could be more illustrative of the increasing tempo of
competition in private banking than the transfer to London of
Michael Lagopoulos, RBC Royal Bank’s global head of international
wealth management. Canada’s RBC has historically been a heavyweight
of private banking with a wide international presence, but rivals
say that it runs the danger of falling off the pace as the contest
for clients keeps ratcheting up.
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Talking to PBI, Lagopoulos said he doesn’t accept that assertion
but concedes that private banking is getting ever “tougher” and RBC
has to keep building in key wealth markets, particularly in
fast-growing Asia. A considerable plus is the bank’s advantage of a
hugely strong franchise in its Canadian home market, he stresses.
“In Canada, we are the largest bank and indeed the largest company
of any kind, ranked by assets, market cap or profits. So we win a
lot of Canadian business because of that,” the banker says.
RBC has also built scale in the US, where its broker-deal arm ranks
as what he calls the “seventh-largest money influencer”.
Key axis
Now London will increasingly become the key axis for RBC’s efforts
in a number of wealth markets around the world and, at the same
time, the focus for building in the UK-based international wealth
sector, including non-domiciled resident wealth, says
Lagopoulos.
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By GlobalDataHe declares: “The British Isles are at the heart of our existing
international wealth management operations. Going forward, we will
be looking to leverage our strength as an established global player
to become a top ten global wealth manager with strong UK
capabilities.”
But rivals say RBC’s aspirations to take a top ten position look
very aggressive. Based on year-end 2006 data, RBC would rank only
as the 20th-largest private bank by its assets under management of
$150 billion. This puts it just ahead of the $140 billion managed
by Dresdner Bank and far behind industry giants such as Merrill
Lynch and UBS, at $1.6 trillion apiece.
Lagopoulos contends that the truer reflection of RBC’s wealth
management capability comes not only from the $150 billion it
directly manages but also from the $500 billion plus of global
assets under administration. The wealth industry continues to
grapple with a metric that accurately measures private client
capability, the banker notes.
“Within this $650 billion total, we have the normal discretionary
mandates, typically earning margins of 75 basis points or more, but
some rivals also count fiduciary deposits or advisory assets as
assets under management. And the industry’s assets under advisement
are going up all the time, as more money is held under open
architecture advisory approaches,” he says.
Lagopolous thus argues that, based on the broader measure, his bank
remains one of the key heavyweights in the global wealth management
industry. Internationally, RBC services some 33,000 high net worth
individuals and institutions across its network. The UK represents
a key and significant part of RBC’s International Wealth Management
business, accounting for some 57 percent of revenues.
So, where do his priorities lie in terms of growth? “We’re
competing successfully in Latin America, Europe, including [Central
and Eastern Europe], the Middle East and Africa, as well as Asia.
We are keen to grow our UK-based onshore business. Don’t forget,
London is where a lot of international money comes for professional
advice and we have over 1,300 people in our five British-based
offices to service clients,” he says.
The acquisition of Abacus, the Channel Islands fiduciary specialist
in 2005, has proved a “great transaction”, Lagopoulos says. This
October, all the final product and technology upgrades were
completed “to totally integrate Abacus with RBC as one. It’s lifted
our game.”
The Abacus deal added more than $40 billion to RBC client assets.
Now, there’s no secret that RBC is looking for a UK-based wealth
firm with an investment management capability or an investment
distribution channel, with strengths in discretionary or advisory,
to round out RBC’s service range. The bank is understood to have
given Lagopoulos a mandate to spend $1 billion plus on the right
deal.
The banker says: “One billion dollars is a lot of money, but not
when you consider that RBC has a market cap of over C$70
billion.”
RBC is understood to have put in a bid for Quilter, the private
client broker owned by Morgan Stanley, which eventually went to
Citigroup, on undisclosed terms last year. Lagopoulos won’t
comment, beyond noting that “there were some pretty aggressive bids
chasing up the Quilter price beyond where we thought it sensible to
go”.
RBC also took a look at private client manager Tilney until, in
Lagopoulos’s words, “we got gazumped”. Tilney was bought by
Deutsche Bank on undisclosed terms, but is believed to be
equivalent to well north of a very rich 5 percent of Tilney assets
under management.
Now RBC is looking in the UK “for distribution and client-servicing
capability, not a plain vanilla investment manager”, the banker
says. He adds: “In any acquisition, we concentrate not on the
quantum of client assets but the revenue and profit lines. The
client retention and people retention history is vital.”
The word is that high-service firms such as Aberdeen Asset
Management or Baillie Gifford are good examples of the type of
business RBC could be very interested in. Aberdeen, which has a
private wealth management division, has group funds under
management and advice of some $180 billion, while Baillie Gifford
manages $105 billion. Lagopoulos will say only: “Take it that I’m
an admirer of the models of both those firms.”
The banker’s mandate also extends to hiring top-quartile private
bankers to support further global growth. “Look, there’s always
room for good performers,” he says. “We’re always on the lookout
for good people and we are also hiring graduates and running
graduate programmes. But while we are hiring as aggressively as we
can, we don’t want people who are notorious job-hoppers. In short,
we don’t want to rent the clients or assets as a result of taking
on bankers who hang their hat at a new firm every two or three
years.”
RBC, which has some 4,000 professionals worldwide, took on 65 net
new client advisers in 2006 and another 42 so far this year.
‘One bank’
Lagopoulos has doubts about the so-called ‘one bank’ approach, the
supposed cross-fertilisation of investment banking and private
banking in order to more effectively serve clients. “I like the
investment bankers close but not too close,” he says. “Of course,
you have to have proximity between investment and private bankers.
You can get great cross-referrals, say when a company does an
initial public offering and the owners then want you to manage
their resulting wealth.”
But the big danger is when private banking becomes “the funnel for
anything and everything the investment bankers do”, he adds. “Our
first obligation is to the client and looking after his or her
interests,” he says.
So is Lagopoulos looking forward to his new challenges in the UK
capital? “London is a great city in which to live and work and, in
my mind, rightly deserves the accolade of being regarded as the
premier financial services market in the world for private client
wealth management,” he says.
