Adapting to the New Age of Advice David J. Hutchinson Senior Vice - - PowerPoint PPT Presentation

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Adapting to the New Age of Advice

David J. Hutchinson Senior Vice President, Relationship Management

RBC Correspondent Services is a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

RBC U.S. Presence RBC Wealth Management RBC Correspondent Services RBC Advisor Services Private Client Group RBC Global Asset Management City National Bank RBC Capital Markets

5th

largest bank in North America by Market Cap

1

7th

largest Wealth Management Firm in the U.S. by AUA

2

11th

largest Investment Bank

1

in the U.S. with 36

• ffices in 23 states

3 1 Source: Bloomberg 2 Royal Bank of Canada Annual Report 2018. 3 Dealogic, based on global investment bank fees, Fiscal 2018.

RBC U.S. Business Overview

What do you think?

In the future… More Less

Market Complexities Products/Services Regulations : Oversight Client Service Expectations Fees/Commissions

More for less

In the future… More Less

Market Complexities Products/Services Regulations : Oversight Client Service Expectations Fees/Commissions

Gaining perspective

The industry is continually changing and creating new opportunities

Commission-based Trade individual securities Asset Allocation, Fee-Based Use multiple vehicles to beat the market

1970 1980 1990 2000 2010 2015

Seek Market Outperformance, Active Mutual Funds Fee-based, cost sensitivity Use low-cost investments, active/index

• Digital Offerings
• Goal based planning
• Fee transparency
• Advice based models

Compete with growing number of advice alternatives, including “robos”

The Big Squeeze

Source: Oliver Wyman, Winning at all cost – coast management as key success driver” 2016 Adapted by Fidelity

What are the implications for you?

1. Role of an advisor is changing

• Differentiation is shifting from sales and investment selection to value creation of personalized,

planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage)

• Has created need to diversify revenue streams and to achieve greater scale and efficiency.

3. Assets are migrating from commission to fee-based/asset priced models

• Driven by advice-led positioning and regulatory compliance.

4. Technology is becoming the core enabler of enhancing the client and advisor experience

• And driving greater automation, productivity & new revenue opportunities.

So what? What are the implications for you?

1. Role of an advisor is changing

• Differentiation is shifting from sales and investment selection to value creation of personalized,

planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage)

• Has created need to diversify revenue streams and to achieve greater scale and efficiency.

3. Assets are migrating from commission to fee-based/asset priced models

• Driven by advice-led positioning and regulatory compliance.

4. Technology is becoming the core enabler of enhancing the client and advisor experience

• And driving greater automation, productivity & new revenue opportunities.

Role of an advisor is changing

Role of an advisor is changing

A hierarchy of advisor value

The new advisor value/advice stack

So what? What are the implications for you?

1. Role of an advisor is changing

• Differentiation is shifting from sales and investment selection to value creation of personalized,

planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage)

• Has created need to diversify revenue streams and to achieve greater scale and efficiency.

3. Assets are migrating from commission to fee-based/asset priced models

• Driven by advice-led positioning and regulatory compliance.

4. Technology is becoming the core enabler of enhancing the client and advisor experience

• And driving greater automation, productivity & new revenue opportunities.

Assets are moving to Fee-Based/Asset Priced models

Reduces conflicts. Can help demonstrate “Client Best Interest Standard”

• Fees align the advisor’s

interests with those of the client Increase Recurring Revenue: “Annuitize Your Book”

• Start the year generally

knowing how much income you’re going to make; don’t approach each year/month starting at $0 revenue. Build Efficiency and Scalability

• Focus on client relationships

and prospecting instead of investment selection, trading, billing and reporting (40% of an advisor’s time) Fee Transparency & Alignment

• When the account value goes

up or down, so goes the advisor’s compensation.

• The advisor could buy and sell

all day and not derive an economic benefit from it. Advice and Service

• Shifts focus from perceived

low value activities (investment selection) to higher value activities (goals, planning). Automates what clients expect – due diligence + regular monitoring & rebalancing. Stronger Investment Plan

• Best of class, open

architecture with no penalties (sales loads) that otherwise may encourage sticking with

• ne mutual fund family or

stock when a change should be made.

Client

Benefits

Advisor

Since 2008, non-wirehouse sponsors have grown their assets 5 times and increased market share 15 percentage points

$836 $1,049 $1,253 $1,315 $1,545 $1,901 $2,158 $2,190 $2,414 $442 $638 $867 $965 $1,194 $1,536 $1,844 $1,955 $2,396

2008 2009 2010 2011 2012 2013 2014 2015 2016 Wirehouse Non Wirehouse

65% 50% 35% 50%

2008 2009 2010 2011 2012 2013 2014 2015 2016 Wirehouse Non Wirehouse

Wirehouse vs. Non-wirehouse Managed Accts Assets ($ billions) Wirehouse vs. Non-wirehouse Managed Accts Market Share ($ billions)

Fee-Based account growth

Source: MMI Central Q1 2017

The future is advice. Embrace it.

• - And it’s more valuable anyway!

Commission Based Practice Niche-Expertise Practice Advice Based, Recurring Revenue Practice

1X 1.5X

2X

How can I grow my business in this environment?

The industry changes present new opportunities. But you must be very specific on who you’ll focus on…and how. Who How

The mass affluent market represents a significant opportunity:

• An underserved market
• Accounts in motion/wealth transfer

Leverage the tools, technology, products and resources available to you through RBC to execute.

Sizing the market

How large is the opportunity?

Source: Phoenix Marketing International 2016

The mass-affluent market (accounts between $100k and $1 million) represents a significant portion of the market (35%); totaling $11.1 trillion in investible assets. The lower end of the mass affluent market (accounts under $250k) is a $2.6 trillion market.

Who’s your target?

20

21

An underserved market

56% 43% 41% UNDERSTANDS MY COMPLETE FINANCIAL PICTURE LONG-TERM COMMITMENT TAILORED ATTENTION

Current Relationship with Advisor

62% of Americans Do Not have a Financial Advisor. Of those who do, 44% believe their advisor doesn’t understand their complete financial picture.

Source: Northwestern Mutual Planning and Progress Study 2016. Based on an online study of 2,646 adults WealthManagement.com, “Advisors Don’t Have to Abandon Small Accounts” – 1/19/17; InvestmentNews 1/8/17.

Only 8% of financial advisors focus on targeting and serving the 89.6 million American households with <$100,000 in investable assets – which make up 71% of all American households.

68% 62% 32% NO TRUSTED ADVISOR NO FINANCIAL ADVISOR INVESTORS WITH MORE THAN 1 ADVISOR

Working with a Financial Advisor

Wealth Transfer

Source: WealthManagement.com February 2017 – The Index

$87 Total $34 Investable $140 Total $67 Investable

2016 2030

Increase in US Household Assets - $Trillions

27% 6% 27% 40%

Breakdown of the Average Inheritance

Cash Real estate & luxury investments Equities & public holdings Privately held businesses

$27.0 $5.6 $36.0

Transferred between 2007 & 2061 - $Trillions

Bequests to charity Federal estate taxes Bequests to heirs

By 2030, $150-$240 billion in wealth management fees will be up for grabs

A large transfer of assets will create a significant opportunity for well positioned advisors.

Mass Affluent – favorable consumer preferences

Advisory Model & Services Model

Source: A.T. Kearney June 2016 “Future of Advice: Why Investing Will Never Be The Same”

30% 2% 9% 21% 38%

% of mass affluent investors by Advisory & Service Model.

Not advised Digital only Digital-plus Available advisor Dedicated advisor

As mass affluent investors become older and wealthier – and as pricing transparency and comfort with technology increase – their approach to investing is likely to change with hybrid models likely to make the bigger gains versus dedicated advisor or digital-only models. To compete in what will be an increasingly competitive market, financial services providers will need to adjust their business models:

• Be prepared for explicit price competition
• Develop new services and programs to

combat investor switching

• Deliver against digital requirements of all

investor segments

• Deploy hybrid service models that combine

digital and human options.

So what? What are the implications for you?

1. Role of an advisor is changing

• Differentiation is shifting from sales and investment selection to value creation of personalized,

planning oriented advice. 2. Pressure on industry economics (especially traditional brokerage)

• Has created need to diversify revenue streams and to achieve greater scale and efficiency.

3. Assets are migrating from commission to fee-based/asset priced models

• Driven by advice-led positioning and regulatory compliance.

4. Technology is becoming the core enabler of enhancing the client and advisor experience

• And driving greater automation, productivity & new revenue opportunities.

So, how can I grow my business in this environment?

Connect Planning + Advice + Technology What does this segment want:

What do I need to do to be “smart” with my money?

“Help me with more than just investments”

Am I on track to reach my goals?

“Give me confidence”

Respect the fees I’m paying. Engage me the way I want, not how you want. Show me what I am missing - what other

• ptions should I be

considering, what can go wrong, and what can I do about that?

A successful, advice-centered Client Engagement Model

Discovery

• Aggregated view of

assets and liabilities

• Risk assessment
• Goals based planning

Propose Solutions Implement

• Investments and

products

• Service plan

Monitor

• Am I on track?
• On-going due diligence

Review

• Market driven concerns
• Client life changes
• Progress toward goals

Questions?

David J. Hutchinson Senior VP, Relationship Mgmt. David.Hutchinson@rbc.com 612.371.7804