RBC seeks custodial niche on high end

Now that it has completed its acquisition of J.P. Morgan Securities Inc.'s RIA custody business, RBC Advisor Services is gunning for assets from advisers and breakaway brokers.

Now that it has completed its acquisition of J.P. Morgan Securities Inc.’s RIA custody business, RBC Advisor Services is gunning for assets from advisers and breakaway brokers.

“We’ve been very focused on integration, and now that it’s done, we want to aggressively grow the business,” said Michael Kavanagh, chief administrative officer of RBC Wealth Management and head of its independent business channels. “We will try to convince RIAs who fit our niche that they ought to move their assets to us.”

RBC Advisor Services, the U.S. wealth management arm of Royal Bank of Canada, is equally interested in attracting independent advisers with $200 million or more of client assets under management and retail brokers with sizable books of business who are migrating to the independent channel. RBC, which expects that some of its own 2,200 financial consultants may transition to becoming registered investment advisers in the years ahead, will make exceptions for less productive brokers and advisers who have “good growth prospects,” Mr. Kavanagh said.

He declined to disclose the total number of advisers on the platform but said that RBC retains about 90% of the clients from the Bear Stearns Investment Advisor Services platform that J.P. Morgan abandoned.

A small number of advisers didn’t meet RBC’s size criteria, he said, but most were welcomed after due diligence on both sides led RBC to negotiate a few new agreements and technology interfaces with separately managed account managers and mutual funds used by the J.P. Morgan/Bear Stearns advisers.

RBC Advisor Services was set up primarily for “hybrid” advisers who are fee-based but house their commission business with the Correspondent Advisor Services business of RBC Wealth Management that Mr. Kavanagh also oversees. The unit served about 65 RIAs last September when the J.P. Morgan Securities acquisition deal was announced.

To retain J.P. Morgan clients, RBC hired the bulk of the bank’s IAS relationship managers, about 21 people who now work from the Minneapolis-based brokerage firm’s New York office, as well as a small number of representatives. Leonard Palmer, who formerly ran the business at J.P. Morgan, is now in charge of client service representatives at the RBC unit.

Days after announcing the completion of its acquisition June 15, RBC Advisor Services arranged a secured loan in the tens of millions of dollars for a client of a J.P. Morgan/Bear Stearns RIA that was making a business acquisition, Mr. Kavanagh said.

“The RIA firm was just elated,” he said.

Mr. Kavanagh declined to provide specifics but said that the transaction corroborates RBC Wealth Management’s argument that its parent bank company’s financial strength and its longtime focus on high-net-worth investors will redound to the benefit of large RIAs.

RBC said that it has no ambitions to catch up with such giants of the RIA custody business as The Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments, which leveraged their low-cost-trading and no-fee mutual funds to attract independent advisers. Schwab, the industry leader, has more than 6000 RIA clients with more than $624 billion of assets, compared with fewer than 200 RIA clients at RBC.

“Of course we have to compete on pricing with any RIA custodian, but the flip side [of discounting] is our advantage,” Mr. Kavanagh said.

“We started out by providing advice to high-net-worth clients and the services and investments that they need,” he said. “We are now bringing that expertise to RIAs.”

It makes sense for regional brokerage firms with product capability and technology to try to attract more trades, margin loans and assets to their platforms, said Sean Cunniff, a securities industry consultant at The Tower Group Inc.

“RBC believes it will help them a lot to appeal to independents, and it’s a logical way for them to use their excess capacity,” he said. “More competition should also be good for RIAs, who can try to step up their service demands.”

RBC has spread its bet on the growth of independent brokers and advisers by also setting up what Mr. Kavanagh calls a “quasi-independent” channel called FC Select. The group offers high payouts to RBC Wealth Management’s financial consultants but requires the reps to pick up many of their own expenses.

Full-service brokers at the firm generally have been positive about the new options, despite sometimes competing for some of the same clients served by RIAs, Mr. Kavanagh said. Indeed, RBC will give incentives to its branch and complex man- agers who refer breakaway-broker prospects to the custody unit.

“They’re the ones most likely to know what’s going on in their local markets,” Mr. Kavanagh said.

E-mail Jed Horowitz at [email protected].