Toronto-Dominion Bank, Canada's second-largest lender by assets, is ramping up its U.S. asset- management business while doubling the number of advisers for wealthy American clients in an bid to accelerate profit.
Toronto-Dominion seeks to build on its March takeover of Epoch Investment Partners Inc., a New York-based money manager, while increasing wealth-management offerings for its bank customers from Maine to Florida, said Leo Salom, executive vice president of wealth management at the Toronto-based firm. Efforts include doubling the number of private-wealth advisers to 300 in the next two and a half years, he said.
“We're really excited about the U.S. expansion,” Salom said in a Sept. 6 interview at his Toronto office. “Over the next three or four years that part of the business will be a significant contributor to our growth.”
Canadian banks are bracing for a lending slowdown as over- indebted consumers slow their borrowing and demand for mortgages slips amid the prospect of rising interest rates. Lenders are left looking for growth in other areas, such as providing customers investment advice and financial planning as well as managing their money -- all for a fee.
“Firms are looking at other fee-based opportunities and the wealth business provides that added revenue source,” said Salom, who took over on July 1. “You've got an aging demographic that's increasingly more affluent, that's struggling with historically low interest rates. The need for retirement advice, long-term planning advice has never been greater.”
Royal Bank of Canada Chief Executive Officer Gordon Nixon said at a Sept. 4 investor conference that he's looking for international asset-management takeovers. Canadian Imperial Bank of Commerce CEO Gerald McCaughey set a goal for wealth management to represent 15 percent of annual profit, up from 11 percent. The bank plans to reach that goal through acquisitions that complement the Toronto-based company's 2011 purchase of a 41 percent stake in American Century Investments and an April agreement to buy Atlantic Trust Private Wealth Management.
“The banks all recognize it's a very attractive business, because there's very little capital involved,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion ($3.9 billion) including bank shares. “They've all realized that consumer lending will probably slow down and it could be a more secular thing than a cyclical thing. It comes down to aging demographics.”
GMP Capital Inc. and James Richardson & Sons Ltd. yesterday agreed to buy the Canadian private-wealth business of Australia's Macquarie Group Ltd. for C$132 million to expand its wealth-management partnership. Richardson GMP Ltd. will have C$28 billion of assets under administration when the deal is completed, which is expected to be in the fourth quarter.
U.S. banks including JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. have also put greater emphasis on their asset and wealth-management businesses as regulators step up capital requirements. Under the 2010 Dodd-Frank law, banks have to hold more capital against risky activities, such as trading, beginning next year.
Toronto-Dominion's wealth-management division includes its TD Direct Investing online brokerage, an advice business that comprises the TD Waterhouse full-service brokerage and private banking, and an asset-management business, with about C$78 billion in mutual fund assets. The firm also has a 42 percent stake in U.S. discount brokerage TD Ameritrade Holding Corp.
Toronto-Dominion posted record profit from wealth management in the quarter ended July 31, with earnings from its wealth business, including TD Ameritrade, climbing 19 percent to C$250 million from a year-earlier. By comparison, Canadian personal and commercial banking rose 12 percent to C$997 million.
“I would expect wealth to be able to grow at a slightly faster pace than some of the more traditional retail channels,” Salom said. “I would expect that number to inch up.”
Toronto-Dominion is the third-best performer among Canada's eight biggest banks this year, with shares rising 9.1 percent since Dec. 31 to outpace the 8 percent return of the eight- company Standard & Poor's/TSX Commercial Banks Index. Toronto- Dominion's stock climbed to a record C$91.65 on Sept. 5. Canadian lenders lag behind the 24 percent return of the KBW Index of 24 major U.S. banks.
Salom, 47, took over TD's wealth-management business from Mike Pedersen, who became group head of U.S. banking on July 1 as part of a management shuffle. Salom reports to Tim Hockey, who also oversees Canadian banking.
Salom joined Toronto-Dominion in 2011 after working as CEO of Barclays Plc's Western European retail and commercial banking group in London, and earlier spent almost 19 years at Citibank, according to his company biography. He holds a bachelor's degree in business administration from the University of Miami and an MBA from Harvard Business School.
Canada will provide a shorter-term boost to profits as TD seeks to tap existing banking customers with financial advice and products to boost market share, providing a bridge to a longer-term U.S. growth strategy.
“For wealth management in Canada, TD is very well known,” Nakamoto said. “The awareness of brand name in the U.S. definitely has risen a fair bit with the number of branches there. I would still say to the average U.S. consumer they still have some ways to go.”
In Canada, TD Direct Investing is the division's flagship, accounting for almost 40 percent of the unit's earnings, Salom said. The firm plans to accelerate its advice business in the country, which includes 1,700 advisers in Canada and represents about a third of earnings, he said.
“We still have a tremendous amount of growth opportunity in Canada,” Salom said. “The short-term profitability opportunity in Canada is very compelling.”
In the U.S., the C$674 million Epoch acquisition, which added about $25 billion in assets, gives the division more capabilities in equities as markets are beginning to shift from bonds to stocks amid rising interest rates, Salom said.
“Epoch puts us in a very competitive position to take advantage of the shift we're seeing in the marketplace,” Salom said. “We're looking to continue to expand and evolve our asset-management business, and the Epoch acquisition is a good example of adding significant capabilities on that front.”
Toronto-Dominion has sought to expand its wealth-management division mainly through internal growth, in contrast to Royal Bank and Canadian Imperial, which have increased through takeovers of asset managers and private-wealth businesses.
The firm would “resist the tendencies to simply go for the quick acquisition that gives you temporary scale, but doesn't necessarily give you permanent scale,” Salom said. Toronto- Dominion can experience double-digit increases in the division's assets and revenue “without the need to go down that path and inject some degree of uncertainty to our growth model.”
Instead, Toronto-Dominion seeks to gain greater wealth- management revenue in both the U.S. and Canada by selling more products and services to existing banking customers, he said.
“If we mine effectively the 11 million retail clients here in Canada, the eight million clients in the U.S., then I think we've got significant opportunities,” Salom said.