14 November 2006

Scotiabank Pursues High Net Worth Clients

Investment Executive, Lara Hertel, 14 November 2006

Bank of Nova Scotia is joining the growing throng of financial institutions looking to muscle their way into the high net-worth arena, and it’s counting on James McPhedran to lead the way. The 43-year-old new head of the bank’s private client group has the uneasy task of steering Scotiabank toward primary advisor status among Canada’s millionaire set.

But this won’t be done easily. There are more than 500 investment-counselling firms crowding the same space — not to mention the growing number of boutique and full-service investment dealers. It’s not just a question of whether Scotiabank has what it takes to pull it off; the more pressing question may be: are there enough millionaires to pursue?

“Just because everyone’s going after the high net-worth client doesn’t mean that everyone’s going to win,” says McPhedran. “We’re very proud of our offering. And you can see from our client satisfaction results and by our client loyalty results that we have something special here.”

By “something special,” McPhedran means the four lines of business brought together under the PCG banner: private banking, full-service brokerage advice through ScotiaMcLeod Inc., discretionary investment management through Scotia Cassels Investment Counsel Ltd., and trust and estate planning through Bank of Nova Scotia Trust Co. Tied together in a neat package, McPhedran is hoping they’re enough to persuade millionaire clients — the same ones who typically have three advisor relationships — to bring all their assets under one roof.

Scotiabank’s PCG employs 600 advisors in various disciplines — investment advisors, private bankers, trust officers — scattered across 13 major cities in Canada. What makes Scotiabank unique, McPhedran says, is that these channels aren’t competing with each other for clients. Rather, any internal rivalries are set aside to bring a “cohesive” offering to clients with assets in the $1 million-plus range. Four or five years ago, those businesses might have seen each other as rivals; today, working together is the only way to go.

“If you look at industry trends, particularly among the affluent, there’s a growing trend toward consolidating relationships,” McPhedran says. “Our model is built on becoming the primary advisor. We let clients decide who it’s going to be, whether it’s their banker, their trust officer or their broker. Our model functions well no matter what the case.”

McPhedran speaks with the eager confidence that comes with substantial industry experience. He joined Scotiabank from American Express in 1996 to take a marketing position, and moved to the wealth-management group as it was being formed in 1999. He took on various senior marketing positions before stepping into the role of director of wealth management, products and services group, a role he held for two years. In mid-August, he replaced John Doig as head of the private client group. (Doig has moved on to a marketing position at the bank.)

“I think Scotiabank saw this as a natural progression for me to take this business to the next level,” McPhedran says. “It wanted somebody who would take it on in a very robust, proactive way, with the idea that we have something superior here, so let’s make it grow aggressively.”

Although it’s impossible to control the number of millionaires in the market for private advice, McPhedran is eager to capture the existing ones. According to Toronto-based Investor Economics Inc. , there are about 415,000 millionaire households in Canada. By 2014, this figure is expected to balloon to 780,000. And only 30% of millionaire households actually deal with the PCG of the financial institution with which they bank. The remainder either don’t know what their banks have to offer, or they’re unsure of how the offering would benefit them.

“What this means is that banks have to seek out the business that already exists in their client bases,” says Keith Sjogren, director of strategy consulting at Investor Economics.

To that point, Scotiabank’s six million retail clients make up the built-in referral system on which McPhedran is looking to capitalize. Existing clients are the single biggest source of new clients, he says, and Scotiabank is working to formalize the process of funnelling clients into the channel that would best serve them. Currently, the bank employs 80 financial consultants whose job it is to point clients in the right direction, whether it be to the PCG or another business under the bank’s wealth-management umbrella.

At the same time, McPhedran isn’t ignoring the potential to bring in customers from outside the bank. He says 50% of small-business owners will retire in the next decade, presenting a huge opportunity to scoop up external clients in need of succession planning expertise. Philanthropic giving is also a growing line of business. In 2004, the bank added Malcolm Burrows, former director of gift planning for the Hospital for Sick Children Foundation, to head its gift-planning services.

Although developing new products and services figure heavily in attracting and retaining well-heeled clients, McPhedran is hesitant to drive growth by products alone. “We don’t believe this is going to be won with a product; it’s going to be won by our people,” he says. “And while we’re going to need to have products, the winner — especially in the affluent space — is going to be the one who earns primary advisor status.”

McPhedran is mindful of the challenges in servicing high net-worth clients, particularly those who find themselves in a transition period, such as retirement or selling a business. He knows, too, that those transition periods are when affluent clients are most likely to go shopping for a new advisor: “Those are the times when the client asks, ‘Is this advisor the person I want to share my life with?’ Our advisors really need to manage those transition phases.”

What surprises McPhedran most about the high net-worth space is that most Canadian millionaires don’t see themselves as wealthy. “The ‘millionaire next door’ phenomenon is alive and well in this country, probably more so than it is south of the border,” he says. “Canadians, on the whole, don’t describe themselves as wealthy — even when they are.”

That phenomenon, coupled with growing access to investment information and a rising do-it-yourself mentality, is making the wealth-management job more difficult. What affluent clients want is simplification, McPhedran says: “And I don’t mean simplification in terms of the product, but simplification in terms of the solution. They want someone to quarterback all of that on their behalf.”

Although McPhedran is certain the PCG’s alignment to the bank will work to its advantage, it ultimately depends on clients’ personal preferences.

“Some people find comfort in dealing with a bank,” says Sjogren. “There’s stability, and that ability to get in touch with a wealth of experts. Others feel that independently owned investment-counselling firms act in the clients’ best interest more than the organization’s.”

Whether the Scotiabank brand will be a plus or a minus among high net-worth clients remains to be seen. McPhedran is mum about actual growth figures, but says its PCG has been growing “above market.”

In the meantime, he is looking ahead, not around him. “Sure, we worry about what everybody else is doing,” he says. “But our biggest focus is on what we’re doing.”