RBC Dain Rauscher Corp., the Minneapolis brokerage and financial planning arm of Royal Bank of Canada, plans to focus on lending to its clients as a means of expanding market share and meeting brokerage house competition, says John Taft, its new chief executive officer.
It will also emphasize alternative investments to attract high-net-worth customers and financial planning for those approaching retirement age, Mr. Taft said in an interview Monday.
Lending services are one way the firm hopes to expand market share among the full spectrum of investors, he said. After talking to its network of financial advisers, Dain determined that wealth management clients were not only demanding investment services but also loan products.
"We're finding that as we try to meet wealth management needs we have to look at both sides of the balance sheet," said Mr. Taft, who joined the Toronto parent company in 2000 and most recently was head of asset management and products for its U.S. and international personal and business segment. He succeeded Brian Peters, who resigned this month after two years as Dain's CEO, to move his family back to Canada.
Though the firm has always offered margin lending, it introduced a "premiere" line of credit this year that is collateralized by securities and offered by Royal Bank of Canada's global private banking affiliate.
The credit line "allows you to borrow money flexibly and cost effectively for things other than investing in securities," Mr. Taft said. Beginning in early 2006, Dain also plans to offer residential mortgages.
Its expanded lending capabilities will help it keep pace with competitors who already offer such services. St. Louis-based Edward D. Jones & Co. offers mortgages, personal credit lines, home equity loans, and credit cards, and A.G. Edwards & Sons, also in St. Louis, provides mortgages and credit cards.
Dain is also looking to expand its menu of alternative investments, Mr. Taft said, as lackluster equity returns have led many affluent investors to turn to nontraditional investments in an effort to beat the market and ensure they won't outlive their retirement savings.
"There is a lot of interest in noncorrelated investment strategies, and our platform is evolving correspondingly," he said.
The firm plans to add to its suite of managed futures and commodities products and has also begun offering funds of hedge funds, which are portfolios invested in several alternative funds. Dain also offers 60 to 100 hedge funds on its platform, Mr. Taft said.
Some of Dain's rivals also offer alternative investments on their platforms. A.G. Edwards' platform includes futures and commodities, and it has several research analysts who cover these securities. Wire houses like Merrill Lynch & Co. also have extensive alternative investment capabilities.
The third prong of the Dain strategy points to retirement planning, Mr. Taft said. As the baby boomer generation approaches retirement, many financial planning firms are looking to capture assets from this substantial segment.
A study this year by the New York-based consulting firm Bain & Co. said that boomers are creating $250 billion of individual retirement account inflows per year. For the 415 affluent people in this group surveyed, the average was $450,000 of retirement assets and $300,000 of nonretirement assets.
Dain aims to meet the needs of clients nearing retirement age by developing comprehensive profiles of their financial needs. Though preretirees generally seek a steady, inflation-adjusted income stream for retirement, the firm devises a different investment strategy for each client, Mr. Taft said.
Ameriprise Financial, the Minneapolis financial planning firm that will soon become independent of its parent, American Express Co., is also focused on attracting preretiree assets.
The threat of changes in Social Security and the shift among private companies from defined benefit pension plans for their employees to defined contribution plans have created demand for personalized financial advice, CEO Jim Cracchiolo said in an interview three weeks ago.
In keeping with past practice, Dain will not try to build its brand with a multimillion-dollar advertising campaign, as Ameriprise began doing this month in a $300 million push encompassing print, television, online, radio, and outdoor media.
"We've never pursued a traditional advertising or marketing strategy," Mr. Taft said. "We do not feel we need to spend a lot of money on advertising to compete."
Instead, the firm will continue expanding its product slate and maintaining its charitable giving and sponsorship activities in local communities.
"It's our theory that giving back to and supporting communities where we do business will ultimately benefit us as a firm," Mr. Taft said. Dain Rauscher Foundation supports causes including youth education, human services, and arts and culture.
Edward D. Jones uses a similar community involvement strategy. It supports charitable groups including United Way and Habitat for Humanity. A.G. Edwards sets aside a percentage of its annual pretax earnings to support capital campaigns in St. Louis, its headquarters city.
A higher local profile can help firms like Dain attract financial planning clients, analysts say. Such clients want advisers who are "living in the same community … and going to the Rotary Club and the PTA meetings," according to Rus Prince, the president of Prince & Associates, a Shelton, Conn., investment consulting firm.
His firm also believes, Mr. Taft said, that its status as a small brokerage house relative to Ameriprise or Edward D. Jones lets it attract customers and advisers who want individualized, responsive customer service. His company has 1,800 financial advisers and $117 billion of assets under management. Ameriprise has 12,000 advisers; Edward Jones, nearly 9,000; and A.G. Edwards, close to 7,000.
"As a small organization we offer high-quality, high-response customer service ," he said, including personalized, face-to-face advice and guidance.
Dain does not need to bankroll a massive marketing campaign as long as it offers a full menu of products and services to meet clients' financial needs as well as its larger rivals do, Mr. Taft said. For example, about 30% of Dain's clients are business owners, many of whose financial holdings are of publicly traded stock options, he said.
"We often have to do some very creative and complicated things to diversify them appropriately," he said. "There may also be emotional issues about whether to hold on to certain properties or holdings. We may also need to bring in specialists to help with estate planning or risk management strategies."
Offering an extensive menu of financial products is crucial to retaining top advisers, he added.
"In the brokerage business, the most important link is the individual financial consultant," he said. "When top advisers leave a firm like Merrill Lynch, 80% of their clients go with them. We need to help advisers promote themselves as a brand in and of themselves."
Dain, like other brokerages, has struggled to recruit and retain brokers amid heated competition and more stringent regulation. It hopes to double its force of 1,800 financial advisers in five years, Mr. Taft said.
