Scotia no longer

In wealth management, the Bank of Nova Scotia is known as the big bank the little guy can kick around. Either through acquisition or internal restructuring, this is something Scotia’s determined to change.

Among the big six banks, Scotia is second only to RBC Financial in the total value of its assets, yet its $18 billion in fund assets remains a drop in the bucket — Scotia trails BMO, its nearest competitor, by nearly $20 billion, while RBC’s fund arm manages $78 billion.

Scotia has made no secret of the fact that it is trying to turn this around, particularly with its well-publicized purchase of an 18% stake in DundeeWealth.

“Growing wealth management share is one of four key areas of focus within the domestic bank,” says Glen Gowland, president and CEO of Scotia Securities, Scotiabank’s fund company.

Even before it went after Dundee, Gowland says, Scotia increased the quality of its investment products, launched a massive marketing blitz and placed a strong emphasis on pushing its product through its bank branch network.

Scotia has relied on its third-party Scotia Partners Series of wrap funds to drive the majority of sales. There has been little emphasis on its own offerings.

“It’s simply not that type of firm where they highlight individual managers. Certainly less so RBC or TD, where there is a clear identification,” says Rudy Luukko, investment funds editor for Morningstar Canada.

Gowland says Scotia is trying to put more focus on its fund management. It has changed much of the management of its global fund offerings, touting the three star managers it picked up from RBC in April — John Varao, Shane Jones and John Kellett — all of whom, Gowland says, are playing pivotal roles in the redirection of the fund company.

Varao was named Scotia Cassels’ chief investment officer. Kellett, a long-time manager of RBC’s successful Canadian Dividend Fund, has been tasked with educating advisors directly at the branch level, helping them understand portfolio management and fund selection.

Kellett’s role is part of a broader focus on building up its bank branch advisors as the primary distribution network for its products.

“The bank branch is where we’ve done a significant amount of heavy lifting, by having all our managers and advisors within our bank branches get their personal financial planning designations and similar training in those areas,” Gowland says. “They see the focus we’re putting on investing with the posters and the television ads, and they’re gaining great confidence in their ability to provide investment advice.”

Gowland says since last October, sales momentum has been steadily growing. “We certainly haven’t done this overnight, but we’ve grown 50% faster than the industry this year, and we want to continue to do that. Asset growth has been great, and our industry growth is exceptional,” Gowland says.

Statistics support this. Among the bank-based fund companies, Scotia Securities’ 17.2% year-to-date growth rate is second only to RBC’s 18.2%. Although this might be a misleading comparison given that the value of Scotia’s managed assets are less than a quarter of RBC’s book of assets. It’s easy to realize huge growth from nothing.

There’s nothing misleading, however, about Scotia’s being first in total fund sales for August. Scotia did $144 million in long-term fund sales during a month when most of the industry had finished in redemptions.

“This is a market where investors are favouring balanced funds, funds of funds, wraps and other types of one-stop shopping products,” Luukko says. “There has been a considerable emphasis at Scotia on balanced and portfolio and other similar types of funds. They are benefiting from this trend.”

Some of these portfolio funds have had great growth, Luukko points out. Scotia Partners Aggressive Growth Fund, a modest fund with less than $400 million in assets, was the second fastest growing of its funds, with 67% growth. The Scotia Partners Conservative Growth Portfolio was the third fastest growing fund and is now Scotia’s third largest fund, with assets of $1.5 billion.

Its fastest growing fund overall was the Scotia Diversified Monthly Income, which had an astronomical year-to-date growth of 209% by the end of July, although it remains a relatively modest-sized fund for a bank, with roughly $369 million in assets.

Scotia still has a long way to go before it’s kicking down its rivals’ doors. This could be helped by an outright acquisition of DundeeWealth, something Scotia has expressed interest in.

“In simple historical context, among the big five banks, Scotia has been the 98-pound weakling,” Luukko says. “[Its] strategy to increase its market share in wealth management has been obvious. Getting Dynamic Mutual Funds and DundeeWealth, or at least a stake in those, is part of that strategy,” Luukko says.

Hypothetically, if it did acquire Dynamic Mutual Funds outright, Scotia would almost pull even with BMO in fund assets, which itself has grown through acquisition.

“Scotia would not be the first major bank to pursue making inroads in the broker/dealer channel by acquiring an independent mutual fund company. BMO did it through its acquisition of GGOF, and CIBC with Renaissance group of funds,” Luukko says.

Growing internally has the best track record of success, Luukko points out.

“RBC and TD [the two top bank fund companies] have taken a different route, though, opting to maintain one big fund family while creating advisor-class funds for the broker/dealer market,” he says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(10/09/07)

Mark Noble