Scotia poaches marquee names from RBC

Scotiabank has been signalling its desire to beef up its wealth management division for months now and on Thursday, they let the world know just how serious they were, scooping three veteran fund managers from RBC Asset Management.

Moving to Scotia are John Varao and Shane Jones, who were managing two of RBC’s largest offerings, the RBC Canadian Dividend and the RBC Monthly Income funds. Scotia has also lured former RBC stalwart manager, John Kellett, who earned built a strong name for himself as manager of the RBC Canadian Dividend fund between 1993 and 2004.

Observers say the move is a significant step forward for Scotia’s wealth management business, Scotia Cassels. “It immediately puts Scotia on the map,” says Philip Lee, an analyst with Morningstar Canada. “Relative to the other banks, they’ve been struggling a little bit with the mutual fund business.”

Mutual fund analyst Dan Hallett, president of Dan Hallett and Associates, points out that the RBC Canadian Dividend and the RBC Monthly Income funds represent more than $17 billion in assets under management, a substantial chunk of the estimated $75 billion of RBC’s total fund assets under management.

Currently, Scotia Securities is ranked 11th in terms of assets under management, with $17.3 billion, according to the latest figures from the Investment Funds Institute of Canada. More telling, however, is their size relative to the other Canadian banks.

Scotia has the second smallest presence in the mutual fund space of any of the big six banks. For example, BMO Financial Group, the next largest bank in terms of assets under management, manages more than $37 billion. RBC Asset Management has the highest of all Canadian banks, with almost $76 billion in assets under management.

“RBC has been the sales leader, not just amongst the banks but across the industry, for at least five years,” says Hallett. “They are popular funds in popular categories that have a strong following with a number of advisors, who will move money if they feel strongly enough about the people in charge,” he says.

The announcement appears to blindside RBC, which has not named replacements for any of the departing managers. Recently, RBC was named the best overall funds by the Canadian Lipper Fund Awards.

RBC, however, was quick to dismiss any concerns about the future of its funds. “We have a deep team that we will continue to rely on to deliver excellent long-term investment performance and the management of our funds on a day-to-day basis,” said Jackie Braden, manager of media relations for RBC Financial Group.

Still, Lee says it clearly leaves a void at RBC. “They have some big shoes to fill there,” he says, adding that Kellett’s decision to join the bank is a good sign for Scotiabank.

“They have the best track record in Canada,” notes Frank Switzer, a Scotiabank spokesperson. Switzer points out that their hiring is part of two-pronged strategy to grow their wealth management business internally and through potential accquistions. Switzer expects the industry credibility of the three to help them grow “organically” by boosting sales for their products both at their retail branch level and through the independent advisory channels.

As for acquisitions, Switzer was coy. “We’ve said in the past we are interested in making a strategic acquisition to grow the business. We’re always interested and always looking for opportunities.”

Hallett believes the move is a huge step for Scotia Cassels, which he feels has always been a relatively weak industry competitor even amongst the banks.

He cautions though, that while not trying to take anything away from the skill of the RBC departing managers, RBC’s juggernaut distribution network contributes to a lot of its success.

“I suspect the bulk of sales [for the RBC funds] are through the branch,” Hallett says. “If the RBC bank branch is responsible for the bulk of the assets in those funds then they are certainly not going to follow where the managers go, it’s going to stay with the banks.”

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

(04/12/07)