Bank Of Nova Scotia Struggles To Gain Share In Wealth Management
Thursday November 13rd, 2008 / 21h15
By Monica Gutschi Of DOW JONES NEWSWIRES TORONTO -(Dow Jones)- When it comes to wealth management, Bank of Nova Scotia (BNS) is the banking equivalent of the 90-pound weakling who sends away for the Charles Atlas body-building kit and quickly bulks up. Scotiabank has developed some wealth-management muscles in the past two years: it purchased substantial stakes in money managers CI Financial Income Fund (CIX.UN.T) and DundeeWealth Inc. (DW.T), bought online brokerages, poached key advisers, launched new funds, and made other investments. Its mutual fund assets have risen to C$20.6 billion from C$12.6 billion. But just as the former weakling remains slimmer than his beefier rivals - Scotiabank still has a way to go to equal its peers. And that's why you won't see Barb Mason, who heads the bank's wealth-management business, sitting still. "We still have some gap to close," she said in a recent interview. Bank of Nova Scotia has a market share of 3.28% of the country's mutual-fund industry. Among the country's banks, it holds an 8.27% market share in mutual funds, up 14 basis points from last year. However, Mason says that if one considers the bank's share of the country's deposits and mortgages, its "natural" market share in mutual funds would be about 400 basis points higher. That gives her plenty of work to do. Many analysts believe the easiest solution for the bank will be to purchase the remainder of CI Financial or DundeeWealth, both among the country's most successful asset managers. "There is a question of whether or not (Scotia) will be able to catch up" to the other banks, says Dan Hallett, a Windsor, Ont.-based independent fund analyst. "If their strategy is to buy up, then they can do it." With only a few potential acquisition targets in the country, Hallett says Scotia is well-positioned as it has "snagged a piece of two of the bigger players already." Organic growth is much harder, Hallett says, as Scotia is up against some pretty successful juggernauts in Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD). Royal's mutual-fund business is five times Scotia's, and TD's is three times the size. Even Bank of Montreal (BMO), whose market capitalization is about 10% smaller than Scotia, has a mutual-fund business nearly twice Scotia's size. And as wealth management becomes increasingly more important for Canadian banks, Scotia isn't the only one searching for good buys or organic expansion. Royal Bank gave its business a major boost with its recent acquisition of Phillips, Hager and North and Toronto-Dominion became a major presence in on-line brokers with its stake in TD Ameritrade (AMTD). National Bank of Canada (NA.T) has made four acquisitions in the field this year, and tiny Canadian Western Bank (CWB.T) made its first foray into wealth management with its recent purchase of an Edmonton-based money manager. Other Banks Have Boosted Mutual-Fund Assets Faster In fact, many of the other banks have posted faster rates of growth in mutual-fund assets than Scotia. According to the Investment Fund Institute of Canada, at the end of September, Scotia Securities saw mutual-fund assets grow by 63% since 2002, compared to 224% growth at RBC (including PH&N), 108% growth at Canadian Imperial Bank of Commerce (CM) and 163% growth at BMO. Crucially, Scotia and BMO held relatively similar ranks in 2002, with Scotia managing C$12.23 billion in mutual funds and BMO C$14.17 billion. BMO now has C$37.2 billion, according to the IFIC, in part boosted by its acquisition of Guardian Group of Funds. That's 81% more than Scotia. "Scotia is still a relatively small player in terms of overall market share," agrees Arjun Saxena, a wealth-management analyst and partner at consultancy Oliver Wyman. While the bank has made some gains, he says the oligopolistic structure of the Canadian industry means there's "not an easy way for them to grow that." Mason feels otherwise. She has plans to continue adding advisers, invest in more technology, and expand into third-party channels through its Scotia McLeod wholesale unit. "That's never been a platform for growth for us," Mason says, noting that in the past, Scotia's funds were "invisible" to advisers at other banks or wealth-management companies. She hopes to quickly change that. As well, Scotia plans to launch Web-based financial planning in the new year, and to leverage the bank's expanded foray into direct investing. Late last year, Scotia purchased TradeFreedom Securities, a small online broker, but really boosted its presence in the sector this summer by acquiring the Canadian unit of E*Trade Financial Corp. (ETFC) for US$442 million. As for any further transactions with CI Financial and Dundee, Mason will only say "we'll see where that goes." "Our long-term strategy is to grow our wealth-management business organically and through mergers and acquisition," she said in a written statement. The stakes in those two asset managers "were opportunities that aligned with our strategic growth initiatives." In fact, analysts say those buys, and the acquisition of E*Trade Canada, showcase Scotia's acquisition savvy. "The deals they've done in a lot of ways have been smart," Hallett says, noting that Scotia got a piece of DundeeWealth because it agreed to take Dundee Bank from parent Dundee Corp. (DC.A.T) amid the liquidity crisis in asset-backed commercial paper. It also got its hands on Sun Life Financial Inc.'s (SLF) stake in CI Financial because the insurer wanted to bolster its capital ratios as equity markets slumped. "In a way, even though they've stumbled overall, those last two deals have been smart and opportunistic," Hallett said. "Now, let's see what they're going to do with them." Similarly, Saxena says Scotia's buy of E*Trade Canada was "a one in 10-year type of event, an opportunistic buy on their part" that came about because E*Trade was in financial difficulties. Company Web Site: http://www.scotiabank.com -Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. 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