Royal Bank of Canada (TSX:RY)

Investor Day 2011

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Oct 21, 2011

Well, good morning everyone, and thank you for joining our Investor and Analyst Day featuring RBC Wealth Management. Before beginning our presentation, please note slide 1 contains our caution regarding forward-looking statements. All remarks, including those made during the question period, may contain forward-looking statements which have inherent risks and uncertainties. As a result of these factors, actual results could differ materially from these statements. Turning to our agenda on slide 2. In just a moment, Gord Nixon, our CEO, will make some opening remarks. Following Gord, George Lewis, Group Head of RBC Wealth Management, John Montalbano, Chief Executive Officer of Global Asset Management, and John Taft, Chief Executive Officer of Wealth Management U.S., will give you an overview of our wealth management businesses and our growth strategy. Following the formal presentation, we will open up the floor to a question and answer session. We ask that you please use a microphone for the benefit of the audience joining us by webcast. We have a few people on the floor who will be handling the microphones. Before asking your question, please state your name and the name of your company. At the end of the presentation, we would ask that you please take a moment to fill out the survey which you have as part of your presentation package. For those of you joining us by webcast, we will be sending you the survey by email. Your feedback is valuable to us, and we will take it into consideration for future events. We certainly hope you enjoy the session. Let me now pass the podium over to Gord Nixon. Thank you, Amy. Good morning, everybody, and thank you for joining us this morning. I am pleased to be here today as our wealth management business, that you are going to hear lots more about, is an important growth segment for our organization. As you know, we have recently seen from the U.S. banks and investment bank third quarter results that it continues to be a very challenging time for global financial services, and more specifically for businesses that are market sensitive. Notwithstanding these pressures, we are continuing to focus on building our business for long-term growth, and I am certainly encouraged by our organization's competitive position. Starting with slide 4, we are the clear leader in Canada and continue to leverage our domestic strength to build a globally competitive business. Today, you will hear how RBC Wealth Management contributes to both elements of this approach. Our focused long-term strategy is centered on the principle of diversification as we aim to generate 75% of our earnings from retail, including banking, wealth management, and insurance, and approximately 25% from various wholesale activities. That, of course, is throughout a cycle. This strategic mix mitigates risk, contributes to earnings stability, and will help us continue to deliver long-term value for our shareholders. Our strong capital position and financial strength are a key competitive advantage in today's environment. Over the past few years, we have sold assets, we have de-risked the balance sheet, and we have built up a strong capital position, and that was largely done in anticipation of financial instability in the Eurozone and the United States. This provides us, in our view, with significant flexibility to take advantage of opportunities without compromising our financial strength, which is critical in today's unstable environment. This financial strength has also enabled RBC to continue executing its long-term strategy, in which RBC Wealth Management certainly plays an important role. Turning to slide 5, let me explain why we are actively growing this segment. To start with, on a macro level, as you know, favorable industry trends continue to present attractive dynamics for growth in this sector. For example, demographic trends in developed economies continue to drive demand for retirement-related products, for solutions, and for advice. Globally, high net worth individual wealth is expected to grow by at least 8% annually over the next five years, driven especially by a growing number of high net worth individuals from various emerging economies. Another reason we are growing this segment is due to its low capital-intensive nature, making an excellent complement to our banking and capital market segments, which require more balance sheet to meet our clients' needs. Additionally, within the financial services spectrum, the regulatory environment for wealth and asset management remains relatively stable, giving us the ability to invest in this segment with some degree of certainty and confidence. Finally, the soundness and reputation of the Canadian financial system as a whole represents a significant advantage for us in the global markets. Clearly, the long-term fundamentals are strong despite current headwinds of uncertain markets and low interest rates. At RBC, the prospects for growth, we believe, are very compelling. To start, RBC's strength, stability, and brand gives us an exceptional competitive advantage both here in Canada and abroad, particularly as we are building our global presence. The breadth and depth of RBC's wealth and asset management capabilities are perfectly suited to meet the sophisticated needs of high net worth clients globally, and the strength of our businesses, including Canadian banking, international banking, insurance, and capital markets, enable us to provide unmatched advice to grow our clients' financial goals. As George and his team will explain, we've been focused on building this segment for a long time, and we have an exceptionally strong foundation on which to continue to build that growth. With that, I will turn it over to George. Thanks very much, Gord, and welcome everyone to our meeting this morning. We're very pleased to be meeting with you today to provide an overview of our strategic plan to build a leading global wealth and asset manager. As we execute our ambitious five-year plan, which I'll discuss later in my remarks, leadership will be a critical component, and I'm very fortunate to have such a talented team, many of whom are with us today. In addition to John Montalbano and John Taft, who Amy introduced at the outset, we also have my direct reports, David Agnew, Paul Patterson, Stuart Rutledge, Ingrid Versnel, and Gay Mitchell, as well as members of my global functional management team here in the room, and we're also joined by phone by Barend Janssens in Singapore. Turning to slide seven, the three key elements of our plan are, number one, building a global high-performing asset manager. This business is already our most profitable, and we plan to extend its global reach. Secondly, expanding our share in the high net worth and ultra-high net worth markets by extending our leading position in Canada and broadening our presence in these client segments globally. Finally, leveraging RBC and RBC Wealth Management's strengths and capabilities, which will provide both revenue growth and cost management opportunities. Before we go into more detail about our growth strategy, I think it's important to highlight our achievements to date. Looking at slide eight, our success comes from a holistic value proposition and our differentiated relationship-based approach, which gives us the ability to introduce additional RBC products and solutions to our clients. Through this approach, we have grown to be a leading player in both Canada and abroad, as demonstrated by our ranking as the sixth-largest wealth manager in the world. Slide nine shows RBC's history in wealth management. Even before we established a global focus for this segment in 2007, RBC had been building in Canada and internationally. In the 2007 to 2009 period, we focused on delivering strong financial performance in extremely challenging market conditions and strengthening the position of our individual businesses. That included taking advantage of our competitors' challenges in the U.S. to strengthen our advisor base there, as well as securing our leadership of the wealth and asset management business in Canada through the acquisition of Phillips, Hager, and North in 2008. Beginning last year, we developed an integrated segment strategy and launched our revitalized organizational structure to achieve our goal of establishing RBC as a global leader in wealth and asset management by 2015. As you can see from the posters at the front of the room and the two that you saw on your way in, and as you hopefully have seen in the media, we recently launched a new global brand. Increasing our global brand presence is a critical component of our growth strategy, and we believe it's a particularly opportune time to attract and retain clients and client-facing professionals looking for the strength, stability, and integrity that our business and brand embodies. As we build our global business, we will also continue extending our lead in the Canadian market together with our partners across RBC. As you can see on slide 10, our wealth and asset management businesses serve affluent, high, and ultra-high net worth clients with integrated advice across investments, banking, credit, tax, trust, and custody, and deliver asset management and trust solutions to both individuals and institutions. Our segment does not include Canadian branch investment mutual fund advice and distribution, Canadian private banking, or our self-directed brokerage, RBC Direct Investing. While we work closely with each of these businesses, they are all housed in our Canadian banking segment, in our view, to best leverage client and distribution opportunities. Insurance is a separate segment for RBC, unlike some of our Canadian peers who include it within their wealth management segments. Again, we do actively partner with our insurance segment to offer clients life insurance, annuities, and segregated funds, which represent important elements of estate and retirement planning. Turning to slide 11, one can see that even though we define and report our segment more narrowly than our Canadian peers, RBC Wealth Management is larger, even when adjusting to compare apples to apples. To assist you in a better comparison with our Canadian peers, we have included in the earnings chart shown here the contribution from RBC Direct Investing, private banking, and insurance businesses. Turning to slide 12, we primarily benchmark against global players with a similar definition of wealth management, most of whom are shown here. In establishing our long-term financial goals, we are guided by financial performance, especially in terms of pre-tax margins attained by the best in this group, which are not necessarily the largest in terms of client assets. Slide 13 reflects our new revitalized organizational structure, which was designed in 2010 to enable us to execute successfully our five-year growth strategy. As part of the change to accelerate growth, we have moved from four business units to six, including four geographic wealth businesses and two global solution businesses, Global Asset Management and Global Trust, to highlight our world-class capabilities in each. We also created two global support teams in Global Wealth Services, as well as operations and technology to improve our efficiency and effectiveness by both lowering costs and by leveraging client and product-related revenue opportunities across our segment. I want to turn to our financial performance and drivers of our financial performance on slide 15. Despite the challenging environment in recent years, we have consistently grown our client assets since 2007, both through organic growth and acquisitions like Phillips, Hager, and North, and more recently, BlueBay Asset Management. Over the same period, we continued to shift our business towards a more favorable revenue mix with a greater emphasis on fee-based recurring revenues. In fact, since 2007, we have increased the proportion of fee-based revenue from 52% to 59% of the segment total. Slide 16 highlights our earnings over the same period, along with the performance of the S&P 500 and U.S. three-month T-bill rates. Based on this market data, you can clearly see how challenging the environment has been for global wealth managers and their clients. As you read every day in the paper, today's environment continues to present significant near-term headwinds for our business. We also show adjusted cash earnings to highlight the fact that acquisitions result in non-cash expenses as it relates to the amortization of intangibles. This means as acquisitions become a greater focus, we will continue to generate cash earnings for capital generation and dividends from this segment that are higher than suggested by reported GAAP earnings. In response to your questions, we have also highlighted certain accounting volatility, compensation accounting, and tax adjustments which have impacted our recent results. We include on slides 57 and 58 of the appendix a detailed reconciliation of these impacts, and we are happy to address questions on those during the question period. In order to gain a clear understanding of our results, I think it is important to step back and discuss the key drivers of our financial performance, and we highlight those on slide 17. First, wealth management businesses are significantly impacted by market returns, as fee-based revenue is driven by the level of client investment assets. Now, to give you a sense of the impact, a change of 1% in equity markets at the margin would impact RBC Wealth Management's annual earnings by over $10 million. Second, interest rates are key drivers of our results. The current low rate environment, which is expected to remain for some time, results in spread compression on deposits, as well as lower fee-based revenue due to fee waivers on our U.S. money market funds. This environment significantly affects earnings, as a relatively lower cost associated with spread revenue than with transaction and fee-based revenue. Now, to help quantify the impact of the current low interest rate environment for you, a 100 basis point increase in rates is estimated to have a full-year positive after-tax impact of $130 million to $150 million in earnings. Finally, transaction revenue has been negatively impacted by reduced investor confidence driven by uncertainty in the global equity and debt markets. While some clients increase their trading activity during uncertain markets, this would be more typical of active self-directed investors rather than clients of full-service firms such as RBC Wealth Management. Turning to slide 18, which shows the relative contributions from our businesses, there are a few key takeaways from this slide. First, there are significant pre-tax margin differences among the various businesses in RBC Wealth Management. As Global Asset Management and Canadian Wealth Management are our highest margin businesses, and significantly exceed their respective industry averages, continuing to extend our lead in both of these businesses is a key element of our strategy. Secondly, you can see that higher margins in the asset management industry in general, and in RBC Global Asset Management in particular, is one of the key reasons we have focused our significant acquisition activity in this business. Finally, as you can see, we have built a very sizable business in the U.S. from a revenue perspective, and are very focused on improving operating margins, including by leveraging the capabilities of RBC and RBC Wealth Management that are not available to others in this challenging U.S. market. John Taft will expand on this further in his remarks. So that gives you a sense of our progress to date. Now I'd like to move to our growth strategy, which I'll share with you on slides 20 and 21. As highlighted, we are aiming for $2 billion in net earnings from this segment by 2015. Now we know this is a very ambitious plan, but given the dynamics of the business, including the relatively low risk and low capital intensive nature, which Gord shared with you earlier, we believe it is appropriate to set aggressive goals. We expect the growth and improvement in financial metrics to come from three main drivers, organic growth, leveraging acquisition, and market drivers. 40%-50% of our growth is expected to be organic, driven by our four largest businesses, Global Asset Management, Canadian Wealth Management, U.S. Wealth, and Global Trust, including the impact of cross-segment initiatives enabled by our integrated strategy and structure. Later in the presentation, my team and I will expand on these areas. The second key component of our growth strategy involves leveraging our acquisitions. In particular, we are building on our BlueBay acquisition, where we are already seeing some good traction. Lastly, a key part of our growth plan is driven by assumptions of improving market conditions, and this is the only element of the plan that is behind schedule. To achieve our 2015 goal, we assume that interest rates will return to a more normal level, up at least 150 basis points, and that average market returns will revert to 5% to 6% per annum. In addition to our business-specific plans on slide 22, we highlight our three global support teams who will drive cross-segment initiatives. First, we have dedicated ultra-high net worth relationship teams led by Gaye Mitchell in Canada, and Michael Lagopoulos internationally. Their mandate is to broaden and deepen relationships with existing ultra-high net worth clients and attract new ones, many of whom are re-examining their relationships with their existing financial institutions in these turbulent times. Moving to Global Wealth Services, headed by Stuart Rutledge, that team's objective is to provide best-in-class product and service support for our geographic wealth businesses in order to increase the productivity of our client-facing advisors, drive a truly excellent client experience, and develop a highly integrated client offering and a strong referral program among the different components of RBC Wealth Management and RBC. Additionally, our operations and technology team, headed by Ingrid Versnel, is building and maintaining a best-in-class technology platform and identifying global efficiency opportunities. One example of how we intend to leverage these central capabilities across our geographic businesses is shown on slide 23, which involves growing our loan book to $25 billion by 2015. We are not starting from a standing start. Since 2006, we have generated 10% annual growth in our loan book from key international markets like New York, London, and Hong Kong through our network of credit specialists and private banking relationship managers. However, the fact is most of our high net worth and ultra-high net worth clients do not currently borrow from us. If you look at our overall loan book, it represents only about 2% of our client assets. When we benchmark that against our global peers, the global peer average is more like 5% to 7%. So we see opportunities for growth in this area, particularly because extending credit is an important component in comprehensive wealth management offering. Additionally, we like this business as margins are healthy, credit quality is extremely strong, and offering credit solutions has proven to strengthen the overall client relationship. This credit initiative, coordinated through our Global Wealth Services group, is just one of a number of initiatives including both revenue and cost programs that are being implemented among and across our businesses and support groups with specific action plans and monitoring to ensure we stay on track for this element of our 2015 goal. Furthermore, we are motivated to stay on track. Our senior leadership team, comprised of more than 50 key members of our different business and support groups, are directly engaged in the overall success of RBC Wealth Management, not just their individual unit, with 50% of their deferred compensation tied to the growth of our segment's bottom line. As mentioned earlier, leveraging acquisitions is a key element, key driver of our growth strategy. So let me take a few moments to demonstrate our track record of success in this area by focusing on Phillips, Hager, and North. As you will see on slide 24, this acquisition has been successful as measured by our strategic and financial objectives at the time of the acquisition. In just three years, we have almost doubled PH&N's retail assets under management to over $15 billion. That's a significant component of RBC Global Asset Management's overall number one position in the fund industry. Most of this growth has been driven by net new sales. The acquisition gave us a leadership position in the Canadian institutional market and brought us the management talent to integrate our U.S. institutional business and create a global platform. It also made us the number one overall fund company in Canada. From a financial perspective, we are pleased with the contribution from PH&N, especially within the context of the market and economic conditions seen over the last few years. We have generated a return on investment of 8%, which will continue to grow over time given the nature of this business. Our pre-tax margins are over 50%, which as you saw on slide 18, is significantly higher than the industry average for asset managers, and our talent retention and attraction has been excellent. One of the reasons this acquisition was successful was the seamless integration that occurred between PH&N and RBC Asset Management under the leadership of John Montalbano. As John will discuss soon, we are already seeing similar success with our BlueBay acquisition. Going forward, we look to further expand our asset management capabilities through strategic acquisitions. As Gord mentioned, we have the financial flexibility and the strength to benefit from disruptions in the market, and we will take our time and be opportunistic in the current environment. With that, I'm going to turn it over to John Montalbano, who will discuss our global asset management business. Thank you, George, and good morning, everyone. I'm pleased to be here today to discuss our strategy to continue building our position as a global leader in asset management. As you can see, I'm a lot shorter than both Gord and George, so I'm going to overcompensate by making my presentation a hell of a lot longer than theirs. We've undergone quite a transformation in the last several years, and as you'll see on slide 26, in 2007, we were already a leading Canadian asset manager with close to CAD 90 billion in assets under management. In four short years, we've expanded our capabilities through both strong organic growth and key strategic acquisitions. We now have more than CAD 250 billion in retail and institutional assets under management, and that's done globally. On slide 27, you can see that we have a proven history of strong financial performance and have continued to deliver shareholder value notwithstanding the tough market conditions experienced over the last few years. Our scale and scope are key differentiators when it comes to operating efficiency. As George highlighted, in a recent industry study, we were ranked in the top tier for profitability, and we are in fact 1.5 times more profitable than the industry average. This translates into an extremely attractive business for RBC Wealth Management, since our asset management business delivers approximately 45% of the segment's earnings. Turning to slide 28, let me highlight some of the key drivers of success for asset management, how are we performing relative to those drivers, and why we continue to succeed and deliver value to our clients and to our shareholders. First, delivering strong and consistent investment performance is critical to any manager's success, and it is something that I believe we do well. We are invested carefully in talented and dedicated people, as well as the resources they depend on to deliver value to clients. Our funds have a strong track record of industry-leading performance, with over 70% of assets under management either having first or second quartile performance over the past 10 years. We have consistently been recognized by Lipper with the award for best overall fund family in Canada, going to RBC or PH&N in four of the last five years. Client service and strong relationships with distribution partners are also key drivers of success. Our commitment to delivering excellent service to our clients is a core value. As a result, institutional clients and consultants have rated PH&N top quartile in terms of quality of service for the past five years. At RBC Asset Management, the legacy mutual fund business, we continue to experience among the lowest redemption rates in the industry at 1.1% of assets under management. Growing and retaining assets is, of course, a critical component of success, and we are growing our long-term assets faster than the overall investment fund industry. Our long-term asset growth has grown 15% over the past 12 months as compared to the industry at 11%, and our sales were broadly based across our entire fund family. We benefit from our strong relationships across RBC's multi-channel distribution network, the largest in Canada. RBC's retail branch network is a powerful and valued partner to us, with 75% of our sales coming directly from Canadian banking as a whole. We also work closely with all advice-based distribution channels within RBC, including Dominion Securities, RBC PH&N Private Counsel, and other international wealth investors. As I will discuss momentarily, a wonderful opportunity exists for us to deepen our relationships across the entire RBC network. We are fortunate that RBC Global Asset Management's overall asset mix as a business is well-balanced between equities and fixed income, to the extent that volatility has a relatively benign impact on our mid to long-term financial performance, allowing us to confidently extend our view in the management of the business. For example, balance funds represent 29% of our long-term assets versus the industry average of 22%. Our commitment to meeting the evolving needs of our investors with new and innovative investment solutions ensures that our fund offerings remain relevant. This is a great strength of ours, and over the last 10 years, we have significantly expanded our capabilities across all asset classes and portfolio solutions. Our recent launch of laddered bond ETFs speaks to our ability to enter into new areas of opportunities with minimal risk to our financial position. In this case, we worked closely with Dominion Securities, RBC Capital Markets, and RBC Direct Investing to fully understand the inherent size of the opportunity, as well as the operational and financial investments required to make a sustainable entrance into the ETF space. Final key driver is cost management, and cost management is of utmost importance to us as we plan for significant growth. Our growth projections include the maintenance of our profit margins well above industry averages. I want to convey that our ambitious growth plans will not be at the expense of eroding shareholder value. Moving to slide 29, today, our asset management business benefits from a very diverse client base. We manage money for more than 2 million Canadians and well over 500 institutions around the world. Over the past few years, we have grown the size of our business, but have also broadened our geographic investment coverage. We will continue to enhance our global product suite to meet the needs of our clients in Canada, the U.S., Europe, Latin America, and Asia. I'd now like to spend a little bit of time discussing the specific businesses within Global Asset Management, and ultimately, there are three. We have industry-leading retail capabilities in Canada, a strong presence in the North American institutional market, and a growing global capability to target institutional and high-net-worth client segments. Let's start with our retail business on slide 30. In Canada, given our distribution and product strength, we have a leading retail capability that has established us as the largest fund company with 15% market share and more than CAD 110 billion of assets under management. Our strength in Canada is driven by having the largest and most integrated advice-based retail distribution network. With unrivaled breadth in our dedicated retail sales force, investment and retirement planners, as well as licensed professionals in branches and call center roles, we have the ability to collaborate across all businesses and to serve all client segments through multiple distribution channels, including RBC self-directed platform, RBC Direct Investing. As you can see, our ability to grow long-term Canadian mutual funds is demonstrated on slide 31. Since the markets bottomed in 2009, investors have continued to shift their allocations back towards long-term funds. RBC Global Asset Management has been able to capture a disproportionate share, over 25%, of industry long-term sales since 2009. I must also convey that those long-term assets have significantly greater margins than traditional short-term fixed income. Our focus on extending our Canadian retail strength using both our RBC and PH&N fund families to reach all client segments through our multiple distribution channels will be critical to our success going forward. Turning to slide 32, the addition of Voyageur Asset Management in the U.S. and Phillips, Hager & North in Canada has enabled us to broaden and grow our institutional client base across North America. And recently, we have launched a Luxembourg-based fund family to capitalize on existing opportunities with offshore institutional investors. We are an institutional leader in Canada of fixed income and liability-driven investment solutions, which is an area with strong growth prospects. Today, more than ever, institutional investors look to match their investment strategies with their anticipated liabilities. Our institutional capabilities also include core and tailored investment solutions, as well as alternative capabilities and portable alpha strategies. Turning to slide 33. Looking at our international asset management capabilities, our combination with BlueBay Asset Management was a significant step in building our global business. As you know, BlueBay is a U.K.-based leading global fixed income firm specializing in corporate credit and emerging market debt with both long-only and alternative capabilities. BlueBay brings new institutional clients along with a sales team that has established broad relationships across 35 countries, primarily in the U.K., Europe, and Asia, which will help further expand RBC's geographic reach. We are very pleased to be able to offer the internationally recognized experience and expertise of BlueBay Asset Management to RBC's clients and prospective Canadian investors, and also investors abroad. BlueBay offers investors the ability to diversify income sources and access investment opportunities, particularly in emerging markets. BlueBay's industry-leading product development capabilities are a great fit with RBC Global Asset Management, as we have been able to provide seed capital for the development of new innovative products for delivery within the RBC network in Canada, the U.S., and abroad. On slide 34, you can see that there are significant opportunities to introduce and increase GAM's products in RBC's distribution channels. Currently, only 20% of the long-term assets administered by Canadian, U.S., and international wealth management businesses are managed by RBC Global Asset Management. For some of our global competitors, this figure is 30% or more. In our Canadian wealth management business, we have achieved significant success, increasing long-term fund share to 44% from zero in just over a decade. This is a clear opportunity for us to further increase the proportion of RBC-managed products that are used by our wealth management advisors and clients, especially in our U.S. and international businesses. Obviously, these opportunities must earn the confidence of clients with world-class investment performance and service. Lastly, turning to slide 35 and to summarize going forward. We are focused on growing our worldwide presence by building a global high-performing asset management firm. First and foremost, through increased collaboration with our RBC partners in Canadian banking, insurance, and capital markets, we are leveraging the breadth and depth of RBC's capabilities to provide value-added services and solutions to both individuals and institutional clients. On the Canadian retail investment fund side, we are looking to capitalize on retirement trends and the increased demand for income-generating products. With our strong capabilities in providing retirement-oriented solutions, we have already begun to see the benefits, as evidenced by the success of our long-term fund sales. In addition to our opportunities to further our ties with existing RBC clients at RBC, as I've discussed, we have also made significant investments in people and services to meaningfully increase our share of the third-party investment advisor channel. In 2011, we hit a record $2 billion in gross sales with third-party advisors outside of the RBC network. On the institutional side, we are focused on increasing our market share by strategically adding depth of expertise and broadening our range of mandates through the collaboration of RBC, PH&N, and BlueBay across the entire organization. In the U.S., we're looking to grow institutional market share by accelerating BlueBay's growth and further partnering with RBC Capital Markets to provide customized products to serve the unique needs of RBC clients. Globally, as mentioned, we are focused on building our non-North American asset management capabilities by broadening the breadth of our product suite and service offering to serve the needs of our rapidly growing global wealth businesses. Clearly, we have a lot of organic growth potential, but to reach our top 50 goal in this high margin, low capital intensive business, we look to further expand our asset management capabilities through strategic acquisitions. This concludes my formal remarks, and I wish to thank you for your attention. Now I'll pass over to you, John Taft, to go over our U.S. wealth management business. Thank you. Thank you, John. Good morning, everyone. It's my pleasure to be here this morning to talk about our wealth management business in the U.S. As you can see on slide 37, our private client group, which we call PCG, is our largest business and has evolved to become the sixth largest full service national advisory firm by financial advisors, and the seventh largest wealth manager as measured by assets in the U.S. We achieved this through top tier growth over the last decade that has enabled us to become a truly national firm through both acquisitions and strong recruiting. I should note that we had exceptionally strong recruiting through the financial crisis, as record levels of top performing advisors were attracted to the strength and stability of RBC, as well as to the breadth of our wealth management capabilities. In fact, we recruited advisors with $200 million in production during this period, starting in the middle of 2008. To be a global leader in wealth management, it is critical to have a meaningful presence in the United States. We have established this presence and have broad coverage with advisors serving clients in 42 states. With the growth we have experienced, PCG has achieved the scale necessary to compete with the larger, more traditional U.S. brokerages, and we continue to differentiate ourselves in the market with our high quality service and with the breadth of our product offerings backed by the strength of RBC. Our success is driven by our unique combination of a small firm culture alongside the resources of a global financial institution, and this is extremely attractive to both clients and to advisors. Most recently, J.D. Power and Associates awarded us top marks for overall investor satisfaction, a significant accomplishment and a testament to our progress in the U.S. Now that we have achieved scale in our PCG business, our key objective is to improve productivity and efficiency. On slide 38, you'll see that RBC Wealth Management US is also comprised of two other complementary businesses, International Wealth and Correspondent and Advisor Services or CAS. Together with PCG, these businesses create a powerful distribution network for us to deliver advice and services to our clients. Each of these businesses deliver full service wealth management advice, products, and services to clients, either directly through RBC client-facing advisors, or indirectly through correspondent brokers or registered investment advisors that work with CAS clients. Our international wealth business was moved into Wealth Management US as part of our transformation just over a year ago, and is an important business for us, given the increased interest from foreign clients who are attracted to the strength and stability of RBC. Going forward, we see opportunities for increased collaboration between this business, and our largest business, PCG. Our Correspondent and Advisor Services business partners with independent broker dealers and independent RIAs. These firms and RIAs work with RBC to leverage our back office systems, products, and services in order to serve their client needs. Since the end of 2008, assets administered by CAS financial advisors have grown from $22 billion to $36 billion at the end of the third quarter. This increase was driven in part by the acquisition of JP Morgan's RIA business by business development and by market growth. Turning to slide 39. As you can see, we have been growing our assets under administration and improving our revenue per financial advisor. As George mentioned, we have a significant opportunity to improve our profitability, although we do not expect to reach the same performance levels as our Canadian brokerage business, as the U.S. industry dynamics are significantly different. For example, in Canada, clients tend to consolidate their business with a single advisor, whereas in the U.S., clients tend to spread their investments across multiple brokerage firms and advisors. Our focus for growth in the U.S. is on gaining a greater share of wallet by becoming a primary advisors. Clients with whom we have a primary advisor relationship will do more business with us than with any other financial institution. We have made significant progress as our share of wallet has steadily improved from 50% in 2004 to 63% in 2010. The likelihood of one of our clients referring their financial advisor has gone from 59% to 79% over the same period. This focus over the next four years will help drive revenue per advisor from our current level of approximately $630,000 to over $1 million. We will achieve this through increasing advisor productivity, which I will touch on a little later. Improvements in pre-tax margin will again be driven by our shift from growing advisors to retaining advisors, improving productivity, and increasing operating efficiencies. An improvement of five percentage points to our pre-tax margin from 8% to 13% would add approximately $45 million to our earnings. Turning to slide 40, we have a focused strategy to improve our pre-tax margins and profitability that centers on four key areas: increasing advisor productivity, improving operational efficiencies, leveraging RBC's capabilities, and growing our complementary distribution channels. To increase advisor productivity, including revenue per advisor, we have taken steps to grow fee-based assets by simplifying our pricing, developing more packaged solutions, using technology to make it easier for financial advisors to do business. We are also enhancing our suite of credit and cash solutions to allow us to deepen our client relationships, which is one of the drivers of share of wallet, which I talked about earlier. We also offer advisors innovative practice development programs to help them improve their productivity. The more time a financial advisor has, the more time they can spend with clients, which improves client satisfaction. These programs have been designed to assist different segments of financial advisors, depending on what level they are at in their career. For example, FA Forward is a program that helps take our lower producing financial advisors to the next level. Jumpstart targets financial advisors with $500,000 in production to $1 million in production and focuses on segmenting their book to help them focus on more profitable business and on client planning. Top Gun is designed for our high-end financial advisors, where they focus on team effectiveness as well as book management and business planning. We are continuing to invest extensively in technology to automate processes as well as implement client relationship management tools that enable advisors to service their clients more efficiently. For example, we have reduced the number of potential manual touch points in our wire transfer process down to 8 from 23. This is all about freeing up time for advisors and support staff so that they can focus less on administrative tasks and more on their clients. By collaborating across our businesses, we have been able to develop innovative investment solutions for our clients, as well as to grow our complementary distribution channels to scale. For example, CAS is now leveraging the practice management tools developed for PCG to help its clients, and therefore grow its own revenues. We are also focused on leveraging existing RBC relationships. For example, we have created and are aggressively growing an institutional middle markets fixed income joint venture with RBC Capital Markets, in which advisors sitting in PCG branches serve the needs of tier 2, tier 3, and tier 4 institutional clients that are below RBC Capital Markets target client market. Finally, we are looking at additional bolt-on acquisitions for CAS similar to the JP Morgan acquisition to further grow this attractive business. In our international wealth business, we are increasing the number of advisors and relationship managers to continue to expand our presence and serve foreign clients. Additionally, we are analyzing our capabilities with the intent of introducing them to our private client group where it makes sense. We are setting up a referral process between PCG and our international wealth business in an effort to better serve and retain those clients with more sophisticated needs. In conclusion, I am extremely pleased with our progress. We have achieved significant scale, and we have a clear plan for future growth. We are shifting from growing or acquiring advisors to retaining advisors, and we are focusing on driving improved productivity to revenue of $1 million per advisor. We are focused on achieving efficiencies to drive stronger operating performance measured primarily by pre-tax operating margins. With that, I'll now hand it back to George to talk about our other businesses, starting with Global Trust and Wealth Management UK. Thank you. Thank you, John and John. Turning to slide 42, as I mentioned earlier, as part of our transformation in 2010, we have established a separate Global Trust business headed by Paul Patterson to highlight our world-class trust capabilities, which is a key differentiator of our client offering, particularly outside North America. Our value proposition of providing integrated wealth management solutions through teams of professionals with complementary expertise is unmatched in this industry. By leveraging our world-class trust capabilities, we are also building our wealth management business in the U.K. with a focus on both domestic clients as well as our traditional base of international clients with interests in the U.K. As you can see from slide 43, we enjoy a very diverse revenue stream driven by our ability to serve an international client base in our Global Trust business. International high and ultra-high net worth individuals value our diversified product offering, multi-jurisdictional wealth management planning capabilities, and our differentiated value proposition, all of which provide us a clear competitive advantage. Importantly, given an environment of increasing global regulation, our strength in professional tax planning and expertise in structuring onshore and offshore affairs provides our clients with the sound advice they are looking for in managing their global wealth. In recognition of our success, the Society of Trust and Estate Practitioners recently awarded us Institutional Trust Team of the Year. Turning to slide 44, Global Trust's growth plans involve increasing market share and strengthening existing client relationships and improving overall efficiency. First, in order to grow market share, we are expanding our product offering to develop solutions for more clients across the RBC Wealth Management segment. International clients continue to value offshore jurisdictions for their wealth solutions, and we are targeting clients in both developed and increasingly in emerging markets. In markets such as Eastern Europe and the Middle East, for example, we are building client relationships as these clients are drawn to stable, transparent, and regulated financial centers in order to protect their wealth for future generations. The second key to our growth is broadening client relationships. Clients value our approach, accessing the full complement of wealth management solutions through one touch point in this business, their primary relationship manager. We intend to support our growth by improving our processes, making it easier for clients and our professionals to transact business while driving our costs lower. To do this, we have created centers of excellence to take administrative and non-client-facing responsibilities away from our client-facing professionals in order to increase their time with clients. In addition, we are investing in technology to transform and improve our overall operational processes and business efficiency. We are also investing in our people and solutions to improve the client experience and make our client professionals more productive. For example, we recently streamlined our client onboarding process. Finally, to be a truly global wealth and asset manager, you need a significant presence in the U.K., which contains 10% of the world's wealth, with ultra-high net worth clients representing one of its fastest-growing segments. At present, the U.K. is a very fragmented market, one with no clear leader and many small and medium-sized players. In fact, the largest player in the U.K. has only one-third of the assets of our Canadian wealth management business. Now, while many of our European and U.K. competitors are focused on shoring up capital and strengthening their balance sheets, our strong financial position sets us apart and gives us a tremendous opportunity. Leveraging the strength and capabilities of our Global Trust and Global Asset Management business will also help build our U.K. business. Our U.K. growth plan begins with organic growth. We currently have 30 relationship managers in the U.K., and we intend to actively recruit another 70 over the next five years. These individuals work with our investment, trust, tax, credit, and banking teams to attract and retain clients and broaden our business. As we learn more about the onshore wealth management market in the U.K., and as the competitive and regulatory environment there evolves, we would be open to a complementary acquisition to accelerate our growth in this market. At the same time, we are also making significant enhancements to our existing product offerings to better service our U.K. clients by building on the strength of our current offering, which is predominantly focused on clients with international needs. With that, I would now like to discuss our Canadian business on slide 46. First, we are the largest and most comprehensive wealth manager in Canada, and we intend and are continuing to build on our leading positions. Our domestic wealth management business includes our full-service brokerage, Dominion Securities, our discretionary investment counselor, PH&N Investment Counsel, and our estate and trust services business. We also have an international wealth business to service non-resident clients who wish to diversify their wealth geographically and use Canada as a jurisdiction. This is similar to the international wealth business that John Taft spoke about in the U.S. This is an important business for us, and increasingly we are seeing more interest as foreign investors are attracted to the strength and stability of Canada and RBC. The success of our Canadian business is clearly demonstrated by our financial performance, which you will see on slide 47. Dave Agnew and his Canadian Wealth Management team have continued to grow client assets, notwithstanding market headwinds, and continue to improve advisor productivity as measured by revenue per investment advisor. In fact, our Dominion Securities advisor productivity is approximately 35% higher when compared to the average of our bank-owned peers. As John Montalbano highlighted, we have significantly expanded our product offering in Global Asset Management, which has had notable benefits for Wealth Management Canada. We have also further developed the wealth management offering within Wealth Management Canada itself. What separates RBC from our peers and continues to lead to market share gains is our ability to go well beyond traditional investments through collaboration with our partners across the organization to offer clients a full suite of wealth management products and services for all their needs. Our experienced and professional staff are qualified to provide comprehensive tax, retirement, banking, credit, and estate planning for both our personal and commercial clients. This has helped us successfully grow RBC's overall share of the high net worth client segment in Canada to 17% today from 15% in the 2008-2009 period, making us the clear leader in this market, but also closer to our 2015 goal of 20%. We continue to target and grow our high net worth client base through our strong cross-sell ability and referral programs, and by leveraging common infrastructure and technologies. To give you just one example of that, Canadian banking, through its in-branch private bankers and mobile investment and retirement planners, have referred over $3 billion in business to RBC Wealth Management year to date, a considerable increase from prior years. These referrals followed from an assessment of the client's home of best fit, where our partners in Canadian banking determined that some client needs were more complex than what could be served through the branch channel. We are focused on improving these collaborative efforts, but before I go into those details, let me provide some insights into the strengths of our Canadian wealth management business on slide 48. First is our ability to attract and retain clients. Advisors and clients choose to do business with us because we offer best-in-class products and services. This is demonstrated by our ability to attract new clients and our number one market position across all of our Canadian businesses. In addition, our DS client satisfaction and likely to recommend surveys show that the majority of our clients are satisfied with the service they receive from their advisor, and importantly, 53% are willing to recommend our services, which is an extremely high score. This underlies the second reason we are winning in Canada, a strong value proposition. It's based on an integrated service approach in making Wealth Management Canada an exceptional place for our clients to do business, and importantly, for our investment advisors to grow their business. This includes our ability to attract high producing advisors, which is fundamental to our growth in client relationships. When attracting competitive hires, we offer many advantages, including the backing and full support of RBC, as well as reinvestment in Wealth Management Canada businesses. Secondly, our wide range of investment solutions backed by the expertise of RBC's two global businesses, RBC Global Asset Management and RBC Capital Markets, unique among our Canadian-owned peers. Our deep resources in wealth management services, the breadth and strength of our training program, and the strengths of our partnerships across RBC and cross-platform collaboration. This shows through in high advisor satisfaction rankings, which are important in retaining and recruiting advisors. In the Investment Executive's recent brokerage report card, investment advisors ranked DS number one overall for the fifth year in a row compared to all other bank-owned brokerages. In addition, RBC's brand market position and strong financial results also support our recruiting efforts and ensure that we will continue to attract top talent. Given the strength and momentum of our existing business and our ability to attract top talent from the competition, we are not focused on acquisitions in this area of RBC Wealth Management. We have made significant investments and dedicated resources over the past 10 years to become the leader in comprehensive services for high and ultra-high net worth individuals and their families. For example, we created a group called Wealth Management Services, specifically to help advisors offer value-added services beyond money management and more oriented towards tax and estate planning. We have a broad base of 150 wealth management services professionals, which is industry-leading. They are a dedicated cross-Canada group of accredited professionals who serve investment advisors, investment counselors, and private bankers in providing customized, unique add-on wealth management solutions to clients, making sure we offer an all-inclusive wealth offering, and we've seen significant success with this approach. For example, more than a third of our clients have a full RBC Wealth Management financial plan, and the percentage of assets held with RBC increases when our teams have implemented and prepared this plan. In addition, close to 45% of our clients receive some form of wealth management advice in areas like estate, tax, and retirement planning, in addition to the investment advice that they receive from their RBC Wealth Management advisor. Slide 49 demonstrates the breadth and depth of RBC's wealth offerings and distribution in Canada with all client segments covered by either RBC Wealth Management or Canadian banking and universal access to the products and solutions of RBC Global Asset Management. A significant component in achieving our 2015 objective is gaining greater market share in Canada in the high and ultra-high net worth segment. For example, there are over 560,000 high net worth households in Canada who represent close to 60% of investable assets and deposits. Turning to slide 50, we hope to extend our lead in the high and ultra-high net worth segment by focusing on three key areas. First, we have a significant opportunity to further collaborate and grow referrals to uncover wealth in our client base and grow market share. For example, we recently identified over 10,000 potential high net worth clients that reside in Canadian banking who do not yet have an investment trust or a broader wealth management relationship with RBC Wealth Management. A strong referral relationship with our banking partners is integral to our growth strategy, and we have a number of key drivers and initiatives underway to drive this growth. To give you an example, we are seeing tremendous opportunity in the estate and trust industry as global demographics shift towards aging populations. According to Investor Economics, it is estimated that over CAD 700 billion of wealth in Canada will be transferred over the next ten years. To capitalize on this trend, we developed the RBC Estate Experience program to help our advisors in Canadian banking and wealth management work together to better service our clients and retain a greater proportion of assets in motion. We are seeing tremendous success. In 2004, this initiative accounted for 5% of our estate and trust revenue, and this is now close to 25%. We are also further strengthening our partnerships through two-way referral programs to anchor client relationships with RBC to an even greater extent, and this increases client loyalty and ensures all their financial needs are managed in-house. This year, Dave Agnew and his Canadian wealth management team launched a Back to the Bank initiative with Canadian banking. Since its start, we have made more than 7,000 referrals from RBC Wealth Management to retail banking and close to 1,000 referrals to commercial banking, which led to new business for our Canadian banking segment. We also continue to work closely with RBC Capital Markets in referring ultra-high net worth clients, many of whom are business owners who require investment banking advice. Secondly, we will continue to attract top talent and expect to continue to grow the number of client-facing advisors at roughly 40 advisors per year, consistent with our pace over the last five years. These high-performing advisors bring in approximately $30 million of revenue annually, which continues to grow as they introduce their clients to our investment and wealth management solutions and full slate of products and services. At the same time, we often see about 15 of our advisors retire annually, but we have a strong track record for retaining those assets, as retirees typically transfer their book of business to highly qualified colleagues. Lastly, we will expand our product solution set, including credit and insurance, leverage RBC Global Asset Management's expanding capabilities for our high-net worth segment, and develop additional services and support. We will continue to generate strong organic growth and aim to increase RBC's overall market share of the high-net worth segment in Canada. Over the last few years, as I mentioned, we've made significant progress increasing our share from 15% to 17%, and our objective is to be at 20% by 2015. Because of this effort, we expect Canadian wealth management business will be a significant driver of RBC Wealth Management's overall organic growth to 2015. Turning to slide 52. You've heard about our strong, established businesses, but in addition to those, we are continually looking ahead for growth opportunities, including our longer-term strategy to build in emerging markets. As you can see, our strategy for emerging markets vary slightly depending on each region and our capabilities and history of operating in each of these markets. In the case of Latin America, we are building on the strength and expertise acquired over the last century of RBC's operations there. In Europe, the Middle East, and Africa, we are expanding our distribution capabilities and our market footprint. As you may have heard, we have just acquired a small Swiss-based, U.S.-registered investment advisor to join our high-performing business based in Geneva, from which we cover this region. In Asia, which is a relatively newer region for us from a wealth perspective, we are focused on building scalable infrastructure to support future growth. Across all of these regions in emerging markets, we are focused on building an integrated offering for our high and ultra-high net worth clients and have a strong leadership team in place to oversee our emerging market strategy led by Barend Janssens, based in Singapore. In conclusion, as you've heard this morning, we're very committed to our goal of building a leading global wealth and asset manager, and we have a comprehensive and detailed plan to help us achieve our objectives. As we highlighted, our businesses are facing significant headwinds in the current environment. But notwithstanding these pressures, we are focused on executing our long-term strategy, which will deliver value to RBC shareholders. To recap, asset management is a key business for us, representing roughly 45% of our segment's earnings, and we intend to continue growing this business into a global high-performing asset manager by leveraging acquisitions, enhancing the penetration of our global asset management solutions in each of our geographic wealth businesses, and capitalizing on retirement trends in developed markets. Second, we are focused on expanding our high and ultra-high net worth client market share across all of our businesses. We have identified significant untapped high net worth client opportunities domestically and also outside of Canada. As you have heard today, RBC's capabilities are extremely well suited to this growing global client base. Finally, we believe we can leverage RBC and RBC Wealth Management to drive productivity in the U.S., grow and improve efficiencies in Global Trust, and provide clients with unmatched products and services, and capitalize on the strength, stability, and brand of RBC, which is unique in the world. With that, I am very pleased to open it up for questions and answers, and thank you for your attention so far. Yes. Hey, good morning. I counted the word acquisition about 14 times in the commentary. We were targeting 20, but that is okay. Okay. I just made that up. In your 2015 objective, you are estimating 20%-30% of that growth comes from acquisitions and part of it from improved performance out of BlueBay. Can you explain that part a little bit? If I just look at the number of earnings that implies about $300 million. That would translate into a fairly sizable commitment towards acquisitions, $3 billion-$4 billion perhaps. Can you tell me if I am right or wrong on that kind of budgeting? Yeah, let me clarify. In terms of that second component of our 2015 growth plan, that is what we expect from leveraging our acquisitions that we have made to date. So we anticipate significant growth from BlueBay and other acquisitions that we make continuing with PH&N in terms of the Global Asset Management component. BlueBay is a very fast-growing business with exceptional investment management capabilities in European and emerging market fixed income. So we expect that to be a significant component of our growth. You should not read into that basically a dollar figure in terms of acquisitions going forward. We are focused on small to medium-sized acquisition opportunities that John Montalbano spoke to in our asset management business. We are open to acquisitions in our emerging markets and Wealth Management UK areas to bolster our growth there, but we have not built those explicitly into our forecasts. I think, as I mentioned, in terms of those three components, organic growth, acquisitions, and market drivers, clearly market drivers are the ones that are giving us the most cause for concern at the moment in terms of meeting our 2015 objectives. At the same time, those same market drivers, to the extent that they negatively impact the performance of our competitors in peer businesses globally, may present some attractive acquisition opportunities for us as well. Okay. Just switching gears towards expenses. I know across the bank there is the cost planning for 2012 and beyond. A lot of the focus is on Canadian retail. How does that whole exercise impact the wealth management segment as far as targeting efficiency and any firm guidance you can provide on cost reduction next year? Or is it not as big an issue for wealth management as it is for some of the other segments? No, I think it is important to recognize that this is a cost program across all of RBC, and certainly from a wealth management perspective, we also had a similar focus in the 2007 and 2008 program in terms of participating in the overall RBC cost focus as part of that three-year initiative, and we will be definitely a part of this as well. From my perspective, it is totally consistent with what we are trying to achieve within the RBC Wealth Management segment. When we speak of organic growth, that includes both a revenue pickup and opportunities on the cost side. So you will see that as part of our total. Just give me a last question here, and I'll bring it to you. The loan products that you're looking to cross-sell into your high net worth client base, are these just regular loans that just don't go into the retail segment? They're mortgages for really high net worth people, or is it margin lending? What kind of activities are we talking about? Yeah. Included in our totals for the RBC Wealth Management segment, obviously, those are loans that we make primarily outside of Canada because most of the loans that we would make in Canada would be booked within our Canadian banking segment. So that credit book, and maybe I'll ask Stuart to talk a little bit more about our growth in that area, is basically overwhelmingly secured by liquid investment assets on the one hand. We also have clients, particularly in our Global Trust business, who are presenting us with attractive opportunities to lend against those assets as well. It's an area where, as I mentioned in the presentation, where we compare ourselves against our high net worth and ultra-high net worth global wealth management peers. We are under-penetrated, and we think there's a significant opportunity. But Stuart, do you want to add to that? Just the only thing I'd add onto it would be it is across an entire loan book. So it would include margin lending, would include traditional lending. Certainly when we look for some of the greater opportunities going forward, our ultra-high net worth clients present one of the greatest opportunities for us in terms of penetrating the loan book further. So it's broad-based. It's largely outside of Canada and very much focused on high net worth and ultra-high net worth clients. Okay, thanks. Over here. Darko and then Michael. Thank you. It's Darko from Cormark. Question, I think this is for John Taft. With respect to the margins that your pre-tax margin currently sitting around 8%, U.S. business is around industry average is around 9%. A couple of things you mentioned during your presentation is that you don't expect the industry in the U.S. could possibly get to the levels of margins you see in Canada. Can you explain why that would be? Secondly, you mentioned that your pre-tax margin, if you went from 8% to 13%, it would be $45 million of earnings. Is that, in fact, your target? Finally, you mentioned that you're already at scale, and yet your revenue per advisor is much less than that of the U.S. Could you get to, say, like a 13% pre-tax margin without actually increasing your revenue per advisor? I guess the bottom line of that question is, are grids different in the U.S. versus that of Canada? Thanks. I'm sorry, what's the last part? Our grids? As in compensation grids? Differences between the U.S. and Canadian private client businesses that suppress margins in the U.S. versus Canada would include, just to start, the competition. There are literally thousands of brokerage firms and registered investment advisors competing for a share of the affluent and high net worth market in the United States versus a much smaller competitor set in Canada. That then plays out in economics of the business in several different ways. The pricing on products is much different. What clients are willing to pay you for comparable products is less in the U.S. than it is in Canada. Secondly, the war for talent, both what it takes to recruit new advisors and the turnover, the attrition of advisors moving to other firms is much greater. So you have significantly higher turnover in your advisor force, which is very expensive. Third, there is an enormous difference in the litigation expenses as a percentage of overall revenues in the U.S. versus in Canada. We are much more litigious, and our costs in that area are higher. I would say those are three characteristics of the U.S. market that suppress margins relative to the Canadian business. I think you asked me, secondly, whether 13% was, in fact, our target. No. We have an aspirational goal of 20% for the U.S. private client business. The U.S. private client business, I would say the range in the industry has been between 5% and 15%, generally, and we are in the middle of that range. What is both keeping us from doing better as an industry in the U.S. right now and what would be required in order to get to 20% would be a return to normalized short-term interest rates. Because in a normalized operating environment, it is your money market, your returns on the cash deposits, and net interest income that accounts for 70%-80% of your profitability. Unless we get that back, it is going to be hard to get to 20%. But with that back, 20% is achievable, and that is an aspirational goal. Your last question is, you talked about scale, and then you talked about productivity. They are separate things. With about 2,050 advisors today. With that kind of advisor force in the U.S., given the fact that we operate that inside the larger wealth management enterprise, and are able to leverage technology resources, legal resources. All the functional operations and technology resources at the platform level. 2,050 advisors is large enough to realize efficiencies of scale sufficient to compete with the larger firms. But we are not going to get to our aspirational margin targets unless we increase productivity per advisor. That is next to a return to normalized interest rates, getting our revenues per advisor up to $1 million per advisor, i.e., up to what Dominion Securities is currently generating, is the key to hitting our margin targets in the U.S. The only thing I would add onto that is that when we have looked at businesses such as John's or the one we have in Canada or anywhere around the world, but particularly in the U.S., John's point about revenue per investment advisor being the single most important determinant of pre-tax margins is absolutely true. You see firms with 20,000 having lower margins, some firms with 5,000 having higher, some smaller firms having higher, lower. So it is all over the map in terms of size. The single biggest important thing is revenue per advisor, which is why we are focused on that. Michael? Thanks. Michael Goldberg, Desjardins Securities. I am just curious, you mentioned that your loans are 2% of assets versus 5%-7% of peers. Do you have any idea why that is the case? Well, I think the simple answer is that we have historically focused in our businesses, both in the U.S. and internationally, where we view the most credit opportunity within RBC Wealth Management to be primarily on investments on the one hand and our trust solutions on the other. As clients, and we see client opportunities to add in a broader wealth management offering, which includes credit and banking, that is something where we see a gap versus our global peers that we operate against, and it is one that we are fairly confident in our ability to close over the next five years, particularly as some of those global peers may be impacted by the need to deleverage. We are seeing some significant opportunities. That was one of the ones that we wanted to highlight is where we are not performing as well as our global peers and where we think we can close the gap. It is simply a matter of focus. It has nothing to do with the idiosyncratic factors of the peers that you are thinking of? No. Okay. Had another question, and I guess this is for John Montalbano, if I can. You mentioned the liability-driven investors briefly. What are you doing to penetrate this market? Right now, the defined benefit space is in a lot of turmoil, clearly with capital market returns and how low interest rates are. One of the positions that we're in right now is to be effectively having a seat at the table with many plan sponsors who are struggling with their solvency deficiencies. Given our leadership position in the fixed income space, and given a number of our models that we have in place that can actually customize a solution for a particular plan sponsor, we're able to map out a liability-driven solution for them at existing interest rate levels, and as interest rates back up and further make it less expensive, ultimately, for an organization to embrace an asset liability structure. It's really having the credibility to have plan sponsors and consultants come to us directly and utilize our services for matching effectively their obligations or liabilities going forward. It's a significant portion of our growth right now, I would say, is mid to long-term bonds, just matching up duration with retired lives and, to some extent, active lives with a plan over the course of the next three to four years to further customize the solution to better match off the risk. That's where we're seeing a significant amount of growth right now for our business. It's primarily a fixed income driven solution. Correct. There's part two to that, though, and that's portable alpha. What a number of organizations are saying is getting to a liability matching program is exceedingly expensive, so can we port in alpha? That's where you would often use swaps to get out of certain exposures and then swap in an alpha strategy. That's one of the appeals of BlueBay, is that in BlueBay's case, it's not only a long only credit manager, it's a long-short manager with exceptional investment performance across a number of categories that make it quite appealing to port in alpha. So there was that avenue of intrigue to BlueBay's offering that would support even clients in the asset liability space. Hi. Rob Sedran, CIBC. George, just first a quick clarification question on a numbers issue. You provided an interest rate sensitivity, and thank you for that. Would that number be net of any negative from rate sensitive assets under management? Or is that number just not material? No, that would be an all-in number. To the earlier discussion, that would be net of our existing credit book, but we don't anticipate a significant decrease in margins from that book as short-term rates increase. That is an overall net number, and we would have included that in that sensitivity. Okay. Just returning to the issue of acquisitions, I know you're not going to provide a lot of granularity in terms of what you're going to buy, but can you perhaps give us a bit of a sense of a scorecard? If we're thinking about accretion dilution, if we're thinking about return on invested capital and presumably a fair bit of goodwill comes with these deals, how much dilution at a bank-wide level might we be willing to tolerate in building out this platform? Well, I won't speak to the bank-wide question, but I will speak from an RBC Wealth Management point of view because it's a very good question. We have established, noticed in that five-year growth targets, an expansion of pre-tax margins to the 30%-35% range. That would suggest we will continue our primary focus on purchasing high quality, high margin businesses, which are largely asset management related. We've also included an ROE target of being greater than 20%. That clearly requires us to leverage those acquisitions, because as you correctly highlighted, when we do an acquisition in this business, whether it's asset management or wealth management, it involves a significant amount of goodwill and intangibles, which is an immediate reduction from our Tier 1 capital. We are very focused on earning that back through earnings and cash flow generation and building back the overall segment ROE from an RBC perspective. Clearly, it's a segment of growth, and I don't know, Gordon, whether you want to comment beyond that from an RBC Wealth point of view, but we've gotten very strong support from our colleagues on group executive and the board, and that's reflected in the growth plans that we have. The only thing I would add, Rob, is Is that on? Yes. The only thing I would add, Rob, is that it would be consistent with our sort of stated objectives on any acquisition, that we would want it to be accretive in a very short period of time. We target first or second year accretion, and it would have to meet our internal rate of return objectives, which equate to our cost of capital. I would say that one of the things that we would hope for, particularly in this environment, is the goodwill component is actually decreasing relative to previous periods. We haven't necessarily seen that yet because you haven't seen a lot of activity in the space. But when you look at what's happened in the marketplace, surely, goodwill when you look at the valuation, should be at a much lower percentage. We'd like to take advantage of that from an opportunity. That's an excellent point because if you look at the trading values, and that's not necessarily indicative of acquisition prices, but the gap between the multiples at which wealth and asset managers trade globally now relative to our earnings per share multiple, the gap's never really been lower. Thanks. Steve Theriault from BofA Merrill Lynch. A couple of questions. First for John Montalbano. 51% pretax margin, pretty impressive in Global Asset Management. Is that best in class? If so, how much is the gap relative to your next closest peer? Maybe you can talk to us a little bit about what differentiates you so dramatically from the industry average. Secondly, for John Taft, switching gears a bit. Is there any material amount of referral business coming from the U.S. branches that will drop off after the sale? Any vulnerability to the pretax margin there? Thank you for your question. I won't specifically say if it's best in class or not, but it's among the best in class. I'd say there's only a handful in that category. The average that I've seen over my 20 years of experience with money management firms, whether they're independent or financially institutionally owned, is somewhere between, I'd say, 15% and 30. The question then, back to your second point, is why is it as high as it is? I think it really speaks to the power of distribution that RBC has. You've heard us discuss it to some length today, and that is if you can capitalize on that distribution channel, not only with your domestic money management business but as we think about expanding globally, one of the key aspects of any acquisition is can we utilize this money manager's capabilities through our existing channels. So that will not only minimize the risk of the acquisition, but accelerate the growth of the manager that we're acquiring and make the economics a lot more appealing. As I mentioned earlier, as we look out to 2015, which would incorporate acquisitions our expectation is that the overall margins would be maintained. On the RBC Bank referrals to U.S. Wealth Management, I would not expect the sale of RBC Bank to have a material impact on our revenues or margin in U.S. Wealth Management. The only thing I would add on to the first John's response to the first question, is that with respect to his Canadian retail asset management business that business pays distribution fees at market rates to its distribution partners, including Wealth Management Canada and Canadian banking. That exceptional pretax margin that you see from John Montalbano's business is a market-based performance. Yeah. Thanks. Sumit Malhotra, Macquarie Capital Markets. Two questions. I will start with the first one on asset management in the U.S. Thus far it seems that most of your build-out in the U.S. is focused on retail brokerage and the investment advisory network. You certainly talked a lot about asset management in Europe and Asia. I wanted to get your thoughts on what the prospect of acquisitions or organically building out your asset management business in the U.S. are. Yeah, there is a clear gap in our capabilities, I would argue, in the U.S. I think we currently have good to very good institutional distribution, and we can utilize that distribution to take things that we do, such as BlueBay and other exceptional performance vehicles that have a U.S. or global appeal, and run them through that distribution channel which has been successful with good performing products. What we really need in my mind is to continue to broaden out specific investment capabilities as well. As we take a look at our U.S. strategy it does not make up necessarily a disproportionate portion of our or piece of our outlook going forward. It is one of these things where if we can do something opportunistically and it meets our criteria for not being dilutive and being additive to the overall business, then we would pursue it. I wouldn't say it necessarily takes any greater priority than anything that we're looking at in Asia or Latin America. The second one, I guess we can back into a lot of your numbers here. The biggest component of your growth objectives is organic growth. If I look at this segment making, I don't know, CAD 825 million this year, it looks like you need organic growth to be something like 13% a year for the next four years. I'd say, first off, it's been a while since this segment achieved that level of consistent growth. Secondly, double-digit growth doesn't seem to be, I shouldn't say easy, but as achievable as it was maybe five years ago. When you think about this business, if you don't get the market bounce back in a significant way for equities and interest rates, is there enough organic growth based on what you've seen from customer experience to get 13% a year organically? That's a great question. I think in looking back on the segment, which we launched in 2007 into a very challenging market environment, you can actually, in terms of the market impacts that we've managed through in terms of low interest rates and equity market declines on average since then, we've actually achieved significant organic growth to date. It hasn't been in the double digits, but it's been in the high single digits. That's from things that we expect to continue such as in the asset management business outperforming the industry here in Canada by continuing to sell 25% of the industry's long-term mutual funds, very high margin business for us relative to our market share of 15%. So that will continue to drag our overall presence in that high margin business up. The share gains we expect in Canadian wealth management to continue from the organic growth in that business. Then the clear margin improvement opportunities that we have both in the U.S. that John spoke to and our Global Trust business. Supplemented by the fact that we now have a more integrated structure and can look for opportunities across RBC Wealth Management from our Global Wealth Services unit and our operations and technology area, we are confident in our ability to get that organic growth above and north of double digits, to your point. We recognize it is an ambitious plan, but given the momentum we have, given the brand that we have and the position of this business, we think it is achievable. Last one. I think I said two, but I will make it three for George, maybe Gord. When you started communicating, I think it was in the spring of 2010, that European asset management was a goal for this bank. It came after a period where you had aggressively grown your Capital Markets presence in Europe. If the bank was to decide perhaps the Capital Markets build-out in Europe is going to slow here, does that change your view on where you need to be in Europe from a wealth management perspective? The short answer is no. It is an extremely complementary build-out, particularly with our wealth management business, because we use Capital Markets increasing capabilities in investment banking, in particular in the U.K., which is continuing. I would say that our build-out in terms of asset management has been part of an integrated Global Asset Management strategy that John spoke to not only increase our global capabilities for the Canadian market, but clearly when that business has next to zero penetration of our U.S. and international wealth management distribution businesses, there is a big opportunity for us within that business to leverage the positive impact of any acquisition, whether it is European asset management or Asian asset management, to leverage an already strong track record in those businesses that are coming into our platform through the strength of the overall platform. Yes. Thanks. Peter Routledge at National Bank Financial. Question for John. Got to be more specific. John Taft, sorry. Revenue per advisor in the U.S. is $626,000. Your target is to get to $1 million where you have it in Canada. Just give us a little more context as to why the U.S. productivity is lower than the Canadian productivity. Is it just brand or are there other product or capability gaps that you lack in the U.S. that you have in Canada? How do you close the gap? What sort of timeframe, to get to 80% of the Canadian productivity level would we be looking at? The first question is what contributes to the differential or what would it take to get our $630,000 up to $1 million? I think you would have to say that the Dominion Securities model has evolved further toward where we're trying to go than we are today. The businesses that RBC has acquired in the United States are all regional firms, and that is a type in the United States that sits below the national firms. In general, the business model historically was less directive and more advisor-friendly than the wirehouses, which were hierarchical and which imposed a number of business practices on their advisors. I mean, advisors are independent generally, but it's a relative thing. The couple of ways that has played out is that if you look at the percentage of fee-based business that occurs at Dominion Securities it is significantly higher. David, I do not know what our reported statistics are, but do not you have about 70% recurring revenue right now? A little less than that. That's one of our targets, but about 64% is recurring, and over half our assets are on a fee. The fastest-growing products within Dominion Securities have been our fee-based products. Number one, our discretionary fee-based program, and number two, our non-discretionary fee-based program. That's the biggest difference that I see. We've been on this journey for 10 plus years. We do have a head start on John. Our last major acquisition was September 1996. That was Richardson Greenshields. We've been really fine-tuning everything since then. I do think it comes down to our asset mix and our percentage of fee-based business. That number, apples to apples, would be about 45% as of the third quarter at RBC Wealth Management in the U.S. So 64% recurring revenue to 45% recurring revenue. If there were one driver of productivity it is moving away from a transaction-based business model, where every time you want to transact you actually have to call a client and get approval for the trade to a discretionary business model. We have in the last year and this year we have begun a full-court press to increase the percentage of fee-based business that our advisors are doing. We have become prescriptive in telling our advisors we think they ought to adopt that model. I'll just throw one thing out, and that is that one thing that is helping us, interestingly, is the likelihood on the horizon that there will be a fiduciary standard of care for personalized investment advice in the United States. The prospect of that fiduciary standard of care is prompting advisors who at this point have been pretty much transactional in nature to look at, for the first time, transitioning their businesses to a fee-based model. We are creating very simple model solutions to accommodate advisors who want to move from transactions to fee-based. That's probably the biggest driver of our improvement in productivity. I would also have to say, though, that you mentioned brand. There is no question that the brand factor in Canada is helpful, and that translates, I think, into probably share of wallet. I don't know Dave's number, but in the United States, we do not have the same share of wallet of our high-net-worth clients that Dominion Securities does in Canada, and that also translates into lower productivity. So growing share of wallet, growing percentage of fee-based business, moving closer down the road to where Dave's business is today, those will drive productivity. But the million-dollar number is a number for 2015. That is our target in advisor productivity for 2015. Yes. Thank you very much. I am going to direct the question at George, but anyone might chip in. The environment in the last couple of years has been one of distressed competitors to a degree, and there has been an opportunity for RBC, I think you have obliquely alluded to. I just want to ask if you are able to, A, measure, and B, would you be willing to share the quantum of the opportunity of AUM that has been available and whether that AUM that is available from distressed competitors, if you will, is that accelerating, stabilizing, perhaps decelerating in your game plan? Yeah, it is a good question, and I would say that we have seen most of the beneficial impact of that in 2008 and 2009, particularly in our U.S. business where John's team was successful in hiring 300 financial advisors during that period due to the challenges that were out there with respect to UBS, Merrill Lynch, Citibank, et cetera. We also saw similar opportunities to recruit top talent and clients into our international business as well. I would say that while we may not see the same quantum of opportunity in terms of, and in such a concentrated period, what I would say is that we are continuing to win clients and hire top client-facing professionals, partly because of the environment you are speaking of. I think we did not plan our brand launch for the end of September with the idea of a Eurozone financial crisis in mind, but it happened to coincide with that. At the same time that many of our clients are, and particularly ultra-high-net-worth clients, are re-examining their relationships with financial institutions. You should never be concerned about your wealth management relationship with a financial institution, and in case of RBC, you do not need to be. So that is a particular opportunity for us that we can continue to exploit. While I thought it might have been going away, to your point, six months ago, it seems to be back. Question at the back. John Reucassel from BMO Capital Markets. Just I guess a numbers question on the Slide 58 at the back on the different expenses that come through, George. The deferred comp, I guess it is $33 million this year. Is that related to the stock price of Royal Bank, and is that in the U.S. or Canada? Where is that volatility coming from? That's the $33 million Yes item that you're referring to there. That relates to some compensation accounting errors that we experienced within our wealth management businesses. It was, I believe, partly Global Asset Management, partly Canadian Wealth Management as well. That was actually a positive impact on our earnings. That was a non-cash item that we wanted to back out and clarify for you. Okay. That's not recurring. That's not recurring. That's settled. Okay. The BlueBay amortization deferred comp Right is that market sensitive, or is that a straight line? When should it end? No. That is no longer market sensitive because we crystallized that when we purchased BlueBay at 485 pence. The origin of that is that as part of BlueBay's deferred compensation plans, that included BlueBay stock within those deferred compensation plans. When the acquisition occurred, we could not record that as an acquisition cost. We have to reflect that as a compensation expense over the 2- to 3-year period that those deferred compensation plans vest. While that will stay with us for this year and next, it will gradually decline in 2013 and then go away. Okay. I just want to be clear on the strategy. John Montalbano has talked about the power of distribution domestically helping you, but you talk about asset management acquisitions outside of Canada. Is it fair to say the outside of Canada strategy is more performance related strategy as opposed to building the relationships on the distribution side? Is it more performance sensitive outside of Canada? Is that a fair statement on the strategy? Well, I think when we purchased, even within Canada, when we looked at the qualities of Phillips, Hager & North, performance was particularly important within the institutional market, but also in the high net worth and retail market. I think where you're getting at, which is an excellent point, is that we have focused and will continue to focus our efforts on the asset management side in buying high-quality franchises that are performing well, that have good investment performance. I'll ask John to speak to that a little bit more in a moment. Then what I think importantly we're not just making an asset play here or a margin play. We need to be very comfortable and clear that we can add value to that organization and to RBC by having it as part of RBC Wealth Management. Part of that will be having a greater institutional business in the U.S., which John spoke to, now that we have more global capabilities to bring to that market. Part of it will be the opportunity to penetrate our own distribution channels, RBC Wealth Management U.S. and U.K., and emerging markets with that expanded capability. John, have I taken away all your answer or would you like to add something? Pretty much. John, one of the things we want to avoid is an arms race. I think if you take a look at what happened in the last decade, many financial institutions were chasing AUM as opposed to strong financial performance in the acquisition itself. Some of those are being unwound now, or they're trying to unwind it. From our perspective, what we're trying to do is complement our existing skill set with our aspirational role throughout Royal Bank of Canada to become a lot more global in what we do. Anything that we acquire would have to, by necessity, complement what we're doing in capital markets, what we're doing in wealth management, perhaps what we even might be doing in banking. BlueBay, for example allowed us to bring in global capabilities that we're light on from an investment management perspective and allow us to import that into Canada, both on the institutional side and the retail side. It also allowed us to take BlueBay's capabilities and make them available to our global wealth clients worldwide, whether they're in Geneva or London or Singapore. They also have exposure to 35 countries that we don't. That gives us an opportunity or at least an insight as to how you market in those regions, how you apply for appropriate licensing, so on and so forth. When we take a look at acquisitions I think first and foremost, outside of price and reasonable return, what we're trying to find out first is the performance that they have achieved. Is it sustainable? How did they achieve their performance? Does the breadth of product complement not only our existing capabilities but also our aspirations? Are we able to accelerate the growth by utilizing those capabilities immediately through our channels? Then ultimately we have to worry about cultural fit. Will the organization take a little of my time or a lot of my time? If it's a lot of my time, it ain't going to happen. If it's a little time, I think we can have a lot of confidence that we can move forward as partners. So that's a little bit of the framework that we're looking at, John, in terms of how we make an acquisition. As you can imagine, those types of acquisitions are difficult to identify. But we're in a very unique period right now, something that I didn't appreciate and that is how strong the RBC brand is outside of North America. The goodwill that the Canadian banks have engendered through the 2008 period, and I can say particularly RBC, is something that is almost overwhelming when you step into Asia or Latin America. That's something we just need to take advantage of, if we can, if the right properties are available. Yes. We'll cycle back to you, Michael, as soon as we get through everybody. Hi. Cheryl Pate from Morgan Stanley. Just going back to the 30%-35% pre-tax margin target for a moment. When you sort of back into the impact of a normalizing market and rate environment, it looks to be about a 4-5 percentage point pickup which would be more in line with sort of the peak pre-tax margins back in the 2007 time period. So to bridge the gap to that other sort of 5 percentage points to get up to the top end of the range, can you give us a sense of how much of that is growing the relative contribution from the Global Asset Management business versus improving the pre-tax margin in, say, the Canadian wealth or the U.S. wealth? Yeah, it's a bit of both. But in terms of our Global Asset Management business, it already represents 45% of our segment earnings. So that could be 45%-50% by 2015 through the acquisitions that we've already done and the organic growth which John spoke to. Importantly, that organic growth to give us, to your point, that extra 4-5 percentage points is spread throughout our four large businesses that we spoke about today, Canadian wealth, U.S. wealth, and Global Trust. At the same time includes some investments that we are going to be making in our emerging markets and onshore wealth U.K. businesses, which are not going to move the dial significantly by 2014 or 2015. But looking beyond that, we'll have six engines for growth in the following five-year period rather than just four today. The four today, though, are very, very powerful, and so that's what's going to drive us the extra 4-5 that you highlighted. Michael. Thanks. Michael Goldberg, Desjardins Securities. Question for John Taft. You mentioned at the outset the impact of fragmentation in the U.S. in holding down productivity relative to Canada. To what extent does the RIA segment contribute to that fragmentation? Is it getting stronger? Does it sort of put a lid in relative terms on where that productivity can get to? Also, I'm wondering, when you mentioned that 70%-80% of profit comes from net interest just on the overall business, or I don't know if that's your proprietary advisors that you have. Is it similar from the RIA segment? Is that something that you can pursue just in order to build that margin contribution in going after the more growth from the RIA segment? The RIA channel is the RIA and independent broker channel. Those are the fastest-growing channels in the U.S. wealth management industry. Primarily, the growth, I don't know if I could say it's coming from, but it's alongside a decrease in the number of advisors in the full-service wealth management channel, primarily wirehouse advisors. So when you look at wirehouse advisors over the last five years, they've lost share, and RIAs have grown share. Certainly, any time you have competitors out there, it affects your ability to price your product, and it affects your ability to generate share of wallet from clients. So they are a competitive factor. I would point out that, however, registered investment advisors have a one-size-fits-all business model in the sense that all they do really is discretionary investment advisory. They provide discretionary investment advisory services and some planning around that. Whereas the advisors on our platform go way beyond that single solution to do many other things, which we've talked about today, trust, risk management, lending, and transactional activity. So yes, they're advisors, but they're advisors only in a segment of the business we're doing. We have made the decision that we want to participate in the RIA market, A, by increasing the amount of advisory business we do on our wealth management platform, on our brokerage platform, becoming prescriptive about pushing that. And secondly, about entering and being more aggressive about growing the service business we have that serves registered investment advisors, and which we entered, really became a player in, by buying JP Morgan's advisory business. And we think that not all registered investment advisors line up with our capabilities, but those RIAs who offer comprehensive wealth management services to their clients find us to be a very attractive service partner. So that's the window we have on the growth in the RIA channel. Your question about the impact of net interest income, and I would say returns on cash management in general, those do not tend to be big contributors to profitability in the RIA business. They do not lend as much money to their clients as advisors on a brokerage channel. So the advisory services space is not as sensitive to low interest rates. However, the correspondent brokerage space, so where we're offering our platform to independent broker-dealers, is even more sensitive to low interest rates than our brokerage platform. A greater proportion of the correspondent business' earnings come from retaining and participating in net interest income, and fees on money market funds. They generate an even greater proportion of their earnings off of that than we do even in our brokerage platform. Okay. Any other? Yes. Thank you. Sean Yuile from Manitou Investment Management. I wanted to ask about the penetration of the GAM products into the advisor channels outside of Canada. The first question I have is what is the order of magnitude in the margin improvement if you are to use your own proprietary product? Secondly, what sort of incentives can you offer to try to drive this number to be higher? The last question is, if I were to ask an advisor, call it in the U.S., in-house, what would they say is their hesitation to use your own product within that channel? Thank you. I think you'd get two different answers between the U.S. and outside of Canada. Let me separate that. In the U.S., as John mentioned, there's a high degree of independence, and there's more of an advisory based as opposed to a discretionary based management system. At some point, that might morph over to discretionary or then approved lists, and specific oversight on portfolio construction becomes relevant. That's a work in progress in my mind. Overseas, I come back to The investment experience for most overseas investors has been relatively poor. You just have to look at the Madoff and all those other confidence-busting experiences that RBC avoided for the most part. What we're having is a number of clients in our Geneva, London, British Isles, Singapore, Bahamas, coming to us and saying, "Surely you must have internal product." What they're saying is, "We trust your brand. We trust your governance. We trust your compliance. You say you have a global asset management firm. Show me that product because then I'll be closer to my money." For the last number of years, we've actually not had a good answer for that question. It's a very unique environment. I think if you take a look at the European experience, a lot of that money is, in fact, in-house with a number of the private banks as well as a third-party platform. So a very different experience. One that is more similar to Canada, I would suggest, than it is to the U.S. where clients are in fact asking for an internal solution because they know exactly where to go if something goes wrong. That's the big opportunity right now, I would suggest, with the 2007, 2008 Lehman/Madoff period where clients have been rattled in terms of their experience with more opaque investment structures. If you have a firm such as ourselves that can deliver world-class investment solutions with great service, great transparency, and a very competitive fee, I think from that perspective, it's quite a winning formula for what our overseas investors are looking for. Go ahead, George. I'm sorry. Go ahead. I was just going to piggyback and fill in a little bit. You said margin improvement. It depends obviously on the product, but for example, when we use a money manager, when an advisor enters into an advisory relationship with a client and uses an outside money manager, they pay that outside money manager between 25 and 50 basis points. If that outside money manager were GAM, the revenue opportunity would be 25 to 50 basis points on every dollar that GAM manages in our managed money platform in which there are currently $40 billion today. It's a substantial internalization opportunity. Secondly, I just want to point out that the reason that we do not have any GAM products in the retail system in the U.S. is that there are none. There are no, or there are very few, or if there are, they are very new retail products that GAM has available for our advisors to sell. But one of the things that has changed over the course of the 10 years that RBC has owned a retail brokerage business in the U.S., both because the business has changed and because the relative standing of RBC has improved dramatically, is the receptiveness of our advisors to proprietary product. We do lots of proprietary product. All of the money market funds, $18 billion, are GAM sponsored and advised. Syndicate product, new issue equities, new issue municipal bonds, preferred stocks. Those are all proprietary, i.e., originated by RBC. Structured product from a zero percentage market share now to almost 60% of the structured products offered through our distribution channel. They are all RBC structured products. Trust services, lending services, that is all proprietary product, and our advisors cannot get enough of them. It differentiates them because the RBC brand next to any product or service today is seen as a differentiator, something our advisors can offer that others cannot. As soon as John is able to put proprietary asset management products on the shelf, we will sell them. The last thing I would just point out, sorry, George, if I may, the standard of care is higher in that type of relationship, and because clients inside the U.S. particularly, not so much outside and even in Canada, would say, "Okay, are you just stuffing us with your own stuff?" Or, "Is this world-class?" Not only do we have to identify those areas where, in fact, we are as good as anybody, but then we have to serve those clients better than any of the outside providers. That is our duty. That includes also transparency. It includes fees, timeliness of our reports. This is a business that is quite intensive in terms of our efforts because we have to earn that confidence and trust the minute we put that portfolio in a client's hands. It is a slightly different value proposition to us. The only thing I would build on in those two answers, which are excellent, is if you go to slide 34, which is the penetration that John Montalbano shared, and he made the comment that 10 years ago, our penetration of Wealth Management Canada in his business was zero. The reason we knew that to be accurate was, I headed that business in Canadian retail at the time. It is a matter of all the things that John just outlined in terms of putting in place for the U.S. is the same that was put in place with the active support of Dave Agnew and his management team in Wealth Management Canada. It is not a matter of extra incentives to individual advisors. It is a matter of quality service support, understanding the needs of the wealth management distribution business. Just to plug John and Dave's business one more time. You might have seen recently the launch of our ETFs, our Bond Bullet program. That was a very collaborative relationship between the asset management business and Wealth Management Canada to design a specific product that Global Asset Management knew was required by our advisors within that business. So there are advantages that our Global Asset Management does have to penetrate our wealth management distribution channels, but they're very much oriented towards earning the business and providing great support. Do we have any questions from the phone? If not, I want to thank you again for your questions and for your attention and invite Amy up to close the meeting. Thank you. I'd like to thank Gord for kicking off our session this morning, and especially want to thank George and his team for their presentation today. Thank you all for joining us. If you have any further questions, please don't hesitate to reach out to me or anyone else on the investor relations team. Just one last ask, if you could please remember to fill out your survey and leave it by the registration desk. So thank you all again for coming today, and we look forward to seeing you at our next event. Thank you.

Data Source: Quartr Last updated: Oct 21, 2011

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