Five years on from the heart of the financial crisis, Nick Kirby talks to Stuart Rutledge, CEO, British Isles and Caribbean, RBC Wealth Management, about whether the industry has truly turned a corner
and how the Channel Islands need to push on
While you quite often come across people in the finance industry who started their working lives in completely a different career, there are probably not many who found their way from being a water treatment engineer to heading up a global bank’s Channel Island operation. Until now, that is.
Admittedly, Stuart Rutledge’s time in water treatment was relatively short-lived. Having achieved an engineering degree from Canada’s McMaster University, he worked in the industry for a couple of years before returning to university to gain his MBA. In 1999, he joined RBC in his home country, Canada, and has been with them ever since.
In the past 15 years, Stuart has held a number of senior roles, including Head of RBC Wealth Management’s Global Wealth Services group, with responsibility for developing and delivering best practice investment, credit and wealth solutions to clients. From 2007 to 2010, he served as RBC Wealth Management’s Chief Financial Officer.
Having moved to Jersey in October 2012, Stuart now has direct responsibility for RBC Wealth Management’s UK, Channel Islands and Caribbean operations. His remit spans Jersey, Guernsey, London, Edinburgh, Cayman, Bahamas and Barbados, and he oversees 1,600 people, of which 1,100 are based in the Channel Islands – making it one of the largest employers across the islands.
He spoke to businesslife.co at RBC’s offices in St Helier about the current state of global wealth management and what comes next for the industry.
Your roles at RBC have very much had a global view. Have you seen globalisation accelerate in the last decade, in how people are investing, families are moving and clients behaving?
In short, the answer is yes. People are definitely becoming more global in nature, and they need to be served more to their broader needs. In North America, where I was before Jersey, there is an understanding of that globalisation, but it’s much more real when you come to this side. As any finance professional in the Channel Islands would be able to tell you, there are a growing number of clients in regions such as Eastern Europe, the Middle and Far East and Latin America, and a lot of those folks are looking for global capabilities delivered by a Western firm. Globalisation has definitely been one of the major changes to wealth management in recent years.
What other significant changes have you seen, especially since the financial crisis?
I’d say there are two principal changes – client trust and the pace of regulation. Firstly, client trust took a turn for the worse after the financial crisis, and firms such as ours are working to gain that trust back. Trust takes a long time to build, and can very quickly go away. We’re fortunate we didn’t lose as much trust from our clients because RBC performed well – our portfolios and how we’ve dealt with clients have been very conservative, so we haven’t had as many of those challenges, but many firms have really struggled with trust issues. Secondly, on the pace of regulation, so much has happened on the regulatory front – probably a lot more than many of us anticipated. It’s really geared at client protectionism, but firms, including ours, need to compete while adhering to all the different regulations. You can look at it as a cost of doing business or you can look at it as something you can use to your advantage. Increased regulation forces us to ask more questions, to have more information about clients, and that can be used to build better relationships.
Regulation looks set to be an ongoing challenge. What else are you facing up to at the moment?
One key thing is clients consolidating their financial providers. High-net-worth and ultra-high-net-worth families and individuals are used to dealing with four, five or even six bankers, but this is changing given the pressures of regulation on the firms and given clients’ loss of trust in their financial providers following the financial crisis. A lot of these families are reducing the number of financial institutions they deal with. I don’t think we’ll get to a point where they are typically dealing with just one, but it will be more like two or three. So the key for all of us competing is to be one of the favoured banks for these families.
Also, when everyone is fighting for market share, you need to make sure there’s not adverse selection. In our business we are dealing with offshore wealth, and so there are clearly clients we’d say ‘no’ to and there are clients we’d say ‘yes’ to for reputational reasons. So the key when you’re thinking of becoming the primary bank for these families is to ensure they’re the right families. Those firms that chase growth too quickly run the risk of taking on the wrong clients and suffering reputational damage.
We’re like a typical Canadian firm in many ways – we aim for steady, stable growth. And for me that works well with how I think about Jersey and Guernsey – as safe, stable jurisdictions.
So how do you see wealth management evolving in the years to come?
Firstly, I think there will be fewer providers. We are seeing a lot of M&A activity, and this, combined with the competitive landscape, globalisation and clients wanting to deal with fewer banks, will have an effect on the industry.
That said, these providers are then going to have to provide capabilities across a number of client needs, be that in capital markets, investments, credit, custody, funds or banking. It’s going to be about providing a number of solutions to help clients simplify their affairs.
Another key driver is technology. And that is across the board – whether it’s for firms to be more operationally efficient, such as in the middle and back office; how we interact with clients in real time; or how we provide regular information to clients.
The last thing I would say is about full data transparency. The information is out there, and increasingly we are seeing it being shared across borders in quite an open fashion. That’s a theme I think organisations are going to have to adapt to. It’s not about privacy or secrecy, it’s about how firms maintain their clients’ confidentiality while ensuring they are fully compliant at the same time. How you balance those is one of the great challenges that the industry faces.
Is capturing a slice of Eastern markets critical to the Channel Islands’ future success, or has that been overplayed?
To answer this, you need to look at where the money’s coming from. The Capgemini/RBC Wealth Management World Wealth Report 2013 found that the Asia Pacific region is going to grow a hair over nine per cent per year for the next few years – that’s 1.5 times the global average. The Middle East is also predicted to see strong growth, slightly behind Asia Pacific. So if that’s where a large amount of wealth is coming from, then the Channel Islands, as key international finance centres (IFCs), are going to want to take part in that wealth creation. That being said, there’s lot of wealth to go around, and firms need to be careful about focusing just on Asia and missing out on the Middle East, or vice versa.
But can the islands compete with jurisdictions such as Hong Kong and Singapore that are geographically better placed?
Admittedly, Jersey and Guernsey do have some disadvantages compared to places like Singapore from the geographical perspective – we’re not right there in the market. At the same time, the Channel Islands are much more established. We have a strong rule of law. We also understand how, when bad things happen, they will most likely play out. Singapore is still growing up as a jurisdiction and case law is less established, especially in trusts.
Has wealth management increasingly become a young man’s game?
I’d say what we need to ensure is that the people we have – men, women, younger, older – represent our clients. So if we are principally serving the older generation, a lot of those clients want to deal with people who have more grey hair than me. But a lot of wealth is coming back to the next generation. The amount of wealth that some individuals in their 30s to 50s have is huge, and a lot of those clients naturally work well with people from a younger generation.
I know that people often raise the age question because of the proliferation of technology, and it does help to be technologically adept, but you can teach people that, irrespective of age. For me, it’s all about matching the client profile.
Since the financial crisis, some banks centralised back to the UK, while others shifted core parts of business to the Channel Islands. What is your take on this?
I think it’s generally understandable. When the world shifts, when things change, it forces companies to make changes to their operations, either to shore themselves up or to take advantage of the situation. Some people used the financial crisis in exactly that way – they said ‘let’s look at the opportunities’, ‘lets move from Jersey to Guernsey’, ‘the Channel Islands to the UK’ or vice versa, or to somewhere else altogether. That’s just a natural thing to do to be more operationally efficient.
There are also some companies who aren’t comfortable having so many ‘booking’ centres in the world. There are definitely some of our competitors who have retrenched from certain areas because they’ve grown too quickly, and when one expands too quickly you have less of a degree of control.
Is the Channel Islands’ ’message’ in wealth management still a compelling one?
The islands have been around for sufficient time as IFCs and trust jurisdictions, and that provides a stability that can be attractive to clients. And let’s not forget that to be a really solid jurisdiction, one needs to have the best people. Ultimately, Jersey and Guernsey can attract high-quality talent, not only from London but also from elsewhere. And obviously it’s only a short hop to the UK or to continental Europe and that is also attractive for a number of folks. So, yes, I would say the message still stands.
Is there anything the islands could be doing differently, or that financial institutions themselves should change?
I’d say if one wants to change it’s easier to change themselves – it’s easier to look at the industry rather than to point fingers at others to change. The working relationships I’ve had so far with the States of both islands and the regulators are very constructive. What I believe needs to happen with Jersey and Guernsey is better cooperation and coordination among players in the industry.
I think about it through two ‘lenses’. From the client side, how do we ultimately support clients better? If those clients have dealings with four or five companies – such as a bank, lawyer, trust company and so on – then we need to be talking more. And from a regulatory standpoint, the cost of compliance is so great that for companies to be profitable – so that they can reinvest in their business and in the island – that cost of regulation might be better being shared somehow.
As the largest financial services employer in the Channel Islands, you could be seen as a bellwether of the islands’ economic health. So, how healthy are they?
I’d say things are getting healthier. To me, businesses in the Channel Islands are healthier than we’ve been for a number of years, and so I am, to borrow that familiar phrase, ‘cautiously optimistic’. Three or six months, however, doesn’t form a trend. The UK seems to be picking up, which has a knock-on effect on the Channel Islands, although there is bit of a lag. We are seeing wealthy clients moving to Jersey – there are more people coming in, which is a good thing. Our business volumes are strong, our client assets are at a record level, and if we’re sign of the economy, this is a good thing.