RBC recruiting boosts U.S. net new assets

RBC witnessed a recovery of new asset flows into its U.S. wealth management division in its fiscal second quarter as it pulled in billions from advisors recruited from industry rivals.

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Royal Bank of Canada said Thursday that net new assets into its U.S. wealth unit were up by 25% year over year to $5.12 billion (reported as $7.1 billion in Canadian dollars) from February to April, which it calls its second quarter. Net new assets are often seen as a key gauge of wealth management firms’ success since they measure only assets brought in from existing or new clients rather than market gains.

On a call with analysts Thursday, RBC CEO David McKay said $2 billion of the inflows came from advisor recruiting. Those helped boost the Canadian bank’s total for U.S. assets under administration by 16% year over year to $798.4 billion. 

The second quarter’s increase in new assets for the U.S. wealth management division comes after a quarter in which its net asset inflows fell by more than half.  (RBC recently adjusted how it calculates net new assets to include “re-invested interest, dividends, less client asset outflows, fees, commissions, and taxes.”) 

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McKay said Thursday that the U.S. wealth units also benefited from loans arranged for its clients. Like many large banks with internal wealth management businesses, RBC seeks to provide a full array of financial services to investors, in part to make it less likely they’ll take their assets elsewhere.

McKay said the U.S. wealth division’s credit and loan balances were up 16% year over year, “reflecting growing demand from U.S. clients for our full-service capabilities.” Loans arranged through its City National subsidiary, which RBC acquired in 2015, were up 9% year over year.

Partly helped by the increase in client assets, RBC’s U.S. wealth business saw its revenue rise by nearly 10% year over year to $1.89 billion. RBC said in an investors slide that the revenue boost was also owing to “higher net interest income reflecting higher spreads and average volume growth in loans.”

Assets, revenue, net income up for all of RBC’s wealth businesses

For all of its wealth management businesses — in the U.S., Canada and elsewhere — RBC reported that its assets under administration were up by 17% year over year to just over $5.5 trillion in Canadian dollars and its assets under management by 20% to CA$1.6 trillion.

Total revenue for RBC’s wealth management businesses was up 10% year over year to nearly CA$6 billion and net income was up 28% to nearly CA$1.2 billion. RBC’s advisor headcount ticked up by just over 1% year over year 6,276 (the firm doesn’t break out how many advisors it has in the U.S.)

Chief Risk Officer Graeme Hepworth noted the wealth management business’ net income declined slightly from the previous quarter in part because of the need to set aside more money to cover loans at risk of not being repaid.

The wealth management unit’s total for “impaired loans” came to CA$224 million in the second quarter. Those loans were held “predominantly in City National, and driven by names in utilities, real estate and other services sectors, as well as our consumer mortgage portfolio,” Hepworth said. 

“This quarter, we’ve identified a small subset of high-risk clients, most of which were subject deferral programs, that we have now moved into impaired status,” he added.