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Mutual Fund News

Big Five's deft touch catches competition off guard

In just 10 years, the banks have become a powerful force on the fund landscape, KEITH DAMSELL writes

'They underestimated us." That's how Brenda Vince, president of RBC Asset Management Inc., views the mutual fund competition. With $44.2-billion in assets under management, the unit of Royal Bank of Canada is now the country's No. 1 mutual fund firm and is chasing a greater piece of the market via independent financial advisers and planners.

RBC, and the rest of the country's major banks, have quietly captured a large chunk of the mutual fund trade over the past decade through some deft distribution moves. The banks now oversee about $158-billion in fund assets or 34 per cent of the market, up from about a 25-per-cent share in the mid-'90s. It's a commanding presence that has reshaped the fund landscape and sent a shiver through independent and foreign-owned fund firms.

"It's quite something," said Rudy Luukko, investment funds editor of "They represent competition not just by virtue of the fact they are the big companies operating in the industry. They have been building up enormous capacity to distribute through the adviser network."

Mutual funds were barely on the banking radar in the 1980s. Guaranteed investment certificates were a booming business thanks to high interest rates. But in the early '90s, interest rates began to decline and equity markets took off.

Mutual funds of all shapes and sizes posted double-digit annual returns through the long bull market.

"A lot of the money that was coming in to fund companies was money that was leaving bank branches," said a senior fund executive. "The clients that were into GICs couldn't get too excited about 2-per-cent returns. [The banks] had to promote the fund business to keep the client."

By selling no-load funds across their retail branches, the banks legitimized funds as an investment and the entire sector benefited.

At the bull market's peak in August, 2000, total mutual fund assets under management reached $438.5-billion, up from $49.9-billion in 1991. "They really have the best distribution network and no one can compete," said Levi Folk, president and managing editor of "The easiest way for an average investor to buy a mutual fund is through their bank."

The bear market meant a dramatic shift in strategy from product to marketing and distribution. National Bank of Canada, Bank of Montreal and Canadian Imperial Bank of Commerce shored up growth via acquisitions. RBC, meanwhile, invested heavily in education and marketing throughout its 1,300 branches. Across the board, the banks placed greater emphasis on fund performance and financial planning services.

But TD Asset Management Inc. proved to be the most innovative firm. With fortuitous timing, the firm began promoting its family of conservative, income-oriented funds to independent financial advisers just as equity markets weakened in 2000.

"Over the last several years we have tried to focus more and more on establishing relationships in broader and newer distribution channels," said Steve Geist, president of TD Mutual Funds. The bulk of TD's annual fund sales are now derived through about 350 planners and 8,000 advisers. Not surprisingly, RBC and others are aggressively shoring up ties with third-party fund dealers and planners.

The handful of major independent and foreign fund companies are viewing the bank's moves with mixed feelings. Bank branches are an important sales point for independents. In 2003, about $7.4-billion or 3.5 per cent of independent long-term funds were sold through a bank, reports Investor Economics Insight. Then again, there's much agreement that the banks will continue to gain market share, adding more pressure in the slowing fund business.

"It means trouble for the laggards . . . the banks are eating their lunch," said one fund analyst.

Big Bank funds

BMO Funds

Assets under management: $18.3-billion

The skinny: Shored up distribution channels through 2001 acquisition of Guardian Capital Group Ltd. But remains a second-tier player and industry sources argue growth strategy less defined. Michael Stanley, manager of $2.4-billion BMO Dividend Fund, considered one of the sector's top managers.

CIBC Asset Management

Assets under management: $40.5-billion

The skinny: Like BMO, bought distribution through acquisition of TAL Global Asset Management Inc. Well-regarded financial planning operations. Mutual fund business keeps a low profile.

National Bank Mutual Funds

Assets under management: $6.5-billion

The skinny: National came late to the mutual fund party; until 1997, the Montreal firm had only nine funds on the shelf. Little national presence but a powerhouse in Quebec. Strategy is two-fold - conservative solutions for bank clients and marketing niche products to independent advisers.

RBC Asset Management Inc.

Assets under management: $44.2-billion

The skinny: The biggest kid on the mutual fund banking block. Large part of success result of heavy investment in marketing and education across its branch network. Strong series of bond, balanced and dividend funds continue to attract investment.

Scotia Securities Inc.

Assets under management: $13.8-billion

The skinny: Like BMO, a smaller mutual fund player. Conservative firm with menu of 47 funds. The Scotia Partners Portfolio, a blend of equities, bonds and cash managed by independent rivals, has proved popular, attracting $500-million in assets over the past 18 months.

TD Asset Management Inc.

Assets under management: $34.2-billion

The skinny: Unlike many competitors, said no to growth through acquisitions and has built the business organically. Strong fund performance has helped secure top-notch distribution network, including envied ties with financial planners and advisers.

© 2007 The Globe and Mail. All rights reserved.

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