BMO’s new private wealth strategy seems to be working under Auerbach’s guidance

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When Andrew Auerbach took the top job at BMO Nesbitt Burns Inc. early last year, the retail brokerage firm had gone off course. A number of advisers were threatening to leave, morale was at a low point and the business had been leaderless for six months.

Discontent was so widespread that, in an annual industry survey by Investment Executive newspaper in 2017, a majority of the bank’s investment advisers who responded ranked their firm below industry averages. That placed BMO Nesbitt Burns as the lowest-rated investment dealer among both banks and independent firms.

The newly appointed executive vice-president and head of the private client division heard a barrage of adviser complaints, from a culture that was becoming more driven by the parent bank to a perceived lack of communication from management. Some advisers said executives weren’t receptive to feedback.

To tackle those problems, Mr. Auerbach hit the road to win back the confidence of more than 1,000 investment advisers across the country. Some 14 months later, after logging thousands of air miles to meet advisers face-to-face, it appears he is turning things around. He has hired more advisers, focused on succession planning (as the average age of advisers creeps above 50) and provided greater access to his executive team.

The hands-on approach clearly paid off as more than 90 per cent of the Nesbitt Burns advisers surveyed for the same Investment Executive report two years later say they would recommend their firm as a place to work, compared to just 66 per cent in 2017.

With the groundwork laid, Bank of Montreal recently combined its private banking division and full service brokerage under one umbrella – BMO Private Wealth Canada and Asia – though the bank says the both the BMO Private Banking and BMO Nesbitt Burns brands will continue to be used for clients. The merged entity is intended to help Bank of Montreal reach its broader goal of doubling wealth management profits to more than $2-billion over the next five years.

Together, BMO Nesbitt Burns and BMO Private Banking manage more than $195-billion in assets for approximately 162,000 client households. Most of those households – 133,000 – work with advisers, the rest are with private bankers.

Now in his second year leading the advisers, and just three months into his new role as head of BMO Private Wealth Canada and Asia, Mr. Auerbach is focused on helping two traditionally quite separate bank groups – investment advisers and private bankers – work together.

“I have been really clear on our priorities,” Mr. Auerbach said in an interview at Bank of Montreal’s headquarters in Toronto. “If there is one thing I’ve found in my years, [it’s] that people hate surprises."

The bank’s new private wealth strategy comes at a time when the Big Six are ramping up efforts in the wealth-management space. They’re all vying for a greater market share of high-net-worth clients, or individuals with investable assets of $1-million or more.

Over the past five years, it’s a client segment that BMO Nesbitt Burns has seen grow by 30 per cent. The number of accounts moving beyond the $1-million dollar mark is surging as baby boomer entrepreneurs sell off their family businesses, creating a sudden windfall of wealth for that generation.

“We have never seen it with this frequency before,” says Mr. Auerbach.

As more clients find themselves acquiring significant amounts of wealth, their financial planning needs become more complex. That’s why banks see an opportunity for their investment advisers to more frequently connect clients with other areas of the bank – such as private banking and commercial banking.

Financial advisers typically help clients manage their investment portfolios, which can include portfolio management, financial planning and wealth preservation for retirees. Private banking, meanwhile, generally caters to high-net-worth individuals looking for a dedicated banker. In addition to serving their day-to-day banking needs, private bankers also offer clients specialized services such as tax and estate planning, along with lending and investments.

Combining the full service brokerage and private banking can be achieved – with some pain – relatively quickly, says Keith Sjogren, managing director at industry research group Strategic Insight. However, meshing two corporate cultures is a longer-term challenge.

The biggest challenge is bringing together the two investment disciplines, says Mr. Sjogren. “In many banks they were not complementary but competitive, and weaving them into one broadly based unit will take executive skills."

In fiscal 2012, the adjusted net income for BMO Wealth Management (which includes BMO Private Wealth Canada and Asia) was $544-million. By 2017, it had doubled to $1.08-billion. Now the bank wants to double it again.

Currently, BMO Nesbitt Burns has 47 branches across Canada, with 60 per cent of them now housing dedicated private bankers. Mr. Auerbach wants to have a dedicated private banker in every branch by the end of 2019. The stakes are high: Bank of Montreal has 400,000 North American commercial clients, but less than 40,000 are BMO Wealth Management clients, as of last summer. To ensure a smooth transition, Mr. Auerbach has hired seven regional presidents to help merge the two teams.

Although not all institutions have amalgamated the two businesses under one brand, catering to affluent clients in this manner is a strategy used by many financial services players globally, says Peter Merrick, a business-succession consultant based in Toronto.

“Everyone is moving toward a family office model where clients are being serviced by a number of professionals under one roof,” says Mr. Merrick. “Every firm wants to be seen as offering the concierge treatment.”

While global banks such as Barclays Private Bank and Coutts and Co. in the United Kingdom have been offering similar business models for decades, Canadian banks are only starting to implement such strategies. Prior to the changes at Bank of Montreal, both CIBC Wood Gundy and TD Wealth Private Wealth Management have placed private bankers in their brokerage branches, but with a “delicate hand” so as to not rock the boat, said Dave Kelly, senior vice-president of TD Wealth. Mr. Kelly announced TD’s strategy in 2016 to his team of 748 investment advisers.

“I didn’t sleep for six months prior to the announcement," says Mr. Kelly. “You worry about how to get the groups together without a mass revolt, but in the end it was a change the advisers had been waiting for."

Internal turf wars at banks are being set aside as wealth-management clients demand more convenience. Customers no longer want to have multiple relationships with professionals or book multiple appointments to discuss different areas of their finances. “You have to move to a more team-based model to be able to service the client comprehensively,” Mr. Kelly says.

As a 19-year veteran of Bank of Montreal whose career has spanned roles in investment research, private banking and retail, Mr. Auerbach sees an opportunity in bringing different divisions of the bank directly to the client. In fiscal 2017, there were $19-billion in referrals between BMO Wealth Management and its personal and business banking divisions. In addition, within BMO Nesbitt Burns itself, there were 16,000 households that currently do not have a retail or private banking relationship with Bank of Montreal.

“We’ve always had a collaborative culture and worked well together across the bank,” says Mr. Auerbach. “But coming together in the way we are now, is different.”