RBC is checking every box to ensure it acquires the JPMorgan RIA unit intact

When Mike Kavanagh first threw Royal Bank of Canada’s hat into the RIA ring in 2008, his goals were relatively modest.

The chief administrative officer of RBC US and the head of independent business channels believed that Minneapolis-based RBC Wealth Management could leverage its 30 years of experience in serving hybrid registered investment advisors on its brokerage platform.

His company would build a practice brick-by-brick by appealing to wirehouse brokers looking to join a custodian with a culture and feel similar to what they were leaving behind. RBC Wealth Management is a regional full-service broker.

Little did Kavanagh know that his vision would get a boost from the Bear Stearns debacle.

Viable assets

The doomed investment bank sold its remaining viable assets to JPMorgan Chase in March of 2008 for $236 million. For that modest sum, the monster bank got a plum RIA unit with [analysts estimate] about 100 RIAs with $50 billion.

Nor could Kavanagh have guessed that JPMorgan would turn around and seek to dispose of the RIA custody unit a year later.

RBC placed the winning bid in September. See: RBC’s appearance on the custody scene could be a game changer

“The acquisition was for us, strategically, a home run,” he says. “It really accelerated our growth trajectory and our relevance in the marketplace.”

Touch all the bases

But home runs only count if you touch all the bases after hitting the ball.

“That’s why we’re focused on doing it right in 2010” in terms of wiring the deal, he says. “We are taking this very seriously and we’re taking our time with it,” he adds.

Indeed, RBC isn’t scheduled to close the transaction until around June.

Making the transaction happen cleanly is no doubt a big challenge, according to David Selig, CEO of Advice Dynamics Partners, a San Francisco-based firm that specializes in M&A for financial advisors.

Two huge cultural jumps

“[RBC] needs to figure out why [the JPMorgan RIAs] joined Bear Stearns to begin with and tap into that [affinity] in order to retain them and differentiate themselves from the [big custodians like Schwab Advisor Services, Fidelity and Pershing],” he says. “That’s two huge cultural jumps in a short period of time” that the former Bear Stearns-affilated RIAs experienced in going from an aggressive investment bank like Bear Stearns to a money center bank like JPMorgan, and then to transition again to a Canadian bank.

Selig adds: “The first order of business has to be to make [the JPMorgan service team] see their career opportunities as being even better than before. If they feel that way, it’ll translate to even better service to RIAs. If the cultures clash, that won’t be lost on the RIAs.”

Kavanagh understands the importance of keeping the original Bear Stearns/JPMorgan service team intact.

“It’s been gratifying talking to clients,” he says. “They’ve been loyal to the JP [Morgan]team and we’re keeping the JP team intact.”

Some of the steps that RBC is taking to keep the team in place include allowing them to remain in Manhattan [albeit in RBC offices in NY where it has 3,000 employees already] but also by bringing the service team to Minneapolis to get a better understanding of RBC.

What resonates with the JPMorgan service team is RBC’s resolve to grow the business, he says

“We’re building these bridges,” Kavanagh says. “We can’t wait until they’re actually RBC employees.”

Building bridges

RBC is also building bridges to the RIAs themselves, he adds. The company has had face-to-face meetings with 70% of the leaders of those firms. “If they’re in Miami, we fly to Miami and we’ve talked to some of them several times,” Kavanagh says.

Selig says that RBC can certainly be successful in its merger and that there is even a precedent for an RIA custody unit getting turned over multiple times. He’s referring to the Donaldson Lufkin & Jenrette RIA unit that passed to Credit Suisse before ending up with the Bank of New York under the Pershing brand.

Editor’s note: RBC is working to integrate former Bear Stearns employees at a time when JPMorgan is removing the last vestiges of the Bear Stearns brand. Next month the former Bear Stearns Private Client Services, whose name had been re-jiggered to: Bear Stearns: a JP Morgan Company, will be called JPMorgan Securities.