Managing Growth: The Challenge of Client Acquisition for an Independent Financial Services Company (Rothenberg Capital Management) This case was written by Erin Whittle, Instructor, Marketing Management Department British Columbia Institute of Technology for the 2020 Vanier/Scotiabank National Marketing Case Competition. It is not intended to illustrate either effective or ineffective handling of a management situation. Some information may have been disguised in the interest of confidentiality. (This material may not be reproduced without the express written consent of the author.) The Rothenberg Group is a family-owned independent financial services company that includes Rothenberg Capital Management (RCM) and Rothenberg & Rothenberg. i RCM is the wealth management division of The Rothenberg Group and the focus of this case study. The Rothenberg Group was founded in 1979 by Jack and Pearl Rothenberg and is now led by their son, Robert Rothenberg (Chief Executive Officer). The executive team at the Rothenberg Group have all had considerable tenure with the company: Helen Corrigan, President and Chief Compliance Officer, has been with the Rothenberg Group since 1988 and has been President since 2002; Maria Ioannou, Chief Financial Officer, started her career with Rothenberg in 1997 and was appointed CFO in 2017; and Robert Rothenberg joined his parents' firm in 1993. Investment advisors (known as Wealth Management Advisors at RCM)like financial advisors at many investment firms and major banksprovide planning and asset management to clients, particularly high net worth individuals (HNWIs). Many clients are planning for their retirement through the purchase of RRSPs, annuities1 , and other investment products. Based on their client's investment goals, Wealth Management Advisors monitor, buy, and sell financial assets like stocks, bonds, and mutual funds as well as provide investment, retirement, and estate planning and ongoing investment advice and management. Clients can invest in Registered Retirement Savings Plans (RRSP), Registered Education Savings Plans (RESP), Registered Retirement Income Funds (RRIF), and Tax-Free Savings Accounts through Rothenberg Capital Management. The financial advisors at RCM distinguish themselves as specialists with extensive experience and training. 2 Robert Rothenberg, for example, is a Chartered Financial Analyst (CFA), Certified International Wealth Manager (CIWM) and holds the Fellow of the Canadian Securities Institute designation (FCSI). Wealth Management Advisors at RCM typically have a degree, decades of experience in financial services or the investment industry, and have completed the Canadian 1 An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and, in return, obtain regular payments beginning either immediately or at some point in the future. The goal of annuity is to provide a steady stream of income during retirement. What is an Annuity? (2019). Investopedia. Retrieved 9 December 2019, from https://www.investopedia.com/ask/answers/12/what-is-anannuity.asp 2 "The terms 'financial advisor' and 'financial planner' are used broadly. These terms don't always mean that a person has specific qualifications, expertise or certifications. Outside of the province of Quebec, anyone can call themselves a 'financial advisor' or 'financial planner.'" Financial Consumer Agency of Canada. (2019, April 16). Government of Canada. Retrieved from https://www.canada.ca/en/financial-consumer-agency/services/savingsinvestments/choose-financial-advisor.html. 2 Securities Course, are designated Chartered Financial Analysts, or have other education and certifications specific to the industry. RCM has thousands of clients and nearly a billion dollars in investments. The personal work that financial advisors offer to their clients entails RCM Wealth Management Advisors building close relationships with the customers they serve. Clients share not just their financial information, but their life challenges and goals with their advisors; together, they plan for home buying, growing families, advanced education, retirement, emergencies and crises, and even death. Trust is key. The high level of service Wealth Management Advisors provide, as well as their expertise, has created a loyal client base. Most customers are based in Montreal and Calgary, where RCM has offices, however, they are considering opening an office in Toronto in the near future. Despite having four offices in the Montreal area, 95% of its clientele is English-speaking; the brand does not quite resonate with the Francophone community. Slightly more women (55%) than men (45%) are clients. Most of their clients have under $250,000 in assets currently invested with RCM (see Appendix 1). Many clients also have money invested elsewhere, such as with their bank, credit union, or caisses populaire. Of course, RCM would like clients to consolidate their investments with them. Unlike private wealth management companies, RCM does not have a minimum investment threshold, although the ideal client is an individual or household that has in excess of $500,000 of investable assets. Most of these high net worth individuals (HNWIs) are Canadians between the ages of 55 and 64frequently referred to as Baby Boomers, or Boomersas they have the highest total net worth (the median net worth of this age group is $669,500). People in this age group are still working, but beginning to downsize and sell private business, creating sizeable liquid assets.ii However, the Rothenberg Group's clients are aging; 70% of their clients are over age 65, and 35% are 75 or older. In fact, more of RCM's clients are over 85 than under the age of 55. Many longtime customers are accessing the assets they have invested with RCM as they retire, while other client assets are being divested and disbursed upon their death.3 To continue growing as a company, RCM is looking for a new customer acquisition strategy. The Financial Services Industry Financial advising and planning is big business in Canada. As of 2017, this sector managed $1.6 trillion in investment funds.iii Those investments are largely held by a small number of people, as, like many other developed nations, Canada's wealth is highly concentrated: 1.5 million households account for 85% of investable assets.iv 3 Divestment is the process of selling assets (in the case of a will, this would include investments, life insurance policies, and properties); disbursement is paying out those assets to others (in the case of a will, the beneficiaries named in the will are the recipients). 3 Figure 1. Financial wealth distribution landscape at the end of 2017 (Canadian Investment Funds Industry: Recent Developments and Outlook) Financial advising and planning are typically offered through seven channels (listed in order of the amount of assets in each channel): 1. Full-service brokerages (like Rothenberg Capital Management, RBC Dominion Securities, CIBC Wood Gundy, and many others) 2. Banks, credit unions, and caisses populaires branch advice 3. Banks, credit unions, and caisses populaires direct models (bank-owned online brokerages, like Scotiabank's iTrade platform, BMO's InvestorLine, and RBC's RBC Direct Investing) 4. Financial advisors (including independent advisors) 5. Private wealth management (notably, Phillips, Hager & North Investment Management) 6. Online/discount brokerages (also known as "robo-advisors," like Questrade, Wealthsimple, and qtrade, for example)v 7. Direct sellers (often mistaken for pyramid schemeswhich are illegal in Canada) The primary competition for RCM are the banks, credit unions, and caisses populaires; in particular, the "Big Six": Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC), and National Bank of Canada (NBC).vi Banks, credit unions, and caisses populaires are trusted and known, offer convenience, and can bundle services to provide incentives for customers to invest with the bank. As customers move from a focus on debt repayment to setting financial goals, banks have the customer data on hand to be able to identify prospects and offer personalized and targeted direct marketing of their financial products and services. For those seeking value-added expertise, service, and product solutions, brokerages like RCM are more trusted: recent surveys show Canadians are twice as likely to trust retirement savings information and advice from a professional financial advisor (30%) than a bank advisor(15%).vii Financial Services Customers As Canada's population of high-net worth investors ages, their needs change, and the focus of their investing moves from wealth generation to wealth preservation. By 2031, all Boomers will have reached age 65, and 23% of Canadians will be seniors. Once retired, their assets are sold off 4 to finance retirement, then remaining assets are sold and distributed according to their will (largely to their children) upon their death, resulting in a huge intergenerational wealth transfer as well as a significant turnover in RCM's customer and asset base. The next wave of HNWI will be Generation X and Millennials, which represent not just different demographics, but an attitude shift. Mid-career Canadians (aged 35-54) are the most likely to be saving for retirement and investing (including in their biggest asset, their home), while younger Canadians (aged 18-34) are more focused on repaying loans (18%) and saving with no specific goal in mind (19%) or for a house or condo (13%) (see Appendix 2). Generation X is often typified as the do-it-yourself and skeptical generational cohort, and that applies to investing as well. They are more than twice as likely than Boomers to say that their financial choices are influenced by family, but even more likely to trust themselvesalmost two times more than anyone else, including a financial advisor.viii In fact, only 25% trust financial services. ix Millennials are less skeptical; 53% trust financial services and 70% trust financial advisors and almost halfsay they currently consult a financial advisor, but they do so in a different way than older generations: "The role of the financial advisor as well as client expectations are changing, depending in part on the investor's age. While 15% of Boomers consider themselves 'Delegators'those who rely on their financial advisors to make all the decisionsonly 10% of Millennials do the same. Meanwhile, 39% of Millennials consider themselves 'Validators,' those who consider their advisor more of a sounding board for their own ideas, vs. just 24% of Boomers." x xi Another challenge is financial literacy. Non-investors of all generations seem to have an equally tough time learning about investing, despite Google and the huge amount of information available.xii A surprising number of Millennials don't even know they are paying monthly fees for their banking, let alone how the MER (management expense ratio) on an investment is calculated or why it matters.xiii (The average MER in Canada is 2.53%, so if your mutual fund statement showed that your investment grew by 10%, it actually grew by 12.53%, because the MER is taken off firstover 20% of your "earnings" from the investment. Similarly, if your mutual fund statement showed a loss of 2.53%, it actually means that the fund itself showed no growth (0%), but you have to pay the MER regardless.) To bridge the financial literacy gap (and, of course, to acquire customers), there is an emerging Fintech industry. "Fintech refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers. It primarily works by unbundling offerings by such firms and creating new markets for them."xiv Consumer-oriented fintech (as opposed to the many B2B fintech offerings), is usually targeted at Millennials, in part because of their rising earnings and inheritance potential, but also because software often doesn't help with the more complicated aspects of investing decisions that older investors need. Overall, "Canadianstend to place a high degree of trust in financial technologiesthat have a long history of operating in Canada, such as online banking, with lower levels of trust for newer services such as online investment advice (often referred to as "robo-advice") and peer-to-peer 5 lending." So, despite the hype and the mobile-first strategies of start-ups like Wealthsimple, most Canadians aren't ready to embrace online-only financial firms with their investments yet. RCM's Marketing Mix These cautious, self-serve generations are making an impact on the kinds of financial products on the market, too. In particular, exchange traded funds (ETFs) have grown from 2.9% of total Canadian investment fund assets in 2008 to 9.3% in 2018.xv ETF is called an exchange-traded fund since it's traded on an exchange just like stocks, although it's a selection of stocks from that exchange. Instead of picking a particular stock, an ETF is like a bucket of stocks, representative stocks of a sector or of an entire exchange (for example, the SPDR Gold Shares ETF has a selection of gold stocks, while the iShares Core S&P 500 has a selection of shares representative of the top 500 businesses on the U.S. stock exchanges). ETFs are similar to mutual funds in that way but have low expense ratios and fewer transaction commissions. Another product gaining in popularity is fund-based asset allocation solutions (fund wrap programs) and fee-based accounts: that is, a flat-fee or fixed percentage of asset model. These account types are popular because the fees are predictable and transparent and provide flexibility for the brokerage to make decisions to meet the client's financial goals. RCM offers both ETFs and fee-based accounts to their clients, as well as "traditional" financial services products, like mutual funds, bonds, and GICs.4 Forsome financial products RCM charges, a percentage based on the value of the investments (MER), while a transaction fee is charged for some other services. They have a complete price list on their website and charge competitive rates (see Appendix 3a and 3b). Currently, 55% of RCM's assets are in fee-based accounts (as opposed to transactional accounts), and fee-based assets are growing. To provide clarity on investing and to choose the model and products appropriate to each client, RCM Wealth 4 A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. Mutual Fund Definition. (2019). Investopedia. Retrieved 9 December 2019, from https://www.investopedia.com/terms/m/mutualfund.asp -A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Understanding Bonds. (2019). Investopedia. Retrieved 9 December 2019, from https://www.investopedia.com/terms/b/bond.asp -GICs: A guaranteed investment (interest) certificate is a deposit investment security that Canadian banks and trust companies sell. Individuals and investors often purchase these for retirement plans because they provide a low-risk fixed rate of return. Guaranteed Investment (Interest) Certificate (GIC). (2019). Investopedia. Retrieved 9 December 2019, from https://www.investopedia.com/terms/g/gic.asp 6 Management Advisors offer prospective clients complimentary meetings, goal setting, and written overviews. RCM's Wealth Management advisors operate out of their four locations, three in Montreal (Westmount, West Island, and South Shore) and one in Calgary. There are plans to open a new office in Toronto in the near future. Each office has investment advisors, administrators, portfolio managers, and a branch manager, as well as insurance advisor. For website visitors and prospects, the rothenberg.ca site offers an overview of services supported by testimonials, blog posts, financial calculators, and other resources. The primary call to action is to book an appointment. The website is available in French (see Appendix 4a) and English (see Appendix 4b). Their website allows clients to login and see their accounts, view the account value, individual holdings, and transactions as of the previous business day's close. Clients have the option of getting their statements, confirmations, and tax slips in hard copy or electronically. RCM does not have an online trading platform at this time. RCM has a solid search engine presence, in part due to their My Business profile on Google (although they don't currently have any reviews), ensuring top ranking for branded search on Google in Canada (see Appendix 5). Unfortunately, an old article (from 2000) related to a fine paid for record-keeping issue in 1998 appears in the first few results as well. They haven't engaged in search engine optimization (SEO) for other search queries, like "financial advisors," as it is extremely competitive and dominated by media (CBC.ca, Investopedia, Wikipedia, etc.), the Canadian government (Canada.ca), and large firms. RCM maintains an active presence in traditional and online media through ongoing and seasonal campaigns. They do not have an internal marketing department, so most is based on a do-ityourself approach. Email newsletters, for example, are created in-house by the officemanagers. The exception is social media, where they have hired a small company to post on their behalf to LinkedIn and Facebook and to write blog posts. The company allocates between 3-6% of revenues to their integrated marketing communications. On LinkedIn, RCM's social media agency shares relevant news posts as well as promotes their blog poststo 269 followers (see Appendices 6 & 7). They share similar content to the 1,249 people who "like" their page and the 1,237 people who follow the page (Appendix 8). Robert Rothenberg also has an active LinkedIn profile, as well as maintaining the Twitter account and website links (see Appendix 9). His LinkedIn profile has 1,144 followers. He reposts Rothenberg LinkedIn posts along with other industry-relevant content, in addition to actively engaging with others' posts. The Twitter account has 171 followers and consists of reposts from LinkedIn (see Appendix 10). 7 New blog posts are published on the second Friday of every month to rothenberg.ca and then promoted across Facebook, LinkedIn, and (via Robert Rothenberg's account) Twitter (see Appendix 11). Posts often feature prominently in email marketing as well. Posts are typically informative, related to the products and services offered by RCM (see a sample in Appendix 12). For existing clients and prospects, they have an email newsletter, using Mailchimp to manage subscriptions and preferences. E-newsletters (see Appendix 13) are sent monthly, and e-blasts (see Appendix 14) are sent periodically (based on current events or promotions). RCM is a long-time advertiser in newspapers, and still runs ads in the Montreal Gazette and the Calgary Herald, but the print audience has declined, and they are unsure if their ads are working (see recent ad samples in Appendix 15). Radio ads are used periodically, if there's a new product or significant changes. In the past they advertised on local television as well, but it was very expensive, and they couldn't see the return on marketing investment. Of course, they ask all prospective clients how they heard about RCM. Most new clients are referrals, followed by general brand recognition and passing trade (people who see an office by chance as they walk past it). Every time an investment advisor meets with a client, they ask for a referral, and offer gift cards for referrals. The Challenge Rothenberg Capital Management would like to not just maintain their strong and trusted financial planning legacy, but to grow their client and asset base in the shifting personal investing landscape. How can a company like RCM leverage their experience, their capabilities, and their loyal client base to attract the next generation of investors? How can they appeal to the cynical Gen-Xers and anxious Millennials in an age of information overload and poor financial literacy? Do they continue with their traditional media (newspapers and radios), since they have been successful in building the brand to date? How can they leverage the reach of online channels to make the most of their limited marketing capacity? How can they compete with the megacampaigns and reach of the Big Six and the tech-savvy approach of financial services apps? How can RCM create a customer acquisition strategy that builds on their successes and solid foundation for future growth

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