The acquisition of the private-banking assets of MFS McLean Budden Ltd., a subsidiary of Sun Life Financial Inc. of Toronto, by Canadian Imperial Bank of Commerce (CIBC) gives the Toronto-based bank a stronger foothold in the profitable wealth-management business.
With the deal expected to close by yearend, CIBC will acquire about $1.4 billion in assets under management (AUM). Clients include high net-worth individuals, families, endowments and foundations. The cost of the assets, which represent only a small piece of MFS McLean Budden, was not disclosed.
“The purchase is attractive to us,” says Gary Whitfield, managing director and head of CIBC’s private wealth management division in Toronto, “in pursuing our strategy to strengthen our relationships with high net-worth clients and selectively grow our distribution network.”
Less than a year ago, Sun Life had moved to beef up its global wealth-management business by buying the 32.4% of Toronto-based McLean Budden Ltd. the insurer did not already own, having originally purchased a majority stake in 1997.
Sun Life then brought the renamed MFS McLean Budden under the umbrella of MFS Investment Management, Sun Life’s Boston-based global investment-management arm specializing in mutual funds and institutional investment products.
From MFS’s point of view, the private-client side of MFS McLean Budden’s business did not fit with the Boston-based firm’s strategy of selling investment products through financial advisors and managing money for large institutions.
“Private wealth management is not a business strategy for MFS,” says Dan Flaherty, a spokesperson for MFS in Boston. “And McLean Budden’s private-wealth group’s model of working directly with individuals, families and smaller institutional clients was inconsistent with MFS’ business model.”
MFS McLean Budden’s AUM will become part of CIBC Investment Counsel, a division within the private-wealth arm of the bank, Whitfield says. The deal will spread MFS McLean Budden’s investment-counselling team among three CIBC offices, in Toronto, Vancouver and Montreal. Says Whitfield: “These are the three priority markets for reaching high net-worth clients.”
Peter Routledge, financial services analyst with National Bank Financial Ltd. in Toronto, says wealth management accounts for 10%-11% of CIBC’s earnings, but the bank would like to take it to 15%. “At the end of the day,” he says, “the bank is buying relationships with clients. And if all goes well, it retains those relationships and assets. McLean Budden’s team of advisors will now have access to the resources of a large bank, including its capital markets and investment research expertise.”
No material difference
Routledge says the sale will not make a material difference to Sun Life, which is concentrating on its preferred areas of wealth management – including MFS McLean Budden’s retail and pooled funds, which can be distributed through Sun Life’s distribution network – as well as on its large, institutional accounts.
MFS McLean Budden’s private-wealth clients have a minimum account size of $1 million in investible assets, but the average account is significantly larger, Whitfield says. CIBC’s private-wealth division, he adds, has been growing at about 20% a year, providing a stream of steady fee-based income.
“We’ve already seen strong growth,” Whitfield says. “And although organic growth has been working well, we hope to build momentum through the acquisition.”
Whitfield adds that the acquisition is a good “cultural fit”: an investment-counselling team that is “high-end, service-oriented” with close ties to individual clients.
Most of Canada’s banks have targeted wealth management as a profitable growth area, and several acquisitions have been made in the past few years. For example, Toronto-based Royal Bank of Canada had purchased Vancouver-based Phillips Hager & North Investment Management Ltd., and Bank of Nova Scotia had bought DundeeWealth Inc. (both based in Toronto).IE
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