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"Banking on Change"

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Barbara G. Stymiest
Chief Operating Officer
RBC Financial Group
The Economic Club of Toronto

June 20, 2006
Toronto, Ontario

Thanks very much for that kind introduction, Mark, and good afternoon ladies and gentlemen.

More than a couple of decades ago, back in 1983, a British rock musician by the name of Gordon Sumner --- whom you might recognize more immediately as Sting --- joined other band members on a little stage down on Queen Street West at the Horseshoe Tavern and broke out in a song that was to become the year's most popular.

Every Breath You Take propelled "The Police" into stardom and "Sting" into a position among Rock Royalty that still endures today.

There were about 18 people at the Horseshoe to witness the one-night-only event and there were probably just two or three who recognized that something significant was happening.

Needless to say the internet chat rooms had yet to be built.

Pictures allowed that night were captured on film.

And no one was able to call anyone and implore them to come on down to the Club in a real big hurry because the Horseshoe had only two payphones and one of them was always broken.

Ladies and gentlemen, as much as everything changes it seems true that everything stays the same.

1983 was the same year in which the US invaded Grenada.

And it was the same year that terrorists using explosives killed 237 US Marines in Beirut.

It was the same year that a Harvard Business School "guru" by the name of Theodore Levitt proposed in his book The Marketing Imagination an outrageous notion: the real purpose of a business is not making profits but creating and keeping customers.

And it was the same year, almost in reply to Levitt, that a schedule "A" bank known then as the Toronto-Dominion Bank decided to offer a discount brokerage service to the public. It was called TD Green Line.

Now he has lent his name to a number of noteworthy causes but I doubt that Mr. Sumner would offer himself up as a proof point of any business theory and the related adages that inevitably follow it into the market.

Still, if you were among those 18 who listened to the Police that night nearly a quarter of a century ago you would have been watching a man who today is worth hundreds of millions of dollars.

After breaking out on his own, he has released more than 20 albums that have sold something greater than 15 million copies in the US alone. He has appeared on television. He has had an acting role in 18 motion pictures.

He has appeared as himself in more than 130 films or television programs. He has performed his music either directly on or behind the scenes in 30 other films. He has produced one film himself, that very recently. And he has written an autobiography


If you are searching for something to wear that bears his name let me refer you to There you can purchase anything from clothing of every description to wall art to accessories, including downloads for the cellular phone you didn't own in 1983.

Sting has reached out to his market in every way possible. He has simply done what Theodore Levitt suggested a successful entrepreneur must do.

He has focused not on profit but on ensuring that he is reaching his customer in every conceivable way possible, attempting to extend his reach and refresh the relationship at every turn.

The fact that he has endured and that nearly every one of you in this room is familiar with his name, suggests to me that he has proved the theory. The money speaks for itself.

Levitt simply asks business builders to recognize the obvious: without customers in sufficient and steady numbers there is no business and without business, there is no profit.

It all sounds rather axiomatic. At least it certainly did in 1983.

What's changed?

Well as much as I might suggest, as I did earlier, that change always exists in a world that largely stays the same, I think there are some trends that have developed over the last 10 years and are here to stay; that promise an essentially new and I think lasting construct within the marketplace.

And I am not talking about the kinds of trends that the "cool-hunters" of the last decade from the fashion industry searched for in the back streets of Brooklyn or Berlin.

These people might have been useful in their brief moment in fashion history but knowing and caring about trends in popular culture is increasingly nothing more than table stakes: every retail business leader needs to connect with today keeping an eye on tomorrow.

In fact, if anything killed the cool-hunters off I think I agree with Grant McCracken, the self-described ethnographer and tireless blogger, who recently placed the blame on pop culture alone.

Quite simply an easy knowledge of consumer trends became infinitely more available toward the close of the 1990s.

Magazines, television, music, the Internet ---- all these points of reference (all of them the important touch points of Sting's distribution network) began to paint a new face on an increasingly fast-paced, complicated society. And corporations of every shape and size were starting to pay attentio


As McCracken put it earlier this month, "Increasingly, even the corporation had a clue."

In the madhouse that has become our lives the difficult challenge is often described by the gap that exists between the point of view of the seller and that of the buyer.

It might be narrowed with great marketing and a good product, competitively priced but truly meeting expectations in a lasting way requires an understanding, not simply of the buyer's needs, but of the changing circumstances that influence any determination of what those needs are.

I suggested a short time ago in Montreal that understanding the banking client of today meant understanding the influence of three pressing challenges I believe really have an impact on buying decisions.

Challenges of too little time, not enough trust and way too much choice combine, in my view, to really make an informed buying decision more difficult.

I still think that these pressures and concerns seriously influence buyers. What I hadn't reflected upon at the time is who those buyers have become.

In his book Treasure Hunt, Michael Silverstein explores a new universe, one that has apparently unfolded before our very eyes without a great deal of rapid response from retailers, even as many today admit to being caught scrambling.

As the "cool hunters" wandered the streets through the 1990s searching for the next great trend, the demand they were working to satisfy remained quite compartmentalized with the rich at one end and the poor at the other and a rapidly growing middle class jammed uncomfortably in between.

The rich were buying expensive things and the poor were buying cheap things and the middle class….well the middle class was buying everything else.

It is a spending spree that was predicted more than 10 years ago by Canadians David Foote and Daniel Stoffman. You might remember their book, Boom, Bust and Echo.

In it they concluded that money, which passed from grandparents to grandchildren, from people born before 1940 to people born after 1967, would be of an amount sufficient to give a truly measurable boost to the economy in the first two decades of the new century: this decade and the next.

They predicted that consumer spending would increase in the face of decisions to have fewer children and of ambitions to spend more on cars, houses, cottages and the other apparent necessities of life.

Silverstein captures this phenomenon but takes it further in his thinking. He argues that there has been a sort of quiet revolution over the last several years that has seen the middle class break out of their confinement into a new buying paradigm, one that has them "trading up and trading down" at the same time.

So sales at the top end of the market, the luxury items that middle class consumers have historically said they couldn't afford, have taken off driven by the middle class "trading up".

And sales at the bottom end of the market have grown enormously as well largely because of the same middle class "trading down" in search of a deal or bargain that will partially offset the cost of the luxuries they have chosen to buy. Just look at the success of Walmart and Costco.

What's happened to retail in the middle, the mid-market?

Considering these trends, the Economist magazine recently suggested that at least some of the woes of General Motors, an archetypal mid-market manufacturer, stem from the fact that between 1994 and 2004 the market segment choosing to trade up to luxury vehicles grew by eight percentage points.

The segment that chose to "trade down" into a more inexpensive vehicle grew by four points.

The mid-market? That shrunk by twelve.

Much of the momentum within this new dynamic is coming from women. If you didn't see it in the Globe a few weeks ago let me recall for you the conclusions reached in an article written by Heather Scofield and Tavia Grant: women are making the economy "go around".

58 percent of all women of working age in Canada now have jobs. In the United States women are responsible for 100 percent of the growth in real household income between 1970 and 2004. 48 percent of stock market investors are women. In developed markets around the world, women control or influence more than 75 percent of discretionary spending.

In the April 12th edition of the Economist magazine it is suggested that "…women are more likely to provide sound advice on investing their parents' nest egg: surveys show that women consistently achieve higher financial returns than men do."

I think retail is changing. And banking has to change with it.

Canadians tend not to look at banks this way but really, we are in the retail business. We exist and operate on the ground floor like nearly every other retail operation reaching out to our category of the "shopping public" just like any of the stores you might be familiar with around town.

Architecture and design combine with signage to move the retail customer through the bank more easily in search of the determined necessities. As Paco Underhill points out in his book Why We Shop, banks actually sell things - "…every service a bank performs or financial instrument it offers produces a fee."

If we have advantages many other retailers don't these probably connect to automation and to the Internet, two increasingly popular options that provide greater access to our products and services in a new century.

But we can't move up or down the value chain quite as freely as other retailers in an effort to meet the new trends in the marketplace that I have spoken about. Despite images anyone might hold of our retail bank much of our business is positioned squarely in the mid-market as any close examination of the demographics makes clear.

Very wealthy Canadians tend to search out unique arrangements that capture investment management and advice within private banking. And low-income Canadians may avoid banks entirely.

So really it is the financial service needs of the new middle class, and the expectations that attach to them, that have evolved in ways that are enormously important to us in our effort to create and keep customers.

Perhaps the most compelling of these is the increasingly obvious desire to simplify a congested lifestyle with the help of a single financial services provider.

This entails a consolidation of accounts, investment portfolios and debt - essentially trying to meet new needs inside the same client relationship. You know….trying to keep the client you have created.

And it involves other service and product options that Foote and Stoffman identified more than a decade ago as being areas of obvious growth for those in the financial services industry.

One of these is insurance.

They suggested that an older population is likely to acquire a lot of things that will need to be insured.

And an older population would likely produce large numbers of travelers who would be interested in travel insurance.

At the same time they predicted that a lot of younger people buying new things like cottages and cars would be looking for insurance to protect those investments.

It appears clear that insurance buyers are changing in the face of new and more immediate needs, needs that I remain convinced attach to the three issues I raised earlier; no time, no trust and too much choice.

Last week the federal Minister of Finance released a White Paper outlining the details of a recent review of banking rules and regulations.

It was noticeably mute in response to the stated desire of Canadian banks anxious to offer a full range of insurance as part of the basket of products available through our branch network.

Nothing was said about our selling of insurance in other ways, however. RBC Insurance provides a wide variety of protection products to millions of Canadians and many more millions of North Americans.

We are pleased with our progress in an area of expansion that remains comparatively new. And the response from the public is encouraging.

So let me for a moment return to where I began by suggesting to you that the more things change the more they stay the same.

Because I remember when the Toronto-Dominion Bank introduced TD Green Line in the spring of 1983. At the time, they took unsolicited orders for stocks and relayed them to brokerage firms through a relatively advanced information system.

The Bank Act had been revised in 1980 preceded by a White Paper in 1976, which was anything but mute in its definition of a bank's power to "deal" in securities. "The power of banks to underwrite corporate securities or to act as agent in the private placement of corporate securities will be withdrawn."

In April of 1983 the Toronto Dominion Bank jumped on the deregulation of brokerage commission rates and offered a discount brokerage service to the public. They wanted to reach Canadians who wanted to invest in the market but in a less expensive way.

The industry went berserk.

The Toronto Dominion Bank was hauled before the Ontario Securities Commission where to the great angst of everyone with a vested interest in brokerage in Canada, the Commission eventually ruled in favour of the bank and confirmed the deregulation of brokerage commission rates.

TD Green Line was in business.

A year later, then Royal Bank Chairman Rowland Frazee really put the cat among the pigeons when he suggested in a speech to the Canadian Tax Foundation not simply that banks should be able to underwrite securities. No, he went further and argued that the traditional separation of functions in the Canadian financial system were coming apart with or without government policy changes.

Now everyone went berserk.

Fears that the investment dealer industry would disappear were shared with any audience who might listen. The rhetoric was shrill. The facts conveniently assembled.

Research studies were commissioned that produced unequivocal findings: investors didn't want their brokerages and their banks to be connected in any way.

But slowly the hysteria cooled down. In February of 1986 OSC Chairman Stanley Beck told the Empire Club that allowing the six major banks and five major insurance companies to compete in the financial markets, "…would be to the great advantage of Canadian capital markets, Canadian issuers and Canadian investors."

Seven months later, then Finance Minister Michael Wilson traveled by helicopter and dropped from the sky onto the front lawn of Chateau Montebello in Quebec to have a little Sunday lunch with the chief executive officers of the six big banks.

By the serving of coffee they had agreed in principle that the banks could go ahead and increase their access to the securities industry in Canada either through acquisition or by creating their own internal facility.

The rest is history as they say. The securities industry in Canada has not collapsed. In fact it has never been more robust. There are 206 investment dealers in Canada and nearly 52 percent of Canadians are investing in our equities markets.

So I think you will understand why amidst the current debate I am feeling a little déjà vu. Most Canadians understand that the insurance industry has contracted with Great West Life swallowing both London Life and Canada Life, Sun Life acquiring Clarica and Manulife ending up with Maritime Life through its acquisition of John Hancock. The big six have become three.

In everything that's been said or written lately, I believe that most thinking Canadians are shaking their heads trying to understand how it can possibly be that restricting new participants into a marketplace that has seen enormous consolidation over the last few years will somehow improve consumer freedom and choice.

I don't think you need a high school diploma to recognize the weakness in this argument. Less choice doesn't mysteriously improve choice.

In a recent op-ed piece in the National Post Advocis Chairman Gary McLeod states without qualification that Canadians have said "they neither need nor want bank growth into an area in which they already feel well served."

The thrust of Gary's argument is that the insurance consumer shouldn't be confused with more choice even though that consumer might be looking for more choice. The status quo may be caught in the past but it is our past and isn't it great to be Canadian.

Gosh this kind of thing sounds vaguely familiar to me. It will to anyone who was in Toronto around 1986.

But never mind. My question to Gary is which Canadians is he talking about?

Certainly not the 5 million Canadians who continue to buy a wide range of insurance products from banks in our country. They do it over the telephone, over the Internet or in any one of the increasing number of retail outlets that have been built for the purpose.

So the rhetoric has been high and often distant from the facts.

In April a fellow wrote a letter to the editor of the Globe taking exception to my comments in Montreal. I said that it was bizarre that an individual couldn't buy insurance at a branch of our bank or be referred to our insurance professionals but could certainly make that purchase at a grocery store.

This gentleman rebuked me in his letter saying, "nobody can purchase insurance at a grocery store." My point was simply that there is no regulatory prohibition against grocery stores selling a full range of insurance products unlike for banks, and today Loblaw's promotes insurance through brochures and advertising in its stores and then provides a toll free number.

We are not discouraged that the Minister of Finance has decided to remain mute on the entire subject on selling or advertising our insurance products through our branch network.

We are confident this time will come and until it does we will stay the course.

We believe Canadians are searching for alternatives that meet their needs. We believe we offer an alternative, one that is entirely free of any of the baseless claims made about our ambitions.

The consumer of the 21st century is changing and those of us in financial services must change to meet the expectations that increasingly become so very different from years ago.

No one will buy insurance from RBC Insurance if they believe that they are well served by their present supplier.

Why would they? Like everything else, selling insurance is all about creating and keeping a client. So if the traditional sellers are concerned about the new sellers maybe they should reflect on the new consumer in the market.

And when they pass our retail outlets in malls and street corners across Canada or when they see or hear our advertising for RBC Insurance, perhaps they will recall TD Green Line, the discount brokerage that changed the face of the securities industry in Canada….forever.

Every Breath You Take was one of the songs on the Police's Synchronicity album. It was named one of the 50 best albums of the decade. Synchronicity was a name drawn from Arthur Koestler's book The Roots of Coincidence.

Another song on the album was called, Walking In Your Footsteps. The band also performed it that night in 1983 at the Horseshoe Tavern.

The last verse goes something like this…

"Fifty million years ago,
They walked upon the planet so,
They live in a museum,
It's the only place you'll see 'em."

Thank you very much for your attention.