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© Copyright 2000 Rogers Media. The following article first appeared in the September 2000 edition of
BENEFITS CANADA magazine.
The stabilizing element
RT Capital's new president and chairman is a familiar face to pension plan sponsors and the money
management community. That's a big part of Michael Wilson's appeal.
Interview by Kevin Press
The same afternoon RT Capital Management Inc. announced its settlement with the Ontario Securities
Commission (OSC)--effectively putting an end to the high closing scandal--the money manager named Michael
Wilson as its new president and chairman. The former federal minister of finance brings sparkling
credentials to the job. He is trusted by clients, other money managers and perhaps most importantly,
securities regulators.
Your appointment has been characterized as political in nature. You are seen as a celebrity that can help
RT Capital put this issue to rest. Is that fair?
When I was asked to do this, the Royal Bank Financial Group as a whole wanted to do a number of things. We
wanted to send a message to clients and to staff here, that the Royal Bank Financial Group was supportive
of RT Capital. We wanted to see this business not just survive, but prosper on an ongoing basis. So it
needed to have some stabilizing element. And I guess I was seen as being the stabilizing element.
While I'm not someone who has been directly involved in the portfolio management business, I'm certainly
very much aware of portfolio management. I've been in the business, apart from my time in government, all
my working life. It's something that I understand, not to the detail of the portfolio managers who are
here, but it certainly is a business that I understand and have followed over time.
The other thing that we wanted to make sure was that whoever was going to take over was going to be seen to
be absolutely committed to doing what had been agreed to with the securities commission. I have been on the
other side of the desk, if you will, as a regulator in Ottawa as minister of finance. While the Bank of
Canada is not a regulator, in a sense it oversees financial markets. Obviously I had, as minister of
finance, regular meetings with the governor of the Bank. So I'm very conscious of the stability of
financial markets.
What damage has the scandal caused RT Capital's client-base?
At this point, after the first week in August, we have lost 15 or 16 clients out of a client-base of 700.
The assets are roughly the same percentage--less than 3%.
Have you won any new business since the story broke?
Yes, we have gained new clients. We are on some short lists as well for decisions on new clients that
hopefully we'll be successful on. Some of the hot media attention that we got in the early part of July
gave the impression that this was a pretty unstable business. In fact the business is not unstable. Yes,
we've lost four players on the portfolio management trading side, and some on the management side. But we
still have 92 people, and we still have just short of 700 clients. We have $37 billion in assets (as of
June 30, 2000).
How much of a financial impact did the high closings have on clients?
This is a very important point. The total amount of incremental fees that you can relate to the high
closing activities is about $10,000 overall. I was in a client meeting the other day where the client said
"now, what is the amount that you are going to be returning to us based on the increased fees?" This was a
nine-figure account. The client service person pulled a two-dollar coin out of his pocket and said "that's
it."
There has been some element of exaggeration, some sense that this is, in a material sense, much bigger than
it is. Now in an ethical sense--we feel very strongly about this--it was wrong. It should not have happened
and we broke faith with our clients as a result of that. But it's just caused us to redouble our efforts
and make sure that this doesn't happen again.
Did RT Capital's senior management know about the high closings?
Senior management did not know. It is as simple as that. They did not know that this was happening. And if
they had, based on my knowledge of the senior management, particularly someone like Mike Edwards who I've
known probably for 30 years in the business, this is just something that is anathema to him. He has been an
advocate of strong compliance, strong regulation and has had a lot of interaction with regulators over the
years. If he had known, you can be absolutely sure that he would have come down very hard, very quickly.
benefits canada has been told that high closing is common practice among Canadian money managers. If that
is the case, why would the governance systems at RT--and other firms--not check for its occurrence?
High closing is wrong on both sides of the street. Portfolio managers shouldn't engage in it. Stockbrokers
shouldn't engage in it.
Stockbrokers have a trading blotter which has a time stamp on every trade. Portfolio managers such as us
don't get those time-stamped order fills from the brokers. So, we didn't have that information at the time
that all this occurred.
We are putting systems into place that will allow us to confirm that. But at the time this was happening,
it was expected by portfolio managers that if the compliance systems of stockbrokers found that there was
some evidence of high closing that they would bring that to the attention of the clients.
Is high closing common practice?
I don't know the answer to that question. And I'm not sure it's possible for anybody to make a blanket,
absolutely firm statement one way or another. We don't have that information.
Do plan sponsors have any responsibility in situations like this, by their demands for consistent strong
performance and low volatility?
I don't know whether that's a realistic point of view. Should clients be demanding good performance? Yes.
[But perhaps they should be] saying, "when we ask you for that good strong performance, we also recognize
that there has to be some balance in risk/reward. We don't want you to aim for 100% this year if next year
you're going to lose 50%." There's a balance in everything.
I don't know that I would go to a client and say, "don't press us hard on performance, because you are
contributing to this happening." If I were the client I'd come right back and say, "no, you put in those
systems to make sure it doesn't happen." That is exactly what we're doing.
Do you believe RT Capital became a high profile target for the OSC?
Let's not use the word target. I don't think that they were targeting us when this whole matter started to
come to light.
I think they felt that, here is a firm that is part of the largest banking group in the country, a leader
in the industry, someone that should be a paragon, and they have made a mistake here. They have undermined
the ethical relationship that they have. If we do not deal with this in a strong forthright way, then we're
sending signals to smaller, less important players that if the big guy can get away with it, you can get
away with it too. I think in that sense they felt they had to be very serious about how they dealt with
this issue.
What are your goals in this new position?
The first goal that I have is talking to our clients and talking to people here [at RT Capital], getting a
better understanding of their perspective on the problems that we've encountered with the securities
commission investigation. The second is to implement the terms of the settlement agreement with the
securities commission. I see that in the context of the overall work that we're doing on compliance that
has been under way for some time now. Mike Edwards initiated discussions in that regard shortly after he
arrived in January 1999.
The third is to recognize that this industry is a very competitive industry. There are things happening in
the sector that we have to be responding to, and I want to make sure the people here are reviewing policy
changes from the government--the 30% Foreign Property Rule--and making sure that we are properly positioned
to move our asset base forward to take advantage of opportunities there.
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