CONFIDENTIAL

Young Emerging Affluent Segment Opportunity

Mutual Fund Acquisition Strategy

Date: August 18th, 2017

Problem 1

Per research, there are notable opportunities and vulnerabilities to

consider for the mutual fund business
Vulnerability
 Increasing migration to mobile (26% CAGR) from other declining channels, however, mobile is mainly a servicing
channel and is unpopular for making investments. An adoption strategy is needed for mobile mutual fund sales.
All
Opportunity
 Underpenetrated segment (51%)
 High perceived value of advisor,

Opportunity
 Advised portfolio mix is significantly weighted towards actives like mutual
funds (47%) vs unadvised (28%)
Advised
Vulnerability
Service Models

 Increasing perceived value of a financial advisor but poor relative returns

and long-term financial security are not justifying perception

Opportunity
 Given increasing trust and perceived value of an advisor, the hybrid model
offers an entry point to financial planning for younger mobile adopters
Hybrid

Non-
Advised

Mass Retail Mass Retail Plus Mass Affluent, HNW, UHNW

(<100K) (100 – 200K) (200K+)

Client Wealth Bands

2
Problem 1

Young emerging affluent clients are an underserved, digitally savvy

segment that are increasingly interested in financial advice
Client Wealth Bands
Three key trends / insights denote a Key trends
significant segment opportunity

Mass Affluent,
1  Digital channels, especially Mutual Fund Mass Retail Mass Retail Plus
HNW, UHNW
Channels / Roles (<100K) (100 – 200k)
mobile, are seeing significant (200K+)
adoption, specifically from
younger demographics, while
traditional channels are in
decline Financial advisor(1)
 There should be a focus on (in-portfolio)
digital (mobile) functionality to
align with growing customer
preferences Advised
Remote advisor

2  The Emerging Affluent wealth

band is an underpenetrated
segment that is increasingly Self-directed
seeing greater interest in with Remote
Advisor
having a financial advisor

3  Households with financial Financial advisor

Non-Advised

advisors should be prioritized (transactional)

as they tend to be wealthier
and much more likely to
invest in mutual funds when
compared to non-advised Self-directed
households

The young emerging affluent segment served by mobile channels is the intersection that capitalises on all three trends

1. Assumed to be anyone that is a client with an IRP, FP, IA or PB within a portfolio 3

Problem 1

Additional research would provide greater insight into the viability of

the young emerging affluent segment
The viability can be assessed by understanding the customer, competitors, and company capabilities. However, this is all
underpinned by the ambiguity of upcoming regulation

Market and customer insights Competitive threat Company alignment

 Market size and growth
o What is the total investable
assets of the young
emerging segment?
o What are their product
preferences? ETFs?
 Profitability
o What is the ROA and margin
of the hybrid model?
 Capturable opportunity
o How sticky are these
customers? Switchers?
o Which acquisition channels
can be used to max. leads?
 Which banks currently or plan to
play in the hybrid model space?
o What is their pricing?
o What return do they offer?
 Which fintechs currently attract a
similar client segment?
o What is their value prop?
o What is their pricing?
o What return do they offer?
 What other alternatives exist in
the market?
 Strategic alignment
o Does this segment align with
the long-term asset growth
strategy of RBC? (Think
customer journey)
 Capabilities
o Do we have the appropriate
channels and reach to
market to this segment?
o Do we have the capabilities
to offer the hybrid model?
o Do we have the financing for
the marketing and building of
capabilities gaps?

 What is the impact of the Mutual Fund trailer fee ban affect the profitability of this proposed opportunity?
What are pricing alternatives to recover lost revenue?
Regulatory change
 How will Targeted Reforms affect cost to serve and the advisor/client relationship?
 How will best interest standards affect an advisor’s ability to push a high ROA product like Mutual Funds?

4
Problem 2

The decision to enter Mo Money is divided into three decision points,

based on external trends and alignment with internal capabilities

3 1 Is this a sizable opportunity?

Partnership Market size and growth

 What is the total investable assets of the market?
 What % of the invested assets are mutual funds?
 How is that mix changing over time?
2  What is the ROA? Is there fee compression?
Customer segmentation

Inv Hou
• What are the demographics of investments clients?

es se
• What are their channel and product preferences?
s
nk

tm
• How sticky are they to their existing advisory relationship?
1
Ba

en
t
Is there an 2 Who are the competitors?

opportunity?  Who are the incumbents? What are their market shares?
 Which competitors can we expect to enter the market?
 What is their servicing model?
 What is their pricing?
Gr

 What is their return?

ire
e en

qu

Online/Fintech
fie

Ac
ld

3 How do we enter the market?

Do we partner, acquire, or start new?

 Is local distribution highly accessible?
 Do we have the capabilities to serve the market?
 What are our financial limitations for market entry?

5
 CONFIDENTIAL

Senior Manager, Branch and Advice Centre Client Experience role

Mutual Funds Distribution and RBC Financial Planning

Date: June 26, 2017

 Channel Usage Habits

7 Canadian Financial Monitor

 How Canadians are using the various banking channels

This chart shows the incidence of Canadians using the various channels over the past month.

2011 2012 2013 2014 2015 2016

8 Canadian Financial Monitor

 Channel combination usage analysis – Canada

Top 10 Combinations (79% of Households)

[T]ellers, [A]BMs, [P]hone, [O]nline, [M]obile
AOM+TAOM+O
2012 = 8%
22 2016 = 18%

18 18 18

11
8
7 7
6 5 5 5 5 4
4 4 4
2 3 2

TAO AO AOM TAOM TAPO TA T TO TAPOM O

2014 2016

9 Canadian Financial Monitor

 Almost 7 in 10 households use between 2 and 3 channels per month.

Distribution of households by the number of channels used in the past month

37
34 34 34

16 15
11 12

3 4

1 channel 2 channels 3 channels 4 channels 5 channels

2015 2016

Average Age (2016):

56 53 50 46 41

10 Canadian Financial Monitor

 What are people using mobile banking for?

% of mobile banking users conducting the various transactions using their smartphone

54
50 51
48

41
39

6 5
3 2 3 1

Paid bills Getting account Transferred Make an Applied for a Complained

information money investment new product about something

2015 2016

11 Canadian Financial Monitor

 The Value of Financial
Advice

12

12 Canadian Financial Monitor

 About 4 in 10 (37%) households in Canada have a financial advisor

% of households with a financial advisor

70
66

53 51
41 42
37
32

14 16

All Households < $25,000 $25,000 to < $100,000 $100,000 to < >=$200,000
$200,000

Value of Investable Assets

2012 2016

13 Canadian Financial Monitor

 I believe a financial advisor could help me in today’s economic situation
% strongly agree (top 3 box on a 10 point scale)

37
33 34
30
27 27 27
26
21 22

All Households < $25,000 $25,000 to < $100,000 $100,000 to < >=$200,000
$200,000

Value of Investable Assets

2012 2016

14 Canadian Financial Monitor

 I trust that my financial advisor will offer advice that is in my best interest
% strongly agree (top 3 box on a 10 point scale)

55 55 54
49 50
46 46 45

35 36

All Households < $25,000 $25,000 to < $100,000 $100,000 to < >=$200,000
$200,000

Value of Investable Assets

2012 2016

15 Canadian Financial Monitor

 About 3 in 10 advised households feel strongly changes in their investment value was
largely influenced by advice from their advisors.
Much of the change in the value of my investments I attribute to advice from my
financial advisor
% strongly agree (top 3 box on a 10 point scale)

35
31 31 31
29
27 27 28
26
23

All Households < $25,000 $25,000 to < $100,000 $100,000 to < >=$200,000
$200,000

2012 2016

16 Canadian Financial Monitor

 Advised households are more affluent than non-advised households

Average household net worth

$356,852
$330,974
All Households $311,089
$288,871 2012
$283,865

2013
$563,357
$526,528
Advised $498,363 2014
$479,159
$468,482
2015
$238,054
$225,964
2016
Non-Advised $211,227
$195,481
$195,887

17 Canadian Financial Monitor

 Advised households are more likely to invest in stocks or mutual funds.

28
41
47 Mutual Fund

Stock
26
Bond
25
4
24 GIC

5 19
Chequing and
5 Savings
14
11
24
16 12

All Households Advised Non-Advised

Canada – 12 months ending December 2016

18 Canadian Financial Monitor

 While advised households are more satisfied with their current financial situation, they
are equally concern about retirement as non-advised households.

I am satisfied with my current financial situation Being able to retire in comfort is a constant concern for me
% strongly agree (top 3 box on a 10 point scale) % strongly agree (top 3 box on a 10 point scale)

46
43 43 43
35
28

All Households Advised Non Advised All Households Advised Non Advised

Canada – 12 months ending December 2016

19 Canadian Financial Monitor

 Executive Summary
• The Mutual Funds Distribution and RBC Financial Planning business goal is to continue to extend its lead as Canada’s top mutual funds dealer by growing AUA to 208Bn (8.6% CAGR) by 2022. The
business will achieve this by helping Canadians achieve their long-term financial goals – comfortable retirement, a child’s education, or a special purchase. The integrated approach across Client , Distribution
and Product strategy will be key enablers.

• The Market By The Numbers: To meet their financial goals, Canadians have greater confidence in mutual funds (86%) than other financial products such as GICs (59%), bonds (51%) and stocks (64%).1 In
fact as of December 31, 2016. 1, Canadians have invested $1.34 trillion in mutual funds, which represents approx. 33% (4.9 million) of Canadian households holding mutual funds1. Mutual funds account for
31% of Canadians’ financial wealth. 1

• RBC And The Investment Fund Market: RBC’s (GAM) Assets under Management of $198Bn represents 14.8% of total mutual fund investments in Canada. This #1 position is followed by TD Asset
Management at 9.4% mutual funds market share. Although RBC is a market leader, there is $2.1 Tr Canadian Investment Dollars Outside RBC 2 with $800 Bn in total Wealth transfers expected in the next 8
years.3

• Forces of Change are playing a significant role in shaping the present and future of the Mutual Funds Distribution business and more broadly the Investment Industry

• Major changes in client demographics - Boomers are transitioning into retirement, and Millennials and the workplace are becoming key areas of importance and growth

• Fintech and other new entrants (ROBO/passive) that are re-defining the service and advice model – driving further focus on fees, performance, and overall value for money

• Significant regulatory changes on the horizon including Investment Reforms (33-404), potential banning of embedded mutual fund fees, pension reform and financial planning regulations will challenge
traditional pricing and revenue models and require further business evolution and innovation.

• Our Strengths and Investment in the following areas will support continued growth and profitability:

• Mass Affluent/Pre-Retiree: Targeted contact strategy anchored with a strong advice proposition, portfolio solutions and family/tiered pricing through Investment Advantage Account

• Distribution: Growing IRP & FP Sales Power, Building our Workplace & Business Owner Value Propositions, and evolving our digital capabilities through My Advisor

• Innovative Products and Pricing: Enabling the Investment Advantage Account as our “Account of the Future” with new enhancements and features, Group TFSA, DCPP, IPP, and RCA

• Digital, Data and Technology Platform: My Advisor, Auto PAC/ PAC Escalator, Leads Optimization, RBIS Web Enablement

 Key 5 year Success Measures & Performance Indicators ~ FY 2016 to FY 2022:

Key Drivers Key Outcomes

• Grow # of mutual fund clients from 1.86MM to 2.2MM (2.7% CAGR) • Total Average AUA projected to grow at 8.3% 5 yr. CAGR; (125Bn to 208Bn)

• # of PACs from 1.53MM to 2.04MM (4.9% CAGR) & PAC assets from $2.2Bn to • Increase Gross Revenue from $895MM to $1353MM
$3.5Bn (7.9% CAGR)
• Increase NIAT from $317MM to $579MM (13% CAGR)
• LT MF Net Sales from $4.19Bn to $7.27Bn

1. https://www.ific.ca/en/info/stats-and-facts/

2. RBC, “2015 Q1, Wealth Scapes”

3. 2015 Household Balance Sheet Report

Strategic Intent
Business Vision / Objectives
The Mutual Funds Distribution and RBC Financial Planning business goal is to continue to extend our lead as Canada’s top dealer by growing AUA to$208Bn (8.6%
CAGR) by 2022. We will achieve this by helping Canadians achieve their long-term financial goals – comfortable retirement, a child’s education, or a special purchase.
Our integrated approach across Business, Client , Distribution and Product strategy will be key enablers.

Our targeted focus on key client segments like our Mass Affluent/Pre-retirees, Young Emerging Mass Affluent/Millennials, Business Owners, and Group clients
will ensure that marketing and sales initiatives are aligned to areas of growth in the macro environment. We will leverage our powerful distribution channel to
interact with clients on their terms and provide relevant solutions and advice according to their life-stage and needs. Evolving and investing in digital and
platform capabilities like MyAdvisor, will allow us to engage with clients based on their preference, attitudes and behaviors. Access to new client data and
information on key life triggers will improve our interactions and add new engagement nodes, including direct to client (DTC) through alerts, client dashboards
and mobile triggers.

The next 3 to 5 years will see our business undergo transformational changes driven by Regulatory Environment, Technology, Customer Preference,
Demographic Shifts, and Intensified Competition. Our Success will be driven by focusing on the following areas: Evolving our Digital, Data and Platform
capabilities, Simplifying and Optimizing our E2E experience, Reimagining our Workplace Strategy, Increasing our Distribution Power (Capacity +
Productivity), Innovative Products & Pricing and Capturing key client segments of growth.

Current Core Beliefs/ Priority Initiatives Target

Measures Assumptions Measures1
2015 2016 2019F 2022F
# of Personal Mutual 1. Forces of Change will drive 1. Deliver “value for money” to our mutual fund investors – Enhancing # of Personal Mutual
Fund Clients client preference and Investment Advantage Account, CRM2 Treatment Strategy, PH&N ~ Light Fund Clients
expectations around Advice
1.84MM | 1.89MM simplicity, cost/value, 2.04MM | 2.2MM
access, and performance
2. Evolve our workplace & business owner offering: Business Owner
PRPP & DCPP1 Planning National Launch; Build and launch Group TFSA, DCPP, IPP, RCA.; PRPP & DCPP
2. Distribution power thru $AUA
$AUA multichannel access and Expanding PRPP to other provinces
specialized salesforce will
0.2MM|1.1MM be a client differentiator 3. Grow our IRP / FP sales power: Talent recruitment, practice management 2778MM|3977MM
( productivity and performance), Leads on Demand
#of IRP/FP FTE 3. Life Events/triggers across #of IRP/FP FTE
key client segments must 4. Evolve digital investment advice through MyAdvisor into a distributed access
969/1078|1029/1173 be identified and won 1270/1262|1450/1338
model
4. ‘The Workplace’ will
# of Pacs provide significant new # of Pacs
investment client growth 5. Simply and optimize our end to end client experience: RBIS We-enablement,
5. Digital, Data and Machine Auto PAC& PAC Escalator and MFRP Operations Efficiencies 1.78MM | 2.04MM
1.46MM | 1.53MM
learning will be a core
requirement for real time 6. Capture the retirement client opportunity, Launch new target date funds, Total Avg. $AUA
Total Avg. $AUA1 insights and decisions Retirement Brand, Advertising and Leads Optimization
21
125Bn|138Bn 162Bn|206Bn

1. AUA measures are for years 2016 and 2017

Market Attractiveness and Competitive Position


Market Attractiveness Competitive Position

Industry size for Assets Under Management ($Bn) Market Share and Ranking (Long Term Funds + Money Market)
#1 #2 #3 #4 #5 #6

 RBC continues to be the leader across key business performance

indicators relative to peers:
 Mutual Funds assets in Canada are expected to grow 5 to 6% CAGR
from Dec 2015 to Dec 2020. - RBC GAM AUM ($198Bn Vs. $126Bn closest competitor); Market
Share (see chart) and 12 month Capture Rate (50% Vs. 19%
 This slower overall market growth rate over the next five years (relative to
closest competitor)
that of the past half-decade) is based on changing demographics and
alternative products/offering - RBC Mutual Funds Distribution AUA ($132Bn)
 Over the last few years, RBC Mutual Fund (GAM) business has outgrown  Our winning value proposition is underpinned by:
nearest competition and holds #1 Market Share position amongst the 7 - Award winning funds, portfolio solutions, and investment
major banks (32% Vs. 20.5% (nearest competitor)) and #1 market share management
in the overall Total Mutual Fund Market (14.5% Vs. 9.4%(nearest
competitor)) - First mover in areas of advisor digital capability ~ My Advisor
 Gross new clients targeted to grow at 2.0% CAGR for the next five years - Distribution Power through largest specialized salesforce, branch
network, advice centres and on-line
 5 yr Revenue Growth expected to be up $363MM; 6.6% CAGR
- Targeted Client segment strategies
 “Forces of Change” will impact the investment industry:
 Top competitive threat
- Changes in client demographics and preferences will provide both
growth opportunities (money in motion/wealth transfer) and attrition - Accelerated growth of ETFs is impacting growth of the mutual funds
industry. Eroding distinction between traditionally passive style
risk (de-accumulation, movement to passive channel/products)
ETFs and growth of DIY & Robo Vs. actively managed mutual
- Business models will undergo Fee margin compression due to funds is creating heightened investor sensitivity across areas of cost
regulatory changes in fee transparency, competitive pricing against and performance.
passive options & ROBO, and regulatory movement to ban series A
embedded fees.
- Intensified competition through new platforms and products that are LOB Market Leader
data and digitally enabled Revenue Growth (3 year) 11% ?
Operating Margin or Efficiency Ratio 51% ?
ROE 110% ?
1 RBC
Market Share / League Table standing / AUM
22
Client loyalty / Satisfaction1 35.5%1 RBC1

1. 2016 Customer Service Index study from Ipsos; 2016 Best Banking Award Winners; 35.5% is for Financial Planning and Advice Category; 3 way tie with RBC, TDCT, and BMO
Client Segments
RBC Segment Distribution Client Trend Analysis Client Segmentation Analysis
 The Retirement segment (age 55+) is the highest growth
segment in Canada with estimated 34% of the Total NIAT $307 $393 $541
population and $50B of financial services revenues by
2025. Mass Retail 5% 6% 8%
MA 55+
(23.3%) 33% 32%
 Mass Affluent Canadians are in particular need and seek Mass Affluent 32%
integrated advice and solutions for tax efficient (Other)
Mass Retail MA Other
(21.9%)
retirement income, release of home and business equity,
(54.8%)
and risk protection and estate planning at key life 62% 62% 60%
events. Mass
Affluent 55+
 Women represent a growing part of this segment and
2012 2013 2014
are a significant opportunity for financial services
providers.
RBC RBC
Share of Segment
FI’s Revenue

 The Mass Affluent segment, particularly the Nearly & Newly Retired, is projected to grow faster than the overall market. RBC’s growth of Mass
Affluent retiring clients has been strong at 11% over the last two years, vs. flat for Mass Retail clients.
 RBC currently holds a 61% share of wallet among our ~400k Mass Affluent clients.
 Life Events are critical ‘money-in-motion’ opportunities for RBC: Clients require relevant advice and are willing to consolidate with the ‘right’
service provider at these times. The three largest opportunities are retirement, business owner planning / transition and inter-generational wealth
Mass transfer / estate planning.
Affluent 33.6% $768MM  Our focus remains to expand the delivery of our Financial Planning value proposition to meet the needs of this segment and grow new clients and
55+ deepen our relationships with our existing clients.
• Initiatives to target this segment include: Continue to build our Retirement brand; Evolve investment solutions (Retirement Wrapper for
Investment Advantage Account, RBC Retirement Portfolios); Increase our advice and planning sales force capacity by growing the FP and IRP
sales force, Evolve Practice Management & Capabilities to enhance IRP & FP performance and productivity.
• Provide FPs My Advisor digital capability to enhance client experience.
• High potential leads optimization through our Home of Best Fit (HOBF) contact strategy executed by IRPs represent a significant consolidation
/switch opportunity

 This segment holds high lending balances relative to the 55+ group, however, relatively low balances relative to the Mass Retail population.
Mass  This segment values expert advice to manage their finances, however, are more likely to do their own research.
Affluent 33.7% $409MM  Initiatives to target this segment include: Expand the delivery of our FP value proposition to more of this segment, introduce a more robust annual
Other review and client contact program for those clients who are not managed by a FP, and transform branch based advice and planning platform
through “My Advisor”.

 This segment has relatively high lending balances and more limited funds available for investing. Their investment needs tend to be less complex
Mass and include: saving for retirement, education, and a major purchase (home). 23
26.5% $275MM
Retail  Addressing this segment through our multi-channel strategy, including our Workplace focus and My Advisor platforms will be important to
winning in this space. We will also launch Auto PAC and PAC accelerator initiatives to grow balances in this segment.