About a week ago, CBC’s Go Public segment shed light on some aggressive sales tactics that big banks are using. In the article, bank employees spoke out about the pressure they face from management to hit sales targets. So in order to hit targets, they push credit cards, overdraft protection, premium chequing accounts, and lines of credit – regardless of whether or not the client needs the product.
“I was made to feel as if I was committing a huge wrong for looking out for the best interests of my customer over the interests of the bank,” says Dalisha Dyal, who worked as a TD teller in Vancouver for four years.
Another TD teller says the relentless pressure to meet sales numbers is so severe, the teller is currently on a medical leave.
In a follow-up story, employees from the other big banks have come forward with their own stories of high-pressure sales requirements.
A financial services manager who left BMO in Calgary two months ago said he quit after having a full-blown panic attack in his branch manager’s office as she threatened to stifle his banking career because he hadn’t met sales targets.
“It was like the only thing they cared about at BMO,” he said. “If you weren’t selling, you weren’t worth having around.”
Honestly, the article didn’t surprise me. Anytime you visit a bank branch, they are usually trying to push some product or another. If you get a mortgage with a big bank, it’s almost a guarantee that they will recommend mortgage life insurance (I recommend that you get your own term life insurance instead). It’s really no different than any other sales oriented company – the same thing happens when you buy a car (ie. do you need an extended warranty with that?).
How else do you think that all the big banks hit record earnings/profits every single quarter? In Q1 2017, Royal Bank (RBC) reported $3B in net income (earnings). Yes, that’s 3 billion in profit over three months! Bank earnings generally come from capital markets, credit cards, loans, insurance, and retail (chequing accounts etc). You will notice that chequing account fees (or minimum balances) go up every year, and they do that to keep up with earnings expectations.
As a dividend investor, I look forward to seeing big bank dividend increases coming from their rising earnings. However, the issue I have is when they take advantage of people who really don’t know the difference. Readers of this blog will know the difference financially between what products they need and don’t need. However, there are many people that simply do not understand finances, and think that the bank has their best interest at heart.
If you are new to finances, and a salesperson or financial advisor asks you if you want a new product/service, the questions to ask are:
- How much will it cost?
- What are the benefits to me?
- What are the drawbacks? and, if you really need the service/product,
- Are there other lower cost solutions available?
If you don’t understand the real benefit of the new service, then you probably don’t need it. It’s in your best interest to keep your fees as low as possible, and anything that goes against that should be questioned.
“We Cannot Index your Portfolio”
After writing my post on index investing for people who already have mutual fund accounts with a big bank, I’ve had a number of emails on the topic. Since it’s RRSP season, a friend of mine, Barry, starting talking about his actively managed balanced mutual fund that he owns. As you can probably guess, my first question was: “What is the management expense ratio (MER) of that fund?”
The response? 1.99%. While 1.99% isn’t the end of the world, my friend could have a better performing portfolio by selecting lower cost index mutual funds. I’ve explained how to pick bank mutual funds in detail here, but the gist of it is that he can create his own, lower cost, balanced fund by using four index mutual funds consisting of:
- Canadian index;
- US index;
- International index; and,
- Bond index.
All of the big banks have their own versions of the index funds above, with MERs typically within the 1% range. So if my friend can reduce his portfolio drag from 2% to 1%, it can lead to a 30% larger portfolio after 30 years.
Armed with some new knowledge, Barry made an appointment with his mutual fund advisor to switch his balanced fund to a portfolio of index mutual funds. When he inquired about the process of switching, he was first assured that “1.99% MER isn’t bad”, then was told that “we cannot index your portfolio”. While Barry was confused, being true to the Canadian way he accepted what he was told, and invested in his usual balanced fund.
When he reported back what he was told, I first felt angry, then just plain dissappointed in that “advisor” and the affiliated bank. What ever happened to putting the client first? I suggested to Barry to email the specific index funds to the advisor in case there was any confusion. It has been a couple weeks with no response. Needless to say, this situation has motivated Barry enough to set up a self-directed account with a discount broker.
I’d like to finish by saying that when it comes to your money, no one cares about it more than you do. So take care of your money, keep your costs low, and your wealthy future self will thank you for it.