The CBC’s Marketplace recently aired a hidden-camera exposé on the practices of the big banks that showed how employees put profits ahead of the interests of clients.
The report videotaped employees recommending too costly or otherwise inappropriate financial products to clients and providing misleading or erroneous information about the investments they were recommending.
The program also interviewed current and former employees who said they were under intense pressure to meet sales targets, leading them to push products on customers that they didn’t need or were potentially harmful to their finances.
It seems little has changed since the CBC aired a first investigative report about bank sales practices in 2017. Back then, similar revelations led more than 3,000 current and former bank employees to contact the CBC to share their experiences of how client interests took a back seat to meeting aggressive sales targets.
That prompted the Financial Consumer Agency of Canada to conduct a review that found a “sharp focus” on sales increased the risk that banks were placing sales ahead of the interests of clients.
Among the troubling hidden-camera exchanges shown on the latest CBC investigation were bank advisors providing misleading or erroneous information about the fees charged by the mutual funds.
Advisors in bank branches typically hold licenses that permit them to sell mutual funds but not stocks and bonds. They are rewarded for selling their bank’s lineup of expensive actively managed mutual funds, which generate far higher profits than index funds or GICs.
It may surprise you to learn that most advisors who sell investment products to Canadians are not legally required to put the interests of clients ahead of their own.
Instead, they must meet the lower standard of ensuring the products they recommend are suitable for a client. While products may be suitable for your portfolio, they may not be the least-expensive or most efficient option, a category that includes the high-fee proprietary mutual funds that bank employees most often sell to clients.
In recent years, regulators have improved protections for consumers through what are known as client-focused reforms.
These new rules include protections against conflicts of interest and a so-called “know your product” requirement. Under the latter rule, advisors must “take reasonable steps to understand the securities they purchase, sell or recommend to you…This means they must make a suitability determination that puts your interests first.”
While we welcome these reforms, the Marketplace investigation shows that abuses are still occurring in the sale of financial products, including by the banks, which dominate the industry in Canada by virtue of their size and reach.
The gold standard for investor protection worldwide is the fiduciary standard of conduct. Dealing with an advisor who operates under a fiduciary standard means they:
The Canadian financial industry has consistently resisted efforts to adopt a fiduciary standard for advisors even though it’s the law in Britain, the European Union and Australia.
At present, only certain types of advisors operate under a fiduciary standard in Canada, including portfolio managers and, in Quebec, financial planners accredited by the Institut de planification financière.
I am proud to say that since PWL Capital’s founding our portfolio managers have voluntarily acted according to a fiduciary standard. We are accredited by the independent Centre for Fiduciary Excellence (CEFEX), meaning we act according to the principle that our clients’ interests must come first in all our interactions and decisions.
CEFEX-accredited firms adhere to the Global Fiduciary Standard of Excellence. To obtain this accreditation, PWL was required to undergo an extensive “best interest” review—and to maintain the status, we are audited annually by CEFEX.
Until the industry uniformly gives the same priority to putting client interests first as we do at PWL Capital, the best advice I can offer to those who aren’t clients of our firm is to guide yourself by the Latin warning: caveat emptor. Buyer beware.
