My bank finally caught on to the fact that I'm no longer a student and made me switch to a regular chequing account. Now I have to pay them $11 a month to keep my cash in their coffers—but they could be making a lot more off of me.
Driving the news: Industry insiders and consumer advocates are taking aim at Canadian financial institutions, saying the banks are operating more like retail spaces, guiding clients to buy products and services they don't need—all for the sake of higher profits, per the Globe and Mail.
- A 2018 Financial Consumer Agency of Canada (FCAC) study found that banks with a pervasive sales culture were likelier to recommend unsuitable and high-cost financial products to clients.
- The Bank of Nova Scotia was fined $1 million and ordered to return over $10 million in client funds last December after it was discovered that dozens of advisors had engaged in "egregious misconduct" to boost their sales figures.
Why it's happening: While we used to see banks as an alternative to stuffing cash in your mattress, they've evolved into something else—but Canadians are still complacent about and confident in them.
- Fee-based planner Jason Heath said while bank branches advertise advice, people are actually "getting a sales pitch masquerading as financial advice."
- Investment advisers earning commission on sales are motivated to put clients into actively managed but more expensive investments—these sales tactics have been unscrutinized by regulators.
Why it matters: Most people meet with financial planners to make their money make more money—but if your advisor only sees you as a stepping stone to a promotion or the sale that will win them a trip to Hawaii, is that advice you should take seriously?
- You might think a bank's financial advisor is legally bound to help you make the best choice to yield the best returns. And you'd be wrong about that.
- They are only obligated to provide you with "suitable" options, and their self-interest might get in the way of setting you up with budget friendly products.
Bottom line: Should you withdraw all your money from the bank and bury it in your yard? No. Banks still have a purpose, but as a consumer, you must educate yourself on their products and which works best for you—because your advisor won't loan you any cash if your investments tank.