On March 20, 2018, the FCAC issued a report dispelling any myth that the Big 6 banks are friendly, supportive institutions – or even neutral. The FCAC report said that the banks had too much of a focus on selling products and services. It warned that they lacked sufficient controls to protect clients from overly excessive sales practices.
This isn’t new information, since a series of CBC reports last year revealed how banks push employees to meet sales targets. The CBC reports featured employees talking about unauthorized credit limit increases and putting someone’s money in unsuitable mutual funds. However, the FCAC didn’t find this to be widespread. The culture, though, is focused on selling products and services regardless of customer needs.
Instead of calling the Big Six banks, we could call them financial retail outlets. It is certainly a reasonable association when frontline bank staff receives variable pay based on performance metrics like how many new accounts their customers open. Their managers receive an even larger percentage of their pay based on performance metrics like how many lines of credit and new accounts the customers open.
Why the change? The FCAC report says that technology allowed banks to shift away from customer service at the counter and the service desk and more toward selling financial services. There’s certainly incentive to do this given that they can make money when someone opens a new account, mortgage or line of credit.
A larger share of the public is coming to see banks as the financial services firms they are. And a good number of them understand that their bank won’t necessarily give them the best interest rate on a mortgage, so it is worth their while to consult with a Calgary mortgage broker as well. Unfortunately, many customers literally pay the price in assuming the bank will offer them the best rates because of the long-standing relationship.
The FCAC report recommends that banks take more steps to protect customers. It said they should prioritize consumer protection and fairness. It said they need to improve oversight on customer complaints. Another recommendation was to tie incentives to what was in the best interest of customers instead of sales quotas. Yet this is only half of the solution. The other half is improving financial literacy of the public.
So what does the public need to know?
- Banks are financial service providers, not neutral financial advisers. Yet they may pretend to be neutral in order to sell you products or service.
- What a bank tries to sell you may not be suitable to you or the best rate on the market.
- Banks have one main obligation – to their shareholders.
- Just because the bank offers you a product or service does not mean it is the cheapest or best option available. And they often take advantage of the fact that you’re loyal to them to convince you there’s no need to shop around.
- You don’t have to use a bank for every financial product. You can shop for a mortgage through a mortgage broker and invest through other types of financial institutions.
- Credit cards and other loans are the most heavily marketed products on the planet because of the profit they generate for the institution.
Why don’t people know these things? In part because banks help shape financial literacy programs in Canada.