Looking at the spotlight: Big Banks in Focus
If any of you paid attention to the news this past week besides the snow storm, a familiar face came to the stage again. TD Bank arguably one of Canada’s most powerful banks had some negative press - and while they say all press is good press shareholders did not like the news. In an article by the CBC former and current employees were quoted saying unbelievable sales targets were established many of times which were unethical and mis-aligned with the needs of customers. Advisors (yes money advisors that handle your investments) were quoted saying they put client’s money “in unsuitable vehicles just to meet goals” The report sparked fear among shareholders with the stock plummeting 5% - the most since 2008. The Canadian Bureau that oversees bank activities also launched an investigation looking at TD’s practices and that of the Big 5 to see how factual these reports are.
You can look at the article for yourself here
Benefit of the doubt: Now I know many people are saying that people have the right to say no to services and products which I agree with. If you are unaware of certain products & services do some research before signing up. I know many banks tempt people with limited time offers for loans and mortgages but the reality is the banks are in the industry to make money so those opportunities will re-surface for many consumers. People are liable for decisions they make and can’t blame others for their mis-steps.
Where I draw the line is when customer service reps (tellers) and other advisors are doing things that I am unaware of such as raising credit limits, applying for new cards and tacking on other services I never asked for just to meet sales targets. The reality is that in today’s capitalistic society everyone is out to get every penny from you (banks and other businesses included) the key is finding a product that puts your needs first.
What does this mean going forward?
People are saying this is like the Wells Fargo fiasco that happened a year ago and while I do not personally think they are of the same extremes this is not the kind of event you want happening especially as a bank. As a customer just keep an eye out on statements and accounts to see if there’s any unauthorized activity.
One of the things I wanted to address in this article (which does not target a specific bank in particular) is why I prefer avoiding financial advisors for money management. NOTE: These are not financial planners.
Another reason why I dislike going to advisors is due to the nature of the business and how they are compensated. For many advisors their compensation hinges on their ability to sell customers funds and if the consumer holds onto those funds for 90 days they receive their commissions. But the problem here is that the advisor is rewarded regardless of how well or how bad that specific fund does. So while you the consumer can lose the advisor walks away with his commission. In addition to this, in my own view I think advisors have fallen into this idea of a “one size fits all” mentality which cannot work for investments. What has happened is advisors will just do a basic risk tolerance and generate a pre-determined basket of shares for each risk level. Every person is different whether it be their time horizon, risk level or preference for certain products. A lot of advisors will only pay attention to your risk level ignoring other key aspects. In addition to this advisors seldom choose strategic moves such as dollar cost averaging (gradually purchasing units to average out your entry cost) or suggest index funds or ETFS which are lower in fees as it is in the advisor's interest to do so otherwise. In Canada for example, advisors only need to take a mutual funds license to be able to sell products - they do not need to have a fundamental understanding of the markets, the market movers, commodities, tax strategies and events that affect the overall environment. If your advisor were to incorporate these elements into their decision making process the outcome will be completely different.
Many of times and emphasis on the MANY, advisors do not care about your needs. They are only concerned with making their commissions and sales targets. Most of the major mutual funds charge 2-3% in management fees on top of other sales charges that eat away at returns. Once they have sold you on a product - that’s probably the last time you here for them until you have something else to buy. Although this is not the case with all advisors - it is what happens most times.
Disclaimer: All of the above information is my own personal opinion. Please note that in this article advisors is not the same as Financial Planners. These are two distinct roles. Please use caution and do your research before making any investment decision.