Bank Financial Advisors Are Giving Bad Advice #Finance

ladies and gentlemen welcome to the plane Bagel I’m your host Richard coffin it’s no secret that when it comes to non-registered financial advice that you can come across online through sites like YouTube Reddit or Tik Tok you have to be incredibly careful not only might the

information be uh inappropriate for your situation or slightly misrepresented it can be blatantly wrong or even harmful but there’s been a long-standing issue when it comes to registered Financial advice that we’ve recently seen more discussion around thanks in part to a Reddit post

that recently circulated as CBC investigation here in Canada and even here on YouTube with the CashNews.co posted by Benjamin Felix another Canadian Portfolio manager YouTuber uh with the issue at the heart of all this being the conflicts of interests and at time just blatant bad

advice you can get from registered financial advisers specifically those that come from Bank branches you see well it’s probably true that you won’t get the yellow stock picks or wild none;">Cryptocurrency predictions we’ve nonetheless seen a number of examples of Bank advisers putting clients into products and services not appropriate for their situation for the sake of making the bank more money now this isn’t exactly a shocker in Canada banks are known for

their High fees and other issues and in the US obviously Wall Street never had an amazing reputation outside of certain Profit motives contributing to the 2008 financial crisis you might remember back in 2018 when Wells Fargo had its asset sized capped after a scandal involving the

unauthorized cross- selling and opening of client accounts but the mentioned rapos and CBC investigation really brought to light how bad it can get at times and while the post specifically involveed Canadian Banks it’s a pretty common problem across countries now personally as someone who

works in the Finance industry and and has been well aware of these problems for some time it’s something I’ve always found incredibly disheartening about

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance I’ve always viewed the financial advisor role as something that should be akin to a medical professional uh whereby you have a well-educated and experienced expert getting to know

a client situation and making recommendations accordingly in other words someone who owes the client a fiduciary Duty similar to a doctor whereby you must put the client’s interests above your own but unfortunately here in Canada and in many other countries that’s not always the case

there are many advisers who do have that legal responsibility and even at a bare minimum all advisers in Canada and the US are required to ensure a degree of suitability with whatever they’re selling to their clients but the idea of the fiduciary duty only exists with certain types of

registrations which aren’t that common with Bank branches quite frankly a lot of advisor roles are really just structured to be sales positions with many having explicit sales targets and commissions for getting clients into certain products which is a pretty severe conflict of interest and

why I wanted to discuss it in today’s CashNews.co because while I’ve always encouraged individuals seeking out explicit Financial advice to reach out to a financial professional and I still stand by that it is important to acknowledge the shortcomings that come with some registered

Financial advice and the important point that not all advisers are created equal it’s important to be able to differentiate between the positions understand some of the common practices and the steps you can take to better protect yourself now before going any further I do want to acknowledge

that as mentioned Ben Felix likewise did a CashNews.co on this exact topic and I highly recommend you check it out he brings up some really interesting research reports on this topic uh but I nonetheless wanted to cover myself even though some of the sources I cover will be redundant with his

because a I was already working on it uh when his CashNews.co came out so how dare you Ben and B because I think it’s a really important topic that deserves attention I know I’ve always harped on the not Financial advice you can come across online that doesn’t absolve the problems

we see with traditional Finance and registered Financial advice and I think it’s important to shine a light on these issues so that people go into it with a More Level

Playing Field and hopefully we can see some change over time but with all that out of the way let’s hop into it and we’ll begin with the Reddit post mentioned earlier which was posted on the subreddit personal color: #1a73e8; text-decoration: none;">Finance Canada it was titled as a TD employee the sales culture is disgusting TD if you unfamiliar is one of the big five banks in Canada also the name behind the TD Mar trade service in the US albeit they recently sold a big chunk of that and in

this Reddit post the poster who claims to be a financial adviser for TD talks about how they’re continually pressured to put clients into products and services that aren’t inherently appropriate for their financial situation with them highlighting a few examples one includes a manager

questioning why the adviser put a client into a GIC instead of a mutual fund even though the client highlighted that they need the money in one year’s time with manager suggesting they manipulate the time Horizon in their system because quote fual funds count more towards your quarterly goals

another includes being scolded because he allowed a client to not renew their GIC and didn’t look for quote investment opportunities even though again the client said that they needed the money for an expenditure and while I do believe there were more examples provided that’s all we can

get with the way back machine because the Reddit post is now actually deleted which sadly I’m guessing is because the bank either found out about it or the individual was just nervous about losing their job given that the post was starting to circulate now some might look at that and think

well that’s not the worst type of financial advice you come across and that’s true to an extent but it nonetheless does demonstrate the bank prioritizing sales targets over what’s appropriate for a client for a position where the client is supposed to be trusting someone for

giving objective Financial advice generally speaking you shouldn’t be investing in the Stock Market unless you’re able to not touch that money for an extended period of time certainly over a year and well one might hope that this is just an anecdotal example

that’s not representative not long after this post circulated on Reddit we actually saw investigative journalist Erica Johnson over at CBC News Marketplace released an investigation on this exact topic whereby they interviewed current and former employees and used hitting cameras to unveil

some of the high pressure sales tactics being used at Bank branches and it revealed some pretty daming practices in the interviews employees highlighted examples where they themselves were pressured to put Branch interests above their clients we’re there to sell and make money for the bank

with some highlighting explicitly that they often weren’t acting in the client’s best interest but rather just trying to meet their sales Target targets to avoid being fired meanwhile with the hidden cameras they often found advisers giving blatantly bad advice again to try and meet

sales targets some told customers not to worry about investment fees or couldn’t correctly explain how their fees work even blatantly misrepresenting the fee calculation at times at 1.9% also be taken from the 50,000 um it no it’s not taken out from your own principle there also a

number of advisers telling clients to invest in their High mutual funds even when they had $117,000 of Credit card Debt they could pay off well some of the stuff was honestly just as bad as what you might find online average interest you will get at least 10%

absolutely more than 10% which is not only a bad look a lot of it’s actually illegal as highlighted in the investigation the Canadian Bank act explicitly prohibits a lot of this activity highlighting that Banks cannot take advantage of people and further that Banks shall not communicate false

or misleading information which raises the question that if this is illegal why is it still happening well there there’s a few factors worth considering but the first biggest one which we’ve already touched on is that a lot of it is just the incentives that the advisers face in terms of

their compensation and their sales targets because as the late Charlie Munger once said show me the incentive and I’ll show you the outcome unfortunately for the vast majority of Bank advisor roles the work culture is heavily focused on sales and a lot of compensation can be either directly

or indirectly tied to the number of products you’re able to sell either from trailing commissions which are paid to you regularly for selling certain types of mutual funds or things like sales targets which might not only benefit someone who say is a top performer in their bank but can even

stand as a threat to employees who don’t sell enough with a lot of employees having the fear of losing their job if they don’t meet these objectives which obviously can be a bad idea when some of those products explicitly work against a client such as with Credit card

Debts and high fee bank accounts but even when it comes to investment products like gic’s and mutual funds it can cause problems when those things aren’t appropriate for a given client this applies everywhere but it’s especially true here in Canada given that we

actually have a reputation for having some of the highest mutual fund fees globally with a recent Morning Star Global investor experience report highlighting a median fee of around 1.76% for Equity Funds Without Really any evidence that these funds outperform cheaper index funds so

right away it’s no surprised why we see some of these issues but there’s another problem worth considering which is that at times advisers can be undereducated now I want to be very clear that even when it comes to bank branch advisors this is not to claim that every individual who

works in these positions is undereducated or even prioritizing their own interests over their clients but for banks it is much cheaper to hire salespeople with the bare minimum level of requirements and education rather than a Workforce of expert financial planners in fact according to glass door

the average base pay range in Canada for a bank advisor is 41 to $447,000 so without considering commission the base pay is around the median Canadian salary and only marginally ahead of the highend of retail Associated salaries for position that most people would assume requires a high degree of

education and expertise but that doesn’t really matter for banks what really matters is getting employees who can bring customer money into their products uh whether or not they are an expert financial planner and in Canada while the term advisor is technically protected and does require a

degree of registration the bar isn’t particularly high and there are plenty of different methods for becoming registered and being able to call yourself an adviser with a common one for banks being a mutual fund dealer meaning that the person is only legally allowed to sell mutual funds but

leads to a lot confusion given that both dealing representatives and Advising Representatives where fuer duty is owed can both call themselves advisers which is a similar situation we see with Broker dealers in the United States and as mentioned by the CBC investigation there were

a number of examples where advisers didn’t even understand the products that they’re registered to sell which is a pretty important detail so there’s clearly some Gap that exists here so again you can see a conflict of interest and the gaps that exist with these positions uh but

the final reason why again we still see this activity despite it being illegal is that we haven’t seen a whole lot of action to rein this stuff in let’s not to say there hasn’t been any progress cracking down on conflicts of interest in 2022 for example with Canada Banning

deferred sales charges fund companies are no longer allowed to pay an upfront sales commission for mutual fund sales but with that CBC investigation coming out recently after these regulatory changes there’s still clearly a lot of problems in fact the investigation was actually a followup to

one from roughly 7 years ago with the finding more or less a lot of the same issues and the former investigation did prompt a review by the financial consumer agency of Canada to see how bad the problem really was and while the report did highlight that the sales practices of these Banks increased

the risk of Miss selling and that current controls put in place are insufficient it didn’t go far enough to claim that this Miss selling was happening at a widespread scale with the report highlighting quote fcac did not find widespread Miss selling during its review which while could be a

good thing if it means that these examples are anecdotal and not reflective of a bigger problem that part of the report was only added after a review by the bank which you can see the bad Optics that come with that so it’s easy to see why when you have these three factors in play how these

problems are going to come to the surface and it would be easy to look at the individuals in this circumstance the manager from the Reddit post and the specific advisers from the CBC investigation it’s pretty clearly a more systematic issue something I became very aware of after graduating

University is that the vast majority of Finance positions out there especially for new entrance are sales positions and if you want to enter the

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance field you’re more than likely going to have to start in one of these roles as was very lucky myself with the positions I had but I recognize how rare it is to have a low press analyst role as a relatively

young professional in the industry and these advisers when they start off aren’t making a killing they’re told that if they want to make more money and at times that they want to keep their job they have to meet these targets that’s not to condone this activity and we should

certainly still criticize when we see advisers giving bad advice given the severity of the situation and how important Finances are for people but it does help to explain why

this is more of a structure issue than a few bad apple professionals so given all this what should people do when they want to get explicit Financial advice from a registered professional well obviously here I’m going to have my own biases given that I work for a certain type of company but

there are some commonly agreed on steps that you can take when deciding to work with an adviser and some other considerations to have that should better protect yourself for one there’s education and doing a bit of research I understand not everyone’s going to get to the level of being

a full autonomous uh Financial professional uh but even just doing a little bit of research into the products and uh information that you’re specifically interested in can really help you when reaching out to a professional you have to be careful and cross check the information you come

across online especially when it comes from forums and uh more social media sites but if nothing else it’ll help you prepare a list of questions you can bring up with the adviser and help you better evaluate the information the advisor provides you secondly it’s worth considering the

credentials the registration the disclosures and the incentives of the adviser that you want to work with again here I’m going to have my biases uh but credentials do demonstrate an advisor’s commitment to further education beyond the basics uh I myself have the CFA and cfp which are

pretty well regarded uh but there’s also other uh credentials like the new cfp in Canada which is causing some drama actually but we also have the cim and the pfp uh other countries will have their own specific designations but internationally uh the CFA and cfp are international CPA if you

want to work with an accountant chartered financial consultants which are similar to certified financial planners and there are quite a few other well-respected designations in the field of financial advice that we can consider all of which do have their own specialized Focus so it’s worth

considering that uh but again do demonstrate this education beyond the basics as well as an adherence to a code of ethics or standards of professional conduct that typically demand further Integrity beyond the minimum if these members want to maintain their designation you can also look up an

adviser to see their level of registration and any disciplinary action taken against them or other disclosures such as complaints which obviously are worth knowing about who you’re going to have manage your money in Canada you can see whether someone is registered as a dealing representative

or an advising representative with again the latter having that fiduciary obligation and in the United States registered investment advisers and their investment advisor Representatives likewise owe that fiduciary duty to their clients compared to other Broker dealer and other

arrangements I’ll include links for the Canadian and US websites where you can look up these details in the description below finally you have a right to understand how your advisor is compensated so it’s worth asking about it to see whether they’re paid a commission for the

certain products they sell or if there’s some other Arrangement which Speaking of while bank branch advisers obviously stand out as a first choice for many given that we deal with banks for many other types of products there are a lot of other alternatives to finding an advisor out there

worth considering there are Credit Unions which operate like Banks but might have a better incentive structure as well as companies that Focus only on uh Investment Management so there’s not this sort of incentive to say try put you into to a Debt product of

some sort uh there you can have independent wealth managers where the compensation isn’t tied to the specific Investments they put you in or the funds they put you in as well as fee only planners whereby uh there’s this flat upfront fee charged or perhaps a variable fee

of some sort but that fee is for financial plan which will make investment recommendations without having any compensation tied to the Investments themselves and regardless of who you move forward with it’s important to vet the company and the adviser I’ll actually

include a link to this list of questions to ask your adviser from the government of Canada’s website as I I think it does a good job of covering all the bases of what you should know going into a relationship I’ll take a quick moment to highlight that if you only need an investment

solution and not necessarily that advisor side of the business where perhaps you do have more education there are plenty of options there as well a part of the reason why mutual fund fees are so high is that part of that is intended to compensate the adviser for giving you advice uh so you can have

cheaper Solutions if you strip that aspect out that includes things like self-directed Brokerages Robo advisors where uh there’s an algorithm deciding which Investments you put in as well as many other Solutions out there the thing is you can always switch

between these options perhaps you don’t feel like you need advice right now you just want to get started investing and then later on in life if you feel like your situation gets a bit more complicated then you can reach out to an adviser and have more guidance on that front and I’ll

leave a link in the description for finding local advisers given that a lot of the time people just aren’t aware of the vast array of options out there anyway those are the steps you can do to hopefully better protect yourself and I still am of the belief that advisers can add tremendous

value to their clients again a bit of uh bias there but I think in a day and age where a lot of people are heavily undereducated when it comes to Finances there’s a lot

that can be gained from this professional guidance especially for even those with a base level understanding when you get towards more complicated situations like trusts estate planning tax efficiency things of that sort where their expertise does play an important role but it’s important to

identify and understand when a conflict of interest exists and what you can do to better mitigate it so hopefully this CashNews.co helped with that if you found it did please do make sure to like subscribe all the good stuff it does help the channel tremendously and let me know your thoughts on all

this down below especially if you are an adviser who works in the industry whether it’s for a bank or for another company I’d really love to hear your input on all this obviously I’ve given my two cents but I’d love to hear other people’s opinions anyway thanks for

joining me today and as always be safe out there by