The chief executive of the Canadian Association of Retired Persons said Canada’s biggest banks are ‘not interested in putting clients and seniors’ best interests and financial security ahead of their profits.’Fred Lum/The Globe and Mail
The head of Canada’s retirement association is calling out Canada’s largest banks for failing to address harmful sales practices used by branch employees that were flagged by investment regulators in a report last summer.
Anthony Quinn, chief executive of the Canadian Association of Retired Persons (CARP), has posted a public letter criticizing the Canadian Bankers Association for not adjusting these practices, which he says were found to be “predatory” on about six million Canadians who invest through bank branches.
The public criticism arises after two letters were exchanged last year between Mr. Quinn and CBA chief executive Anthony Ostler in the wake of a regulatory review that found several concerning sales practices at five bank-affiliated mutual-fund dealers in Ontario. The dealers are BMO Investments Inc., CIBC Securities Inc., Royal Mutual Funds Inc., Scotia Securities Inc., and TD Investment Services Inc.
In an online blog posted on the CARP website last week, Mr. Quinn said he was publishing the CBA letter because it had become clear that Canada’s biggest banks are “not interested in putting clients and seniors’ best interests and financial security ahead of their profits.”
The review of the sales practices at Canada’s Big Five banks was published last July by the Ontario Securities Commission and the Canadian Investment Regulatory Organization and included responses from 2,862 mutual-fund advisers.
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Among the findings, regulators said mutual-fund advisers face a high degree of pressure to meet sales targets, which can lead to products or services being offered that are not in clients’ best interests.
The review found that 24 per cent of individuals who sell mutual funds said clients “have been recommended products or services that are not in their interests” at least “sometimes,” while 33 per cent reported that clients “have been provided with incorrect information about products and services being recommended to them.”
And while some advisers felt the range of products they are able to offer is satisfactory for their clients, more than half of advisers surveyed said “scorecards” – a common tool used by the banks to track adviser performance against job targets – add “significant” pressure on them to increase sales. Forty per cent said the scorecards influence the product and service recommendations made to clients.
OSC chief executive Grant Vingoe said at the time of the review that while many bank representatives are prioritizing quality advice, the review made it clear that sales pressures and incentivization may be “driving concerning behaviours.”
Regulators did not provide policy recommendations to the banks in its report, but said that given the results, the bank-affiliated mutual-fund dealers should conduct an assessment of their sales environments.
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In a statement to The Globe and Mail, the CBA said it shares a common goal with CARP, “ensuring that seniors, indeed all Canadians, receive transparent, fair, high-quality financial service from their banks.
“We would welcome the opportunity for further dialogue with CARP’s leadership should they wish to engage with us,” the statement said.
CARP reached out to the Canadian Bankers Association in November when Mr. Quinn sent a letter expressing his concerns about the regulatory review on behalf of his members – which include 250,000 older Canadians. He said that the best interest of retirees is not being served adequately at bank branches.
“These are systemic failures that disproportionately harm older Canadians, many of whom have been loyal to the same bank for 50, or even 60-plus years,” Mr. Quinn wrote. “The impact is real: underperformance compounds, savings evaporate, and trust, once broken, is exceedingly hard to restore.”
In his letter, CARP called on the banks to take “concrete steps to restore public trust” and “demonstrate leadership in responsible financial stewardship.”
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Specifically, CARP requested that the banks adopt a higher fiduciary-duty standard for all financial advisers that is not driven by internal product sales targets.
As well, CARP asked the banks to increase the transparency and choice of products offered to customers by allowing branch-level advisers to offer non-bank-affiliated investment products equivalent to the choice that is offered to higher-net-worth investors.
“Canadians should not have to wait for regulators to clamp down on harmful practices,” Mr. Quinn wrote. ”Nor should CARP be forced to advocate to policy-makers to legislate what should already be fundamental: that banks put the best interests of their clients, young and old, ahead of internal quotas and conflicted product offerings.”
The CBA’s Mr. Ostler responded in a letter dated Dec. 9, saying that while the banks take the feedback provided by the OSC and the Canadian Investment Regulatory Organization (CIRO) seriously, the survey reflects the sentiment of a select group of respondents in Ontario only.
“It does not verify behaviours identified through a formal review or investigation,” Mr. Ostler wrote.
The CBA said the banks are co-operating fully with a formal review that was initiated by the OSC and CIRO as a result of the survey, which “remains ongoing.”
Mr. Ostler said bank representatives receive training and are required to adhere to codes of conduct that articulate “clear expectations related to integrity.”
As well, he said, under regulatory rules, bank-owned dealers are required to identify and resolve any conflicts of interest, including those linked to compensation structures and to put client interests first when making investment-suitability determinations for the relevant client.
Mr. Quinn, however, says he is disappointed at the CBA’s satisfaction of the bank’s status quo, or how the CBA in its letter played down findings made by the OSC and CIRO.
“When faced with uncomfortable truths, big organizations sometimes attack the credibility and validity of the source,” Mr. Quinn posted online.
“Seniors deserve a respectful response on what the banks are going to do to address concerns. Not a feckless non-response that questions and downplays the report.”