A federal agency has stripped away any remaining pretense that banks are trustworthy providers of advice, assistance, guidance, help or anything else along those lines.
The Financial Consumer Agency of Canada said in a report issued Tuesday that the corporate culture at the Big Six banks is sharply focused on selling products and services, and that there are insufficient controls in place to protect clients from aggressive sales practices.
The FCAC has some ideas on improving consumer protection for bank customers, all of which sound worthwhile. But there's more to this problem than profit-hungry banks pressuring employees to squeeze customers. We live in a country that is way too impressed with the financial industry and grants it all kinds of liberties. We encourage the banks to be predators by acting like sheep.
A series of CBC reports last year highlighted how banks lean on their staff to meet sales targets. Unnamed bank employees told of increasing customer credit limits without authorization and putting clients in unsuitable mutual funds. It's important to note that the FCAC didn't find widespread examples of unsuitable products being sold to a client.
But the federal agency does make it clear in its report that banks are product sellers who sometimes go too far. That's sales. When your living depends on closing deals, you can easily get overly aggressive.
As consumers, we're ready for that experience when we buy cars, renovate our homes and more. But banks intimidate us into a state of compliance. The writer Stephen Leacock summed this up long ago in a story called My Financial Career: "When I go into a bank I get rattled. The clerks rattle me; the wickets rattle me; the sight of the money rattles me; everything rattles me. The moment I cross the threshold of a bank and attempt to transact business there, I become an irresponsible idiot."
Today's bank branches should be called financial retail outlets, or maybe money stores. The FCAC report notes that technology has enabled banks to focus less in their branches on handling transactions for clients and more on selling things like mortgages, lines of credit, savings and chequing accounts, mutual funds, term deposits and more.
As in any sales-based operation, bank branch employees are compensated to at least some extent according to the amount they sell. The FCAC said frontline bank staff are mainly on salary, but they also receive variable pay based on their performance as well as the results achieved by their team and the bank. Compensation for managers includes a bigger percentage of variable pay.
Some people seem to understand that bankers are sales people. If these customers don't get the deal they want, they try a mortgage broker, an independent investment firm or a new financial technology company. But savvy consumers are a minority. If you talk to anyone trying to build a business as an independent player in the financial field, they'll tell you it's brutally hard to pry customers away from the banks.
The banks exploit this loyalty by encouraging and sometimes pressuring their employees to rack up sales. To address this, the FCAC recommends that banks take steps like prioritizing consumer protection, fairness and product suitability, improving oversight of customer complaints and tying employee incentives to the best interests of customers.
But that only fixes half the problem at best. Also needed is a reconfiguring of the considerable efforts being made to improve financial literacy in Canada. Way more time needs to be spent on teaching people bank literacy. The curriculum might look like this:
- Banks are vendors of financial products, not advisers;
- The products a bank urges you to buy may not be suitable for your needs;
- Banks work primarily for their shareholders, not their customers;
- For every product a bank sells, there is almost certainly a cheaper, more customer-friendly alternative available from an independent competitor.
Unfortunately, banks are big players in financial-literacy initiatives in Canada. In return for their financial contributions, banks get to polish their image in the same way as a soft-drink or fast-food company that supports fitness or good eating habits. Can a credible, national financial-literacy program exist without bank support? Let's find out.