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You’ve had a savings account with Royal Bank of Canada (or Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, wherever) for years. You’re tired of the infinitesimal interest rate you’re receiving, so you decide to do something about it.

You ask the teller (yes, some branches still have them) what the options are. An RRSP? A TFSA?

“Wait just a moment,” he says. “I’ll see if Ms. Smith is available.”

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A few minutes later, you’re escorted to Ms. Smith’s office. There’s a name plate on the desk, identifying her as a financial adviser. She greets you warmly, makes a little small talk, then gets down to the serious business of how much you want to invest and what your goals are. She dutifully enters all this information on her computer, asks a few more questions, then pushes the print button.

She slides a piece of paper across the desk. You check it out. It’s a list of Royal Bank (or TD, or CIBC, funds). There’s nothing on it from CI Financial, AGF Investments, Fidelity or any of the other independent mutual fund managers.

“Thanks,” you say, “but my friend tells me he’s done well with Beutel Goodman American Fund. It’s not here.”

“Sorry,” Ms. Smith says. “We don’t offer that fund. Or any others except ours.”

This is a scene that’s going to be enacted countless times in the coming months as we approach the introduction of the “Know Your Product” (KYP) rule at year-end.

The rule is supposedly designed to help consumers by forcing advisers to focus on the funds best suited to a client’s needs instead of those that pay the highest commissions.

In reality, it will greatly limit investors’ choices. The banks are by far the largest sellers of retail mutual funds. Until now, they have pushed their own funds but also offered some third-party options. The three banks mentioned have now announced they will no longer do that. It’s their products or nothing. The rest will likely follow suit soon.

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The banks argue that this will allow their advisers to develop more in-depth knowledge of their own funds, thereby enabling them to better serve their clients. That seems like a stretch. Independent financial advisers are expected to be knowledgeable about a wide range of products and to choose the best among them for clients. The bank’s argument implies its own people can’t be bothered to do that.

Let’s understand the real motive here. By eliminating third-party funds, the banks hope to force more money into their own products, thus building their wealth management base and the fees associated with it.

The solution is simple: Don’t deal with your bank’s financial adviser. Rather, open an account with a brokerage firm (discount or full-service, whichever suits you best). They will continue to offer a full range of products, including ETFs.

The banks are taking advantage of a rule that was supposed to benefit investors to pad their own bottom line. Don’t let them get away with it.

Gordon Pape is the editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

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