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A few big banks recently made a strong policy statement on balancing the need to sell products with providing objective financial advice.

They chose to emphasize selling over advice, thereby undermining both the service provided to clients and the credibility of the entire financial advice business.

All this is fallout from decisions by Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank to stop selling mutual funds from outside companies through their financial planning arms.

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Banks introduced planners to their operations many years ago as a way of broadening their service and selling more in-house products. Third-party mutual funds were included on the list of available investments to add to their credibility as advice-providers. Planners could tell clients their portfolios were built with the best available funds, and not just from what the bank had to offer.

Now, planners at these three banks will sell bank funds only. There are adequate or better funds on each bank’s shelf, but nothing close to best – or nearly best – in all asset classes. If you’re a financial planning client of a bank that has stopped selling third-party funds, it’s time to schedule a chat about the future. Make the subject line of the e-mail to your planner read something along the lines of “What the hell?!”

Three options if you want to move an account away from a bank planner newly restricted to in-house funds: An adviser at an independent company, an online brokerage for a DIY investing experience or a robo-adviser, where you blend the cheapness of DIY with some help in portfolio-building. Banks themselves offer third-party funds through their online and full-service brokerage businesses.

As reported by my colleague Clare O’Hara, banks that stopped selling third-party funds have linked the move to a new rule guiding the conduct of investment advisers. The rule is called KYP, for know your product, and will be introduced later this year. The point is to require advisers and their firms to have a deep knowledge of the products they sell and have procedures in place to properly assess and approve them.

Preparing for KYP by eliminating third-party funds is how the banks chose to emphasize selling products over advice. Funds are a lucrative business because the fees applied against returns – you always see net returns as an investor – add up to billions of dollars in total. If banks sell in-house funds instead of outside products, they scoop up more fee revenue.

The decision on third-party funds comes at an interesting time for the financial advice business. It fought off an attempt several years ago by regulators to require advisers to work to a fiduciary standard, which means client interests take precedence. But the advisers continue to evolve as a profession of trained experts providing objective advice. KYP and similar rules coming into force were to advance this cause.

Now, a setback. Three big banks are degrading the brand of advice by effectively turning their planners into sellers of bank products. How are investors supposed to distinguish between those hogtied bank planners and other advisers and planners who objectively compare funds and recommend the best?

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The muddying of the word adviser by banks is actually a broader problem. More and more, the words adviser and advice are being used to lure customers in bank branches with promises of helpful interactions with staff.

The homepage of the website for Bank of Nova Scotia mentions ScotiaAdvice+, which offers a plan for reaching your financial goals; the CIBC website says “Advice for Today: We’re here to help you”; TD’s website announces TD Ready Advice: “We can connect you with an advisor who can work with you through your personal financial journey.”

There is no national standard on what it means to be an adviser, although Quebec regulates use of the term financial planner, and both Ontario and Saskatchewan are working on implementation of regulations to limit use of the terms financial planner and financial adviser to those with specific qualifications.

Even with regulation of titles in place, it remains possible for advisers to sell products that benefit them or their companies ahead of clients. In that sense, it’s helpful that CIBC, RBC and TD have clarified things by ordering their planners to stop selling third-party funds. What they’re telling you is that they put the emphasis on selling rather than advising.

Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.

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