A few major banks recently issued a strong policy statement on balancing the need to sell products with objective financial advice.
They have chosen to focus on selling rather than advice, thus undermining both the service provided to clients and the credibility of the entire financial advisory business.
All of this is a fallout from decisions by the Canadian Imperial Bank of Commerce, the Royal Bank of Canada and the Toronto Dominion Bank to stop selling mutual funds from offshore companies through their financial planning arms.
Banks introduced their operations planners many years ago as a way to expand their services and sell more in-house products. Third party mutual funds have been included in the list of available investments to increase their credibility as advisors. Planners can tell clients that their wallets are built with the best available money, not just what the bank has to offer.
Now, planners in these three banks will only sell bank money. There is enough or better money on every bank’s shelf, but nothing close to best – or nearly better – in all asset classes. If you’re a financial planning client for a bank that has stopped selling third-party money, it’s time to schedule a conversation about the future. Have the subject line of the email directed to your chart read something along the lines of “What the hell is this?!”
Three options if you want to move an account away from a newly restricted bank scheme with inland funds: an advisor at an independent company, an online brokerage to try out a DIY investment or a bot advisor, where you can mix DIY licenses with some portfolio building help. The banks themselves offer third-party funds through their online brokerage business and full services.
As my colleague Claire O’Hara reports, the banks that stopped selling third-party funds tied the move to a new rule guiding the behavior of investment advisors. The rule is called KYP, to know your product, and it will be introduced later this year. The point is that consultants and their companies require deep knowledge of the products they sell and have procedures in place to properly evaluate and approve them.
Preparing for KYP by eliminating third party funds is how banks have chosen to focus on selling products over advice. Money is a lucrative business because the fees applied to returns – you always see net returns as an investor – total into the billions of dollars. If banks sell internal money instead of external products, they reap more fee revenue.
The decision on third party funds comes at an interesting time for the financial advisory business. It resisted an attempt several years ago by regulators to require advisors to operate to a fiduciary standard, which meant that clients’ interests took precedence. But counselors continue to develop as a profession of trained experts who provide objective advice. KYP and similar rules that went into effect were to further this cause.
Now, setback. Three large banks are weakening the advice brand by effectively turning their planners into sellers of banking products. How are investors supposed to distinguish between associated bank planners and advisors and other planners who objectively compare funds and recommend the best?
The confusion of the word of the advisor is actually a much broader problem. The words of the advisor and advice are used more and more often to attract customers in bank branches with promises of beneficial interactions with employees.
Remember the home page of the Bank of Nova Scotia’s website ScotiaAdvice+, which offers a plan for achieving your financial goals; “Tip of the Day: We’re here to help” says CIBC’s website; The TD website advertises TD Ready’s advice: “We can connect you with a counselor who can work with you on your personal financial journey.”
There is no national standard on what it means to be an advisor, although Quebec regulates the use of the term financial planner, and both Ontario and Saskatchewan are implementing regulations to limit the use of the terms financial planner and financial advisor to those with specific data. qualifications.
Even with title regulations in place, it is still possible for consultants to sell products that are beneficial to them or their companies before clients. In this sense, it is helpful for CIBC, RBC and TD to clear things up by ordering their planners to stop selling third party money. What they tell you is that they focus on selling rather than giving advice.
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